-----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, H/Pclu3e4zcQnwSBm4jGKkXRsdWN1IluExjVHyJYd4Ucxbdi6RaGZhHf/gwbNhQc X4B9X43or7yurS8UW8iRlQ== 0000950144-97-003430.txt : 19970401 0000950144-97-003430.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950144-97-003430 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CORRECTIONS CORPORATION OF AMERICA CENTRAL INDEX KEY: 0000739404 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-FACILITIES SUPPORT MANAGEMENT SERVICES [8744] IRS NUMBER: 621156308 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13560 FILM NUMBER: 97569354 BUSINESS ADDRESS: STREET 1: 102 WOODMONT BLVD STE 800 CITY: NASHVILLE STATE: TN ZIP: 37205 BUSINESS PHONE: 6152923100 10-K 1 CORRECTIONS CORP. FORM 10-K 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 31, 1996 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-13560 ------------- CORRECTIONS CORPORATION OF AMERICA (EXACT NAME OF COMPANY AS SPECIFIED IN ITS CHARTER) DELAWARE 62-1156308 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 102 WOODMONT BOULEVARD 37205 NASHVILLE, TENNESSEE (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE: (615) 292-3100 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON ------------------- ------------------------ COMMON STOCK, $1.00 PAR VALUE WHICH REGISTERED ---------------- WARRANTS TO PURCHASE COMMON STOCK NEW YORK STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the Company (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 Company 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 the Company'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. [ ] The aggregate market value of the voting stock held by non-affiliates of the Company was $1,790,331,000 as of March 3, 1997, based upon the closing price of such stock as reported on the New York Stock Exchange ("NYSE") on that day. There were 75,794,053 shares of common stock, $1.00 par value, outstanding at March 3, 1997. DOCUMENTS INCORPORATED BY REFERENCE Parts of the Registrant's Proxy Statement for its 1997 Annual Meeting of Stockholders pursuant to Regulation 14A, which will be filed with the Securities and Exchange Commission no later than April 30, 1997, are incorporated by reference in Part III of this Annual Report. 2 ================================================================================ PART I ITEM 1. BUSINESS As used herein, unless the context otherwise requires, the "Company" means Corrections Corporation of America and its subsidiaries. Unless otherwise indicated, the information herein has been adjusted to give effect to (i) a 2-for-1 split on the Company's common stock, $1.00 par value (the "Common Stock"), effected in the form of a stock dividend declared on October 4, 1995 and (ii) a 2-for-1 split on the Common Stock effected in the form of a stock dividend declared on June 5, 1996. GENERAL The Company is the largest developer and manager of privatized correctional and detention facilities worldwide. The Company's facilities are located in 17 states, Washington, D.C., Puerto Rico, Australia and the United Kingdom. As of March 20, 1997, the Company had contracts to manage 59 correctional and detention facilities with an aggregate design capacity of 42,537 beds, of which 47 facilities representing 28,062 beds are in operation. The Company is currently developing 12 facilities and expanding four facilities representing an aggregate of 14,475 beds. The Company expects that all of the beds under development and expansion will be in operation by the third quarter of 1998. The Company owns 13 of the 44 domestic facilities it currently operates and leases the remaining 31 domestic facilities from governmental agencies and non-profit corporations. The three international facilities are owned by CCA and affiliates through merger joint ventures. The services provided by the Company to governmental agencies include the integrated design, construction and management of new correctional and detention facilities and the redesign, renovation and management of older facilities. In addition to providing the fundamental residential services relating to adult and juvenile inmates, the Company's facilities offer a large variety of rehabilitation and education programs including basic education, life skills and employment training and substance abuse treatment. The Company also provides health care (including medical, dental and psychiatric services), institutional food services, transportation requirements, and work and recreational programs. In addition, through its wholly-owned subsidiary, TransCor America, Inc. ("TransCor"), the Company provides inmate transportation services for numerous governmental agencies. Management of the Company believes that its proven ability to deliver a full range of high quality correctional and detention facility management services on a cost-effective and efficient basis to governmental agencies, provides such agencies with sufficient incentives to choose the Company when awarding new contracts or renewing existing contracts. In addition to the opening of new facilities, over the last three years, the Company has expanded its service capabilities and broadened its geographic presence in the United States market through a series of strategic acquisitions of prison management companies and individual facilities, as well as the acquisition of TransCor. The Company intends to continue to pursue strategic 2 3 acquisitions of prison management companies and facilities when the proposed acquisition enhances stockholder value. (See "Recent Acquisitions".) In addition to its domestic operations, the Company has obtained and is pursuing construction and management contracts for correctional and detention facilities outside the United States. The Company presently has contracts to operate one facility in the United Kingdom, two facilities in Australia, and also has contracts to provide inmate transportation services in Australia. In June 1994, the Company entered into an international strategic alliance with Sodexho S.A. ("Sodexho"), a French conglomerate, for the purpose of pursuing prison management business outside the United States. In connection with the alliance, Sodexho purchased a significant ownership in the Company and entered into certain agreements with the Company relating to future financings by the Company and corporate governance and control matters. (See "Business Strategy - - Expansion into International Markets"; "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources".) The Company is a Delaware corporation and is the successor to a Tennessee corporation of the same name incorporated in January 1983. The Company's principal executive offices are located at 102 Woodmont Boulevard, Nashville, Tennessee 37205 and its telephone number is (615) 292-3100. BUSINESS STRATEGY The Company intends to increase revenues and enhance its position as the largest developer and manager of privatized correctional and detention facilities worldwide through the following business strategies. Efficient Development and Management of Facilities. The Company will continue to provide low cost, high quality management of its facilities. The Company believes that its quality of personnel, efficient application of financial resources and adherence to proven policies and procedures enable it to design, develop and manage correctional and detention facilities at costs lower than the governmental agencies that are responsible for performing such services. The Company believes that its reputation as an innovative and effective manager of facilities enhances its ability to market its services and capitalize on a larger scope of opportunities with a variety of governmental agencies. The Company also recognizes the importance of the facility administrator and the facility's management team in the successful financial performance of its facilities. Management believes that the Company's reputation as the leading developer and manager of privatized correctional and detention facilities enables it to attract highly- qualified facility administrators. Each facility management team operates each facility in accordance with a Company-wide policy and procedure regimen, derived from industry standards and designed to ensure the delivery of consistent, high quality services in each of its facilities. The Company seeks to minimize operating expenses by designing its facilities to optimize correctional officer staffing consistent with facility security 3 4 requirements. The Company further controls operating expenses through the use of electronic surveillance systems and other technologies. Development of Domestic Business Opportunities. As a result of the growth in the demand for privatized correctional and detention facilities, the Company is selective in the projects it pursues. The Company pursues projects based on probability of success, geographic location, size, potential profitability, and political and community acceptability. This approach allows the Company to enhance its market share and optimize resource allocation, profitability and financial return. The Company intends to continue its focus on institutions with an emphasis on medium to maximum security that are 500 to 1,000 beds or larger. Management believes that the Company's experience and reputation in managing large secure facilities will enable it to maintain its industry position and capitalize on the trend of governments to privatize larger facilities. Strategic Acquisitions. The Company believes that its recent acquisitions have significantly enhanced its position as the largest developer and manager of privatized correctional and detention facilities while increasing operating efficiencies. Accordingly, the Company intends to continue to pursue strategic acquisitions of other managers of privatized correctional and detention facilities. Expanded Scope of Services. The Company intends to continue to implement a wide variety of specialized services that address the unique needs of various segments of the inmate population. Because the facilities operated by the Company differ with respect to security levels, ages, genders and cultures of inmates, the Company focuses on the particular needs of an inmate population and tailors its services based on local conditions and the Company's ability to provide such services on a cost-effective basis. In addition to core residential services, the Company offers rehabilitative and educational services such as counseling, basic education, job skill training and life skills/transition planning services, all of which are aimed at reducing recidivism. Further, because management believes alcohol and drug abuse are directly or indirectly responsible for the majority of criminal offenses in the United States, the Company has created, and offers to its inmates, its LifeLine program, a comprehensive long-term substance abuse treatment program. The Company believes that its success in delivering these specialized services will enable it to address the changing needs of its customers. By offering a broad range of specialized services, the Company seeks to provide a solution to the public's and the government's desire to reduce recidivism and, ultimately, the cost of crime. Expansion into International Markets. The Company believes that the majority of its new business will come from within the United States. However, the Company and its international strategic partner, Sodexho, believe that interest in private-sector corrections is developing in other nations. While management will not detract from its domestic business to pursue international activities, the Company will participate in selected international projects it finds attractive. The Company also believes that in order to compete effectively in international markets it must enter into alliances with strategic local partners with access to local opportunities and familiarity with local business practices. 4 5 In June 1994, the Company entered into an international strategic alliance with Sodexho. Among other business ventures, Sodexho provides contract services to the French prisons and has business operations in 60 countries. Pursuant to the terms of the joint venture agreement between the Company and Sodexho, only the Company will develop and manage prison management business in the United States and its territories. In the rest of the world, the Company and Sodexho will pursue the prison management business opportunities through local joint venture entities to be established generally on a 50/50 basis. In connection with the alliance, in October 1995, the Company sold to Sodexho a 50% interest in CCA Australia Pty., Ltd., an Australian joint venture. In December 1996, the Company sold to Sodexho a 20% interest in its United Kingdom joint venture, UK Detention Services, Ltd. ("UKDS") and granted Sodexho an option to purchase an additional 30% interest in UKDS. Management believes that, with the formation of the Sodexho alliance, the Company is well positioned to participate in international markets. Cost Reduction Programs. An important component of the Company's strategy is to position itself as a low cost, high quality provider of prison management services in all of its markets. As cost containment pressures increase, the Company will continue to focus on improving operating performance and efficiency through the following key operating initiatives: (i) standardization of supply and service purchasing practices and usage; (ii) improvement of inmate management, resource consumption and reporting procedures; and (iii) improvement in salary and wage expenses by reducing overtime, monitoring staff levels and developing productivity standards. The Company intends to continue to apply these operating cost initiatives throughout its existing facilities and in new facilities. RECENT ACQUISITIONS In the last three years, the Company has expanded its service capabilities and broadened its geographic presence in the United States through a series of strategic acquisitions that complement the Company's development activities. In December 1994, the Company acquired TransCor. In April 1995, the Company acquired Concept Incorporated ("Concept"), a prison management company with eight facilities and 4,400 beds under contract at the time of acquisition. In August 1995, the Company acquired Corrections Partners, Inc. ("CPI"), a prison management company with seven facilities and 2,900 beds under contract at the time of acquisition. The Company intends to consider additional strategic acquisitions of prison management and related companies in the future. 5 6 MARKET Throughout the world, there is a growing trend toward privatization of government services and functions, including corrections and detention, as governments of all types face continuing pressure to control costs and improve the quality of services. As a result of increased costs, some governments have been forced to limit public services and to seek more cost-effective means of providing the remaining services. Since correctional and detention facilities are viewed as an essential service, fiscal pressures have caused governments to seek to deliver these services more cost effectively. Further, as a result of the number of crimes committed each year and the corresponding number of arrests, incarceration costs generally grow faster than any other part of a government's budget. In an attempt to address these pressures, governmental agencies responsible for correctional and detention facilities are increasingly privatizing facilities. According to the Private Adult Correctional Facility Census, prepared by Private Corrections Project Center for Studies in Criminology and Law, University of Florida ("1995 Census"), the design capacity of privately managed adult correctional and detention facilities worldwide has increased dramatically since the first privatized facility was opened by the Company in 1984. The majority of this growth has occurred since 1989 as the number of privately managed adult correctional and detention facilities worldwide increased from 26 facilities with a design capacity of 10,973 beds in 1989 to 132 facilities with a design capacity of 85,201 beds in 1996. To date, numerous counties, 22 states, Puerto Rico and the federal government have incorporated the private sector into their criminal justice systems and over 15 states are currently considering privatization. Notwithstanding such growth, less than five percent of all adult prison beds in the United States are privately managed. As of December 31, 1996, the Company was the largest private prison management company, with an estimated United States market share of 52% and a global market share of 48%. Management believes that the increase in the demand for privatized correctional and detention facilities is also a result, in large part, of the general shortage of beds available in United States correctional and detention facilities. According to reports issued by the United States Department of Justice, Bureau of Justice Statistics ("BJS"), the number of inmates housed in United States federal and state prison facilities increased from 487,593 at December 31, 1985 to 1,078,357 at December 31, 1995, an increase of more than 121%. Local jail populations in the United States increased from 254,986 inmates at December 31, 1985 to 490,442 at December 31, 1994, an increase of 92%. At December 31, 1995, the BJS reported that the federal prison system in the United States was operating at approximately 126% of its rated capacity and the average state prison was operating at approximately 114% of its rated capacity. Industry reports also indicate that inmates convicted of violent crimes generally serve only one-third of their sentence, with the majority of them being repeat offenders. Accordingly, there is a perceived public demand for, among other things, longer prison sentences, as well as prison terms for juvenile offenders, resulting in even more overcrowding in United States correctional and detention facilities. Finally, numerous courts and other governmental entities in the United States have mandated that additional services offered to inmates be expanded and living conditions be improved. Many governments do not have the readily-available resources to make the changes necessary to meet such mandates. 6 7 At December 31, 1996, the Company managed 34 of the 95 privatized United States adult facilities and 22,142 of the 50,628 private United States adult beds. These facilities include (i) Immigration and Naturalization Service ("INS") detention facilities and United States Marshal detention facilities privatized by federal agencies, (ii) state prisons, community corrections facilities, intermediate sanction facilities, pre-release centers, work program facilities and state jail facilities privatized by state agencies, and (iii) city and county jail facilities and transfer facilities privatized by local agencies. There are also numerous privatized juvenile offender facilities of which the Company currently has contracts to operate facilities with an aggregate design capacity of 1,039 beds. The demand for privately-managed correctional and detention centers is also increasing internationally. Management believes that many countries are faced with the same fiscal pressures as the United States and, as a result, are seeking more cost-effective means of providing prison management services. At December 31, 1996, there were a total of 14 privatized facilities in the United Kingdom and Australia, with an aggregate design capacity of 7,617 beds. The Company, through its joint ventures, had contracts to manage three of these facilities with an aggregate design capacity of 1,229 beds. For similar economic reasons, the demand for privatized prisoner transport services is also increasing domestically and internationally. The Company believes that an increasing number of governmental agencies will look for more cost-effective means of providing these and other ancillary services. 7 8 FACILITIES The following table summarizes certain information with respect to facilities under management by the Company, or a subsidiary or joint venture of the Company, at March 20, 1997.
COMMENCE FACILITY DESIGN SECURITY -MENT OF RENEWAL NAME/LOCATION CUSTOMERS CAPACITY LEVEL CONTRACT TERM OPTION - ------------- --------- -------- ----- -------- ----- ------ DOMESTIC - -------- Bartlett State Jail State of Texas 962 Multi 10/95 8/98 (1) 2 year Bartlett, Texas Bay Correctional Facility State of Florida 750 Medium 8/95 8/98 (1) 2 year Panama City, Florida Bay County Jail Bay County, USMS1, 276 Multi 10/85 9/99 (1) 3 year Panama City, Florida BOP2, INS3 Bay County Jail Annex Bay County, USMS, 401 Multi 4/86 9/99 (1) 3 year Panama City, Florida BOP, INS Bent County Correctional State of Colorado 335 Medium 10/96 10/99 (1) 2 year Facility Las Animas, Colorado B.M. Moore Pre-Release State of Texas 500 Multi 6/95 8/97 (1) 2 year Center Overton, Texas Bridgeport Pre-Parole State of Texas 200 Minimum 11/87 8/97 (1) 2 year Transfer Facility Bridgeport, Texas Brownfield Intermediate State of Texas 200 Multi 7/92 8/97 (1) 2 year Sanction Facility Brownfield, Texas Central Arizona Detention States of Oregon, 1,792 Multi 10/94 10/2014 ---- Center Alaska, New Mexico, Florence, Arizona USMS
----------------------------------- 1United States Marshal's Service. 2United States Bureau of Prisons. 3United States Immigration and Naturalization Service. 8 9
COMMENCE FACILITY DESIGN SECURITY -MENT OF RENEWAL NAME/LOCATION CUSTOMERS CAPACITY LEVEL CONTRACT TERM OPTION - ------------- --------- -------- ----- -------- ----- ------ Citrus County Detention Citrus County, 300 Multi 10/96 9/98 (1) 3 year Facility Osceola County Lecanto, Florida Cleveland Pre-Release State of Texas 520 Multi 9/89 8/2000 ---- Center Cleveland, Texas Columbia Correctional State of South 400 Juvenile 6/96 6/97 (2) 1 year4 Facility Carolina Columbia, South Carolina Correctional Treatment Washington, DC 866 Medium 3/97 3/2017 ---- Facility Washington, D.C. Davidson County Juvenile Davidson County, 48 Secure 5/94 4/99 ---- Detention Center State of Tennessee Nashville, Tennessee Davis Correctional Facility State of Oklahoma 960 Medium 4/96 6/99 (2) 2 year Holdenville, Oklahoma Delta Correctional Facility State of 1,016 Medium 9/96 9/99 (1) 2 year Greenwood, Mississippi Mississippi Eden Detention Center BOP, INS 1,006 Multi 10/95 10/2015 ---- Eden, Texas Elizabeth Detention Center Elizabeth, New Jersey INS 300 Multi 1/97 8/97 (2) 1 year Eloy Detention Center BOP, INS 1,250 Medium 7/94 7/97 (2) 1 year Eloy, Arizona Great Plains Correctional States of North 768 Medium 10/91 5/99 ---- Facility Carolina and Hinton, Oklahoma Oklahoma Guayama Correctional Center Puerto Rico 1,000 Medium 12/95 12/2000 (1) 5 year Guayama, Puerto Rico
----------------------------------- 4The Company and the State of South Carolina have mutually elected not to renew this contract upon expiration (see p. 11). 9 10
FACILITY DESIGN SECURITY -MENT OF RENEWAL NAME/LOCATION CUSTOMERS CAPACITY LEVEL CONTRACT TERM OPTION - ------------- --------- -------- ----- -------- ----- ------ Hernando County Jail Hernando Co., 302 Multi 10/88 10/2000 ---- Brooksville, Florida INS, BOP, USMS Houston Processing Center INS 411 4/84 9/97 ---- Houston, Texas Medium Lake City Correctional State of Florida 350 Medium 2/97 2/2000 (1) 2 year Facility Lake City, Florida Laredo Processing Center INS, BOP, USMS 258 Medium 3/85 12/97 ---- Laredo, Texas Leavenworth Detention USMS 327 Maximum 6/92 6/97 ---- Center Leavenworth, Kansas Liberty County Jail Liberty County, 382 Multi 11/96 11/99 (1) 2 year Liberty, Texas USMS Metro-Davidson County Davidson County 1,092 Multi 2/92 5/97 ---- Detention Facility Nashville, Tennessee Mineral Wells Pre- State of Texas Minimum (1) 2 year Parole Transfer 1,119 7/89 8/97 Facility Mineral Wells, Texas New Mexico Women's State of New Mexico 322 Multi 6/89 6/97 (6) 2 year Correctional Facility Grants, New Mexico Ponce Correctional Center Puerto Rico 1,500 Medium 2/97 2/2002 (1) 5 year Ponce, Puerto Rico Prairie Correctional States of 564 Medium 10/96 10/2007 ---- Facility Minnesota, Colorado Appleton, Minnesota and Idaho Santa Fe Detention Center Santa Fe County, 201 Multi 8/86 6/971 ---- Santa Fe, New Mexico USMS
----------------------------------- 5The Company has elected not to renew the Sante Fe, New Mexico contract upon expiration. 10 11
FACILITY DESIGN SECURITY -MENT OF RENEWAL NAME/LOCATION CUSTOMERS CAPACITY LEVEL CONTRACT TERM OPTION - ------------- --------- -------- ----- -------- ----- ------ Shelby Training Center Shelby County 200 Secure 5/86 4/2015 ---- Memphis, Tennessee Silverdale Facilities(2) Hamilton County 414 Multi 10/84 9/2000 (4) 4 year Chattanooga, Tennessee South Central Correctional State of Tennessee 1,506 Medium 3/92 3/2000 (1) 2 year Center Clifton, Tennessee Southwest Indiana Regional Various Counties 132 Secure 4/95 4/2000 ---- Youth Village Vincennes, Indiana T. Don Hutto Correctional Williamson County, 480 Secure 1/97 1/2000 ---- Center States of Wyoming Taylor, Texas and Colorado Tall Trees Shelby County, 63 Non-secure 1/84 1/2004 ---- Memphis, Tennessee State of Tennessee Torrance County Detention State of New 286 Multi 12/90 12/2010 ---- Facility Mexico, USMS, Estancia, New Mexico Torrance County and BOP Venus Pre-Release Center Venus, Texas State of Texas 1,000 Multi 8/89 8/98 (1) 2 year West Tennessee Detention State of North 600 Multi 9/90 9/2010 ---- Facility Carolina, USMS, Mason, Tennessee INS, BOP Winn Correctional Center State of Louisiana 1,474 Medium 3/90 3/98 (1) 2 year Winnfield, Louisiana INTERNATIONAL - ------------- Blakenhurst, HM Prison United Kingdom 649 Medium 5/93 5/98 (3) 3 year Redditch, England Borallon Correctional Queensland 455 Multi 1/90 4/2000 ---- Centre Queensland, Australia Metropolitan Women's Victoria 125 Multi 8/96 8/2001 (5) 3 year Correctional Centre Victoria, Australia
11 12 FACILITY MANAGEMENT CONTRACTS The Company is compensated on the basis of the number of inmates held in each of its facilities. Contracts may vary to provide fixed per diem rates or monthly fixed rates. Of the Company's 44 domestic facilities in operation, 40 of the Company's facility management contracts provide that the Company will be compensated at an inmate per diem rate based upon actual or minimum guaranteed occupancy levels and four of the management contracts are based on monthly fixed rates. In either case, the compensation is invoiced in accordance with applicable law and is paid on a monthly basis. Occupancy rates for a particular facility will be low when first opened or when expansions are first available. However, beyond the start-up period, which typically ranges from 30 to 90 days, the occupancy rate tends to stabilize. For 1996, the average occupancy, based on rated capacity, was 94.1% for all facilities operated by the Company. In addition, the Company's contracts generally require the Company to operate each facility in accordance with all applicable laws and regulations. The Company is required by its contracts to maintain certain levels of insurance coverage for general liability, workers' compensation, vehicle liability and property loss or damage. The Company is also required to indemnify the contracting agencies for claims and costs arising out of the Company's operations and, in certain cases, to maintain performance bonds. The Company's facility contracts are short term in nature. Terms of federal contracts generally range from one to five years, and contain multiple renewal options. The terms of local and state contracts may be for longer periods with additional renewal options. Most facility contracts also generally contain clauses which allow the governmental agency to terminate a contract without cause. The Company's facility contracts are generally subject to annual or bi-annual legislative appropriation of funds. A failure by a governmental agency to receive appropriations could result in termination of the contract by such agency or a reduction in the management fee payable to the Company. No assurance can be given that other governmental agencies will not terminate or renew a contract with the Company in the future. OPERATING PROCEDURES Pursuant to the terms of its management contracts, the Company is responsible for the overall operation of its facilities, including staff recruitment, general administration of the facilities, security and supervision of the offenders and facility maintenance. The Company also provides a variety of rehabilitative and educational programs at its facilities. Inmates at most facilities managed by the Company may receive basic education through academic programs designed to improve inmate literacy levels and the opportunity to acquire General Education Development ("GED") certificates. The Company also offers vocational training to inmates who lack marketable job skills. In addition, the Company offers life skills transition planning programs that provide inmates job search training and employment skills, health education, financial responsibility training, parenting and other skills associated with becoming productive citizens. At several of its facilities, the Company also offers 12 13 counseling, education and/or treatment to inmates with alcohol and drug abuse problems through its LifeLine program. The Company operates each facility in accordance with Company-wide policies and procedures and the standards and guidelines established by the American Correctional Association ("ACA") Commission on Accreditation. The ACA is an independent organization comprised of professionals in the corrections industry that establishes guidelines of standards by which a correctional institution may gain accreditation. The ACA standards, which the ACA believes safeguard the life, health and safety of offenders and personnel, are the basis of the accreditation process and define policies and procedures for operating programs. The ACA standards, which are the industry's most widely accepted correctional standards, describe specific objectives to be accomplished and cover such areas as administration, personnel and staff training, security, medical and health care, food service, inmate supervision and physical plant requirements. The ACA standards are the most widely accepted correctional standards. The Company has sought and received ACA accreditation for 21 of the facilities it currently manages and intends to apply for ACA accreditation for all of its facilities once they are eligible. The accreditation process is usually completed 18 to 24 months after a facility is opened. FACILITY DESIGN, CONSTRUCTION AND FINANCE In addition to its facility management services, the Company also provides consultation to various governmental agencies with respect to the design and construction of new correctional and detention facilities and the redesign and renovation of older facilities. Since its inception in January 1983, the Company has designed and constructed 24 of its 44 domestic operating corrections facilities for various federal, state, and local governmental agencies. The Company manages all of the facilities it has designed and constructed or redesigned and renovated. Pursuant to the Company's design, build and manage contracts, the Company is responsible for overall project development and completion. Typically, the Company develops the conceptual design for a project, then hires architects, engineers and construction companies to complete the development. When designing a particular facility, the Company utilizes, with appropriate modifications, prototype designs the Company has used in developing other projects. Management of the Company believes that the use of such prototype designs allows it to reduce cost overruns and construction delays. The Company's facilities are designed to maximize staffing efficiencies by increasing the area of vision under surveillance by correctional officers and utilizing additional electronic surveillance systems. Various methods of construction financing may be used by a contracting governmental agency, including, but not limited to the following: (i) one-time general revenue appropriation by the government agency for the cost of the new facility; (ii) general obligation bonds that are secured by either a limited or unlimited tax levied by the issuing governmental entity; or (iii) lease revenue bonds or certificates of participation secured by an annual lease payment that is subject to annual or 13 14 bi-annual legislative appropriation of funds. In certain circumstances, the Company may provide certain credit enhancements for such financings in the form of a (i) letter of credit, (ii) guaranty or (iii) other similar agreements. Generally, when the project is financed using direct governmental appropriations or proceeds from the sale of bonds or other obligations issued prior to the award of the project, or by the Company directly, the financing is in place when the construction or renovation contract is executed. If the project is financed using project-specific tax-exempt bonds or other obligations, the construction contract is generally subject to the sale of such bonds or obligations. In most circumstances, substantial expenditures for construction will not be made on such a project until the tax-exempt bonds or other obligations are sold. If such bonds or obligations are not sold, construction and management of the facility may either be delayed until alternate financing is procured or development of the project will be entirely suspended. When the Company is awarded a facility management contract, appropriations for the first annual or bi-annual period of the contract's term have generally already been approved, and the contract is subject to governmental appropriations for subsequent annual or bi-annual periods. Of the domestic facilities currently managed by the Company, 17 were funded by the government using one of the above-described financing vehicles. 14 15 FACILITIES UNDER CONSTRUCTION The following table presents information concerning facilities that are currently under construction or are being expanded with respect to which the Company has agreements to provide certain management and operation services:
Location Use Bed Capacity -------- --- ------------ Appleton, Minnesota Medium Security Prison 512/262 (expansions)
Construction has begun on a 512-bed and a 262-bed expansion to the existing 564-bed Prairie Correctional Facility in Appleton, Minnesota. The Company is financing the expansions and construction is scheduled for completion in the second quarter of 1997. The facility houses inmates for the States of Minnesota, Colorado and Idaho. Cushing, Oklahoma Medium Security Prison 960
Construction has begun on a 960-bed medium security prison in Cushing, Oklahoma. The Cushing Municipal Authority is financing and will own the facility, and construction is scheduled for completion in the second quarter of 1997. It is anticipated that the facility will house State of Oklahoma inmates. Estancia, New Mexico Medium Security Prison 624 (expansion)
Construction has begun on a 624-bed expansion to the 286-bed Torrance County Detention Facility, which is owned by the Company. The Company is financing the expansion, and construction is scheduled for the fourth quarter of 1997. The facility houses inmates for the State of New Mexico and the USMS. Indianapolis, Indiana Jail Annex 670
Construction and renovation have begun on an existing building owned by the Indianapolis - Marion County Building Authority, which will become the 670-bed Marion County Jail Annex. The Authority is financing and will own the facility, however, the Company will fund a portion of the renovation costs. Construction is scheduled for completion in the first quarter of 1998. The facility will house adult male inmates for Marion County. 15 16
Location Use Bed Capacity -------- --- ------------ Las Animas, Colorado Medium Security Prison 365 (expansion)
Construction has begun on a 365-bed expansion to the 335-bed Bent County Correctional Facility. The Company is financing the expansion, and construction is scheduled for completion in the second quarter of 1997. The facility houses State of Colorado inmates. Lawrenceville, Virginia Medium Security Prison 1,500
Construction has begun on a 1,500-bed medium security prison in Lawrenceville, Virginia. The facility will be financed and owned by the Brunswick Industrial Development Authority, and construction is scheduled for completion in the first quarter of 1998. The facility will house inmates for the State of Virginia. North Las Vegas, Nevada Multi Security Prison 500
Construction has begun on a 500-bed multi security prison in North Las Vegas, Nevada. The Company will own the facility, and construction is scheduled for completion in the third quarter of 1997. The facility will house female inmates for the State of Nevada. Okeechobee, Florida Juvenile Facility 100
Construction has begun on a 100-bed maximum security juvenile facility in Okeechobee, Florida. The State of Florida is financing and will own the facility, and construction is scheduled for completion in the third quarter of 1997. The facility will house State of Florida juveniles. Sayre, Oklahoma Medium Security Prison 960
Construction has begun on a 960-bed medium security prison in Sayre, Oklahoma. The Company is financing and will own the facility, and construction is scheduled for completion in the first quarter of 1998. It is anticipated that the facility will house inmates from various states. Walsenburg, Colorado Medium Security Prison 752
Construction has begun on a 752-bed medium security prison in Walsenburg, Colorado. The Company is financing and will own the facility, and construction is scheduled for completion in the fourth quarter of 1997. The facility will house State of Colorado inmates. 16 17
Location Use Bed Capacity -------- --- ------------ Whiteville, Tennessee Medium Security Prison 1,504
Construction has begun on a 1,504-bed medium security prison in Whiteville, Tennessee. The Hardeman County Correctional Facilities Corporation is financing and will own the facility, and construction is scheduled for completion in the second quarter of 1997. The facility will house State of Tennessee inmates. Woodville, Mississippi Medium Security rison 500
Construction has begun on a 500-bed medium security prison in Wilkinson County, Mississippi. The Wilkinson County Industrial Development Authority is financing and will own the facility, and construction is scheduled for completion in the first quarter of 1998. The facility will house inmates for the State of Mississippi. Youngstown, Ohio Medium Security Prison 512 (expansion)
Construction has begun on a 512-bed expansion to the 1,504-bed Northeast Ohio Correctional Center, which is owned by the Company. The Company is financing the expansion, and construction is scheduled for completion in the third quarter of 1997. It is anticipated that the facility will house inmates for the District of Columbia. ORGANIZATIONAL SYSTEM The Company has developed a monitoring and evaluation system which, combined with a centralized organizational structure, positions the Company for expansion without requiring substantial additions of management personnel or reduction in quality. The Company devotes considerable resources to assuring compliance with contractual and other requirements and to maintaining the highest level of quality assurance at each facility through a system of formal reporting, corporate oversight, site reviews and inspection by on-site facility administrators. Under its facilities management contracts, the Company usually provides the contracting governmental agency with the services, personnel and materials necessary for the operation, maintenance and security of the facility and the custody of inmates. The Company offers full logistical support to the facilities it manages, including security, health care services, transportation, building and ground maintenance, education, treatment and counseling services, and institutional food services. Except for certain aspects of health care services, which are generally subcontracted, all of the facilities support services are provided by the Company's personnel. 17 18 The Company's business development and project departments are responsible for marketing the Company's service to governmental clients. Marketing responsibilities include identifying new clients, preparing and delivering formal presentations, identifying project construction partners and potential financing sources, developing proposals and interfacing with the Company's customers from contract award through the receipt of inmates. The operations department, in conjunction with the legal department, supervises compliance of each facility to operational standards of applicable management contracts and of professional and governmental agencies. The operations department also establishes and monitors the policies and procedures of the Company. The department's responsibilities include developing specific policies and procedures manuals, monitoring all management contracts, ensuring compliance with applicable labor and affirmative action standards, training and administering all personnel, purchasing supplies and developing educational, vocational, counseling and life skills inmate programs. The Company provides meals for inmates at the facilities it operates in accordance with regulatory, client and nutritional requirements. These catering responsibilities include hiring and training staff, monitoring food operations, purchasing food and supplies, and maintaining equipment, as well as adhering to all applicable safety and nutritional standards and codes. The Company's finance department oversees the implementation and development of the billing system for each client and for insuring the prompt, systematic payment of all Company obligations under the individual management contracts. This department also monitors and analyzes budgetary and purchasing procedures, tax reporting requirements and fiscal management policies. MARKETING The Company engages in extensive marketing efforts. The Company believes that it is the industry leader in promoting the benefits of privatization of prisons and other correctional and detention facilities. Marketing efforts are conducted and coordinated by the Company's business development department and senior management with the aid, where appropriate, of certain independent consultants. The Company views governmental agencies responsible for federal, state and local correctional facilities in the United States and governmental agencies responsible for correctional facilities in Puerto Rico, the United Kingdom and Australia as its primary target markets. The Company generally receives inquiries from or on behalf of governmental agencies that are considering privatization of certain facilities or that have already decided to contract with private enterprise. When it receives such an inquiry, the Company determines whether there is an existing need for the Company's services and whether the legal and political climate in which the inquiring party operates is conducive to serious consideration of privatization. Then an initial cost analysis is conducted to further determine project feasibility. 18 19 The Company pursues its domestic business opportunities on two primary courses. In the first course, the Company follows the traditional competitive route where a Request for Proposal ("RFP") or Request for Qualification ("RFQ") is issued by a government agency and a number of companies respond. Management believes that this competitive approach will produce the majority of new contract awards to the Company. The second course involves the development of new facilities in locations where there is a clearly defined, long-term needs for beds, but where a competitive bidding procedure is not required. Generally, governmental agencies responsible for correctional and detention services procure goods and services through RFPs or RFQs. Most of the Company's activities in the area of securing new business are in the form of responding to RFPs. As part of the Company's process of responding to RFPs, management meets with appropriate personnel from the agency making the request to best determine the agency's distinct needs. If the project fits within the Company's strategy, the Company will then submit a written response to the RFP. A typical RFP requires bidders to provide detailed information, including, but not limited to, the service to be provided by the bidder, its experience and qualifications, and the price at which the bidder is willing to provide the services (which services may include the renovation, improvement or expansion of an existing facility or the planning, design and construction of a new facility). The Company has and intends to in the future, engage independent consultants to assist it in responding to RFPs. Based on the proposals received in response to an RFP, the agency will award a contract to the successful bidder. In addition to issuing formal RFPs, local jurisdictions may issue an RFQ. In the RFQ process, the requesting agency selects a firm believed to be most qualified to provide the requested services and then negotiates the terms of the contract with that firm, including the price at which its services are to be provided. The marketing process for facility management consists of several critical events. These include issuance of an RFP or RFQ by a governmental agency, submission of a response to the RFP or RFQ by the Company, the award of the contract by a governmental agency and the commencement of construction or management of the facility. The Company's experience has been that a substantial period of time may elapse from the initial inquiry to receipt of a new contract. As the concept of privatization has gained wider acceptance, however, the length of time from inquiry to the award of a contract has shortened. The length of time required to award a contract is also affected, in some cases, by the need to introduce enabling legislation. If the facility for which an award has been made must be constructed, the Company's experience has generally been that management of a newly-constructed facility typically commences between 12 and 24 months after the governmental agency's award. While the Company focuses primarily on the traditional competitive marketing approach described above, it also pursues the development of new facilities in those areas where a competitive bid process is not required. Management believes this approach, which has proven successful to the Company to date, is effective because of the Company's strong client relationships and reputation for quality corrections management and services. 19 20 In addition to marketing its services to federal, state and local authorities, the Company markets its services internationally, primarily, through the international alliance formed with Sodexho. The Company is currently marketing its management services in Australia, Germany, Hungary, Canada, Panama and Mexico. The marketing efforts of TransCor for inmate transportation services vary from those of the rest of the Company. TransCor's marketing approach generally consists of mass mailings, phone calls and personal visits to hundreds of state and local governmental agencies, as well as attendance at local, state and national trade shows. BUSINESS PROPOSALS At March 20, 1997, the Company was pursuing 12 prospects with a total of approximately 11,000 beds for which written responses to RFPs and other solicitations have been submitted. The Company is also pursuing eight prospects with a total of approximately 9,200 beds for which it has not submitted proposals. The domestic projects that the Company is pursuing are located in 16 states, including 12 states in which the Company is not currently operating. The Company is also pursuing other projects for which it has not yet submitted, and may not submit, a response to an RFP. Additionally, the Company is pursuing business in Australia and Great Britain, as well as other foreign facility prospects, through its alliance with Sodexho. No assurance can be given that the Company will receive additional awards with respect to proposals submitted. When a contract requires construction of a new facility, the Company's success depends, in part, upon its ability to acquire real property for its facilities on desirable terms and at satisfactory locations. Management expects that many such locations will be in or near populous areas and therefore anticipates legal action and other forms of opposition from residents in areas surrounding each proposal site. The Company may incur significant expenses in responding to such opposition and there can be no assurance of success. 20 21 MAJOR CUSTOMERS The Company's customers consist of local, state and federal correctional and detention authorities. The following table sets forth, for the periods indicated, the percentage of the Company's revenues from certain customers of the Company:
Percentage of Revenues ---------------------- Year ended Year ended Customer Location 12/31/96 12/31/95 - ------------------------- ------------------------- -------- -------- U.S. Marshal Mason, Tennessee, 9% 11% Service Laredo, Texas Liberty, Texas Santa Fe, New Mexico, Estancia, New Mexico, Brooksville, Florida, Panama City, Florida, Leavenworth, Kansas and Florence, Arizona State of Texas Houston, Texas, 16% 18% Venus, Texas, Cleveland, Texas, Laredo, Texas Bridgeport, Texas Mineral Wells, Texas Sweetwater, Texas Brownfield, Texas Overton, Texas, Bartlett, Texas and Liberty, Texas
No other single customer accounted for 10% or more of the Company's total revenues in the above-referenced fiscal years. BACKLOG Most of the Company's contracts provide for the Company to be compensated on a per diem/per capita basis, which fluctuates daily. However, certain contracts guarantee a minimum utilization over the term of such contracts. The Company's backlog, as shown below, reflects only 21 22 guaranteed revenues pursuant to the Company's guaranteed contracts over the term of such contracts, using current per diem/per capita rates, and disregarding any renewals of such contracts and adjustments to such rates as a result of inflation. As of December 31, 1996, the Company's backlog, determined as described above, was $309,972,000, of which $106,580,000 is expected to be filled during the year ending December 31, 1997. As of December 31, 1995, the Company's backlog, computed as described above, was $297,431,000. EMPLOYEES At December 31, 1996, the Company employed 7,235 full-time employees and 175 part-time employees. Of such full-time employees, 96 were employed at the Company's headquarters and 7,139 were employed at the Company's facilities and its transportation subsidiary. The Company employs personnel in the following areas: clerical and administrative, including facility administrators/wardens, security, food service, medical, transportation and scheduling, maintenance, teachers, counselors and other support services. Each of the Company's facilities is managed as a separate operational unit by the facility administrator or warden. All facilities follow a standardized code of policies and procedures. The Company has never experienced a strike or work stoppage. Beginning in 1992, six facilities were approached by one particular union to organize the work force. The union was defeated or withdrew in five facilities. In March 1993, the Company reached an agreement with a union to represent 73 correctional officers at the Silverdale facility. This contract was decertified in March 1994. In January 1996, the Company reached an agreement with a union to represent 38 non-security personnel at its Shelby Training Center. In March 1997, the Company assumed management of the Correctional Treatment Facility in Washington D.C., and the Company has agreed to recognize organized labor in representing certain employees at this facility. In the opinion of management, overall employee relations are considered good. EMPLOYEE TRAINING Under the laws applicable to the Company's operations, and the Company's internal policy, the Company's corrections officers are required to complete a minimum amount of training prior to independent assignment. In most cases, officers must undergo at least 160 hours of training by the Company before being allowed to work alone in a position that will bring them in contact with inmates or detainees. Additional training is required in certain jurisdictions when necessary to comply with applicable law in order to enable such officers to work in positions that will bring them into contact with inmates or detainees. All non-security staff receive 80 hours of initial training. Accordingly, the Company's training programs meet or exceed all applicable requirements. The Company's training is comprised of approximately 40 hours of instruction concerning the Company's policies, operational procedures and management philosophy. An additional 120 hours concerning legal issues, rights of inmates and detainees, techniques of communication and 22 23 supervision, improvement of interpersonal skills and job training relating to the particular position to be filled are also provided. Employees of facilities taken over by the Company who are offered continued employment undergo at least 40 hours of training by the Company before reporting to work for the Company. Each of the Company's employees who has contact with inmates or detainees receives a minimum of 40 hours of additional training each year, and each facility management employee of the Company receives at least 40 hours of training each year. TransCor also has training requirements for its employees. Each new employee must undergo 40 hours of training, prior to job performance, including driver training and safety, correctional training and policy and procedures guidelines. Each employee then performs four weeks of on-the-job training with an experienced transportation agent. TransCor maintains continuing training for all employees of 16 to 32 hours per year. INSURANCE The Company maintains a $30,000,000 general liability insurance policy for all of its operations. To date, no payments have been made under the Company's general liability insurance policies because of any action brought as a result of the operation of any of its facilities. The Company also maintains insurance in amounts it deems adequate to cover property and casualty risks, workers' compensation and directors and officers liability. There can be no assurance that the aggregate amount and kinds of the Company's insurance are adequate to cover all risks it may incur or that insurance will be available in the future. Each of the Company's facility management contracts and the statutes of certain states require the maintenance of insurance by the Company. The Company's contracts provide that in the event the Company does not maintain such insurance, the contracting agency may terminate its agreement with the Company. The Company believes it is materially in compliance with respect to these requirements. LITIGATION The Company is currently and, from time to time, subject to claims and suits arising in the ordinary course of business, including claims for damages for personal injuries or for wrongful restriction of, or interference with, inmate privileges. In the opinion of management, the outcome of the proceedings to which it is currently a party will not have a material adverse effect upon its operations or financial condition. RISK FACTORS Statements included in Management's Discussion and Analysis of Financial Condition and Results of Operations that are not historical in nature are intended to be, and are hereby identified as, "Forward Looking Statements" as defined in the Securities Litigation Reform Act of 1995. The 23 24 Company cautions readers that forward looking statements, including without limitation, those relating to the Company's future business prospects, revenues, working capital, liquidity, capital needs, interest costs and income, are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the Forward Looking Statements, due to several important factors herein identified, among others, and other risk and factors identified from time to time in the Company's reports filed with the Securities and Exchange Commission (the "Commission"): Revenue and Profit Growth Dependent on Expansion. The Company's growth is dependent upon its ability to obtain contracts to manage new correctional and detention facilities and to retain existing management contracts. The rate of construction of new facilities and the Company's potential for growth will depend on a number of factors, including crime rates and sentencing patterns in the United States and other countries in which the Company operates, governmental and public acceptance of the concept of privatization, the number of facilities available for privatization, and the Company's ability to obtain awards for contracts and to integrate new facilities into its management structure on a profitable basis. In addition, certain jurisdictions have recently required the successful bidder to make a significant capital investment in connection with the financing of a particular project. The Company's ability to secure awards under such circumstances will therefore also depend on the Company having significant capital resources. There can be no assurance that the Company will be able to obtain additional contracts to develop or manage new facilities on favorable terms. Risks Associated with Acquisitions. The Company intends to grow internally through the opening of additional facilities, as well as through strategic acquisitions. There can be no assurance that the Company will be able to identify, acquire or profitably manage acquired companies or successfully integrate such operations into the Company without substantial costs, delays or other problems. In addition, there can be no assurance that companies acquired in the future will be profitable at the time of their acquisition or will achieve levels of profitability that justify the investment therein. Acquisitions may involve a number of special risks, including adverse short-term effects on the Company's reported operating results, diversion of management's attention, dependence on retaining, hiring and training key personnel, and risks associated with unanticipated problems or legal liabilities, some or all of which could have a material adverse effect on the Company's financial condition and results of operation. Acceptance of Privatized Correctional and Detention Facilities. Management of correctional and detention facilities by private entities is a relatively new concept and has not achieved complete acceptance by either governments or the public. Some sectors of the federal government and some state and local governments are legally unable to delegate their traditional management responsibilities for correctional and detention facilities to private companies. The operation of correctional and detention facilities by private entities is not widely understood by the public, and the industry has encountered resistance from certain groups, such as labor unions, local sheriff's departments, and groups that believe that correctional and detention facility operations should only 24 25 be conducted by governmental agencies. Such resistance may cause a change in public and government acceptance of privatized correctional facilities. In addition, changes in dominant political parties in any of the markets in which the Company operates could result in significant changes to previously established views of privatization in such market. Opposition to Facility Location and Adverse Publicity. The Company's success in obtaining new awards and contracts may depend, in part, upon its ability to locate land that can be leased or acquired, on favorable terms, by the Company or other entities working with the Company in conjunction with the Company's proposal to develop and/or manage a facility. Some locations may be in or near populous areas and, therefore, may generate legal action or other forms of opposition from residents in areas surrounding a proposed site. The Company's business also is subject to public scrutiny. In addition to possible negative publicity about privatization in general, an escape, riot or other disturbance at a Company-managed facility or another privately managed facility may result in publicity adverse to the Company and the industry in which it operates. Dependence on Governmental Agencies. The Company's cash flow is subject to the receipt of sufficient funding and timely payment by applicable governmental entities. If the appropriate governmental agency does not receive sufficient appropriations to cover its contractual obligations, a contract may be terminated or the management fee may be deferred or reduced. Any delays in payment could have an adverse effect on the Company's cash flow. In addition, the Company is dependent on government agencies supplying Company facilities with a sufficient number of inmates to meet the facilities' design capacities. A failure to do so may have a material adverse effect on the Company's financial condition and results of operation. Economic Risks Associated with Development Activities. When the Company is engaged to perform construction and design services for a facility, the Company typically acts as the primary contractor and subcontracts with other parties who act as the general contractors. As primary contractor, the Company is subject to the various risks of construction including, without limitation, shortages of labor and materials, work stoppages, labor disputes and weather interference. The Company also is subject to the risk that the general contractor will be unable to complete construction at the budgeted costs or be unable to fund any excess construction costs. Under such contracts, the Company is ultimately liable for all late delivery penalties and cost overruns. Contract Duration. The Company's facility management contracts typically have terms ranging from one to five years, with one or more renewal options that may be exercised only by the contracting governmental agencies. No assurance can be given that any agency will exercise a renewal option in the future. Additionally, the contracting governmental agency typically may terminate a facility contract without cause by giving the Company written notice (see "Business-Facility Management Contracts"). Potential Legal Liability. The Company's management of correctional and detention facilities exposes it to potential third-party claims or litigation by prisoners or other persons 25 26 for personal injury or other damages resulting from contact with Company-managed facilities, programs, personnel or prisoners, including damages arising from a prisoner's escape or from a disturbance or riot at a Company-managed facility. In addition, the Company's management contracts generally require the Company to indemnify the governmental agency against any damages to which the governmental agency may be subject in connection with such claims or litigation. The Company maintains an insurance program that provides coverage for certain liability risks faced by the Company, including personal injury, bodily injury, death or property damage to a third party where the Company is found to be negligent. There can be no assurance, however, that the Company's insurance will be adequate to cover potential third-party claims (see "Business-Insurance"). Regulations. The industry in which the Company operates is subject to national, federal, state and local regulations which are administered by various regulatory authorities. Prospective providers of correctional and detention services must comply with a variety of applicable state and local regulations including education, health care and safety regulations. The Company's contracts typically include extensive reporting requirements and require supervision and on-site monitoring by representatives of contracting governmental agencies. State law also typically requires correctional officers to meet certain training standards. Certain states such as Florida and Texas deem prison guards to be peace officers and require Company personnel to be licensed and may make them subject to background investigation. 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 members of minority groups. The failure to comply with any applicable laws, rules or regulations and the loss of any required license could have a material adverse effect on the Company's financial condition and results of operation. Furthermore, the current and future operations of the Company may be subject to additional regulations as a result of, among other factors, new statues 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 financial condition and results of operation. Competition. The Company competes primarily on the basis of the quality and range of services offered, its experience in managing facilities, the reputation of its personnel and its ability to design, finance and construct new facilities. The business in which the Company engages is one that other entities may easily enter without substantial capital investment or experience in management of correctional or detention facilities. Private sector competitors of the Company include, among others, Wackenhut Corrections Corporation, Correctional Services Corporation, Inc., United States Corrections Corp., Group 4 International Corrections Service and Securicor Group. Some of the Company's international competitors are larger and have greater resources than the Company. The Company also competes in some markets with smaller local companies that may have a better understanding of the local conditions and may be better able to gain political and public acceptance. In addition, the Company competes with governmental agencies that are responsible for correctional facilities. 26 27 Dependence on Senior Management. The success of the Company's operations has been and will continue to be highly dependent upon the continued services of its senior management. The loss of one or more of the Company's senior management could have a material adverse effect on the Company's business. Relationship with Sodexho. Sodexho beneficially owns 16.3% of the Common Stock. Accordingly, Sodexho may have a significant influence over the affairs of the Company. Sodexho has agreed to limit its ownership interest in the Company to 25% (or 30% in certain limited circumstances) through June 23, 1999, subject to earlier termination upon the occurrence of certain events, and has agreed to certain restrictions on the voting of its Common Stock. Sodexho has a preemptive right to purchase additional shares of Common Stock or securities convertible or exchangeable for Common Stock in any issuance of securities by the Company in an amount necessary to enable Sodexho to maintain a percentage ownership in the Company equal to 20% of the Common Stock on a fully diluted basis. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources"). Volatility of Market Price. From time to time, there may be significant volatility in the market price for the Company's Common Stock. The Company believes that the current market price of the Common Stock reflects expectations that the Company will be able to continue to operate its facilities profitably and to develop new facilities at a significant rate and operate them profitably. If the Company is unable to operate its facilities profitably or develop facilities at a pace that reflects the expectations of the market, investors could sell shares of the Common Stock at or after the time that it becomes apparent that such expectations may not be realized, resulting in a decrease in the market price of the Common Stock. In addition to the operating results of the Company, changes in earnings estimated by analysts, changes in general conditions in the economy or the financial markets or other developments affecting the Company or the private corrections industry could cause the market price of the Common Stock to fluctuate substantially. In recent years, the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to their operations performance. 27 28 EXECUTIVE OFFICERS The following table sets forth certain information concerning the executive officers of the Company. Ages are as of March 1, 1997.
NAME AGE POSITION - ---- --- -------- Doctor R. Crants 52 Chairman of the Board; Chief Executive Officer; Director Thomas W. Beasley 54 Chairman Emeritus of the Board; Director David L. Myers 53 President Darrell K. Massengale 36 Chief Financial Officer; Secretary and Treasurer; Vice President, Finance Gay Etheridge Vick, III 49 Vice President International Operations, and Managing Director, CCA International Charles A. Blanchette, Jr. 46 Vice President, Operations Dennis E. Bradby 47 Vice President, Education Services Linda G. Cooper 46 Vice President, Legal Affairs Susan Hart 36 Vice President, Communications Peggy W. Lawrence 41 Vice President, Investor Relations John D. Rees 50 Vice President, Business Development Linda A. Staley 52 Vice President, Project Development
DOCTOR R. CRANTS, a founder of the Company, was elected Chief Executive Officer and Chairman of the Board of the Company in June 1994. From June 1987 to June 1994, he served as President, Chief Executive Officer and Vice Chairman of the Board of Directors of the Company. 28 29 From January 1983 through June 1987, Mr. Crants served as Secretary and Treasurer of the Company. He has served as a director of the Company since 1983. Mr. Crants graduated from the United States Military Academy at West Point in 1966, and received joint Masters in Business Administration and Juris Doctor degrees from the Harvard Business School and Harvard Law School, respectively, in 1974. THOMAS W. BEASLEY, a founder of the Company, was elected Chairman Emeritus of the Board of Directors of the Company in June 1994. From June 1987 to June 1994, he served as Chairman of the Board. Mr. Beasley served as President of the Company from January 1983 to June 1987. He has served as a director since 1983. Mr. Beasley is also president of Dixon Springs Investments, Inc., a private real estate investment company. From 1974 through 1978, Mr. Beasley served as Chairman of the Tennessee Republican Party, and he continues to be active in Tennessee politics. Mr. Beasley graduated from the United States Military Academy at West Point in 1966 and received a Doctor of Jurisprudence degree from Vanderbilt University School of Law in 1973. DAVID L. MYERS became President of the Company in June 1994. From December 1986 to June 1994, he served as Vice President, Facility Operations of the Company. From September 1985 to December 1986, he served as Administrator of the Company's Bay County, Florida facility. From 1968 to 1985, Mr. Myers was employed with the Texas Department of Corrections, starting as a corrections officer in 1968 and progressing in 1973 to warden of a maximum security prison. He graduated from Sam Houston State University in 1969. DARRELL K. MASSENGALE joined the Company in February 1986 and in March 1991 became its Vice President, Finance, Secretary, and Treasurer. In June 1994, he was also elected Chief Financial Officer of the Company. From February 1986 to March 1991, Mr. Massengale served as Controller of the Company. He is a certified public accountant who was employed by the accounting firm of KPMG Peat Marwick from 1982 through 1986. Mr. Massengale graduated from Middle Tennessee State University in 1982 and became a certified public accountant in 1985. GAY ETHERIDGE VICK, III was elected Vice President and Managing Director of the Company's International Operations in June 1994. From January 1987 to June 1994, he served as Vice President, Project Development for the Company. From April 1984 to December 1986, Mr. Vick served as Vice President, Design and Construction. From April 1983 to April 1984 he served as President of Vick and Harris, Ltd., where he masterplanned correctional and detention facilities. Mr. Vick graduated from Virginia Tech in 1970. CHARLES A. BLANCHETTE, JR. was elected Vice President, Operations of the Company in November 1996. In 1995, Mr. Blanchette was appointed Director, Facility Start-Up for the Company and in 1996 was named Division Coordinator in the Operations Department. Prior to his move to the corporate office, Mr. Blanchette directed successful start- ups of the Leavenworth Detention Center in 1992 and Central Arizona Detention Center in 1994. From 1987 to 1995, he served as warden for an number of the Company's correctional facilities. Prior to joining the 29 30 Company in 1987, Mr. Blanchette worked for 16 years with the Texas Department of Corrections. Mr. Blanchette graduated from Alvin Community College in Texas in 1974 and received specialized training from Texas A&M, the National Institute of Justice and the Federal Bureau of Investigation. DENNIS E. BRADBY has served as Vice President, Education Services of the Company since June 1991. From April 1986 through June 1991, Mr. Bradby served as the Company's Vice President, Operational Support Systems. From January through April 1986, Mr. Bradby served as the Facility Administrator of the Company's Silverdale Facilities and, from March 1984 through January 1986, as the Facility Administrator of the Company's Houston Immigration Detention Facility. He served as Regional Manager of the Virginia State Department of Corrections from 1977 through March 1984 and as the Assistant Superintendent of that department from 1974 through 1978. Mr. Bradby also served as Assistant Superintendent of the Juvenile Detention Facility in Norfolk, Virginia from 1973 through 1974. Mr. Bradby graduated from Norfolk State University in 1972. LINDA G. COOPER joined the Company in April 1987 as Senior Legal Counsel. In May 1988 she was elected Assistant Secretary for the Company and in January 1989 became its Vice President, Legal Affairs. From December 1981 to March 1987 she served as Staff Attorney and then Deputy General Counsel for the Kentucky Corrections Cabinet. Ms. Cooper received a Juris Doctor degree from the University of Kentucky in 1979. SUSAN HART was elected Vice President, Communications in June 1996. From 1993 to 1996, she served as director, communications of the Company. From 1989 to 1993, she served as director of public relations for the American Red Cross Blood Services. Ms. Hart graduated from Auburn University in 1981 with a major in Communications and became an accredited public relations practitioner in 1990. PEGGY W. LAWRENCE became Vice President, Investor Relations of the Company in June 1995. From June 1989 to June 1995, she served as Vice President, Communications for the Company and from March 1987 to June 1989, she served as the Company's Director of Communications. From January 1985 to March 1987, she served as an account executive for Dye, Van Mol and Lawrence Public Relations. From January 1980 to January 1985, Ms. Lawrence served as Vice President, Research at Morgan Keegan & Co., an investment banking firm. Ms. Lawrence graduated from the University of Tennessee at Knoxville in 1977 and became a Chartered Financial Analyst in 1984. JOHN D. REES was elected Vice President, Business Relations for the Company in June 1994. From 1969 until 1986 when he joined the Company, Mr. Rees served as warden of the Kentucky State Reformatory. Mr. Rees holds a Master of Science degree from Florida State University and a Bachelor of Arts degree from the University of Kentucky with majors in criminology, correctional administration and sociology. 30 31 LINDA A. STALEY was elected Vice President, Project Development for the Company in June 1994. She joined the Company in 1985 as Director, Project Development. Prior to joining the Company, Ms. Staley spent 18 years working for federal governmental agencies, including the Department of Justice and the Immigration and Naturalization Service (INS) in the contracting and procurement field. Ms. Staley attended Wayne State College where she studied business administration. 31 32 ITEM 2. PROPERTIES The Company currently operates facilities located in 14 states, Washington, D.C., Puerto Rico, Australia and the United Kingdom. Of the Company's 44 domestic facilities, 13 are owned and 31 are leased as of March 1997. The location, name and rated capacity of each of the Company's operating facilities at March 20, 1997, grouped by state, are set forth in the following table:
NO. OF OWNED OR LOCATION CITY NAME BEDS MANAGED - -------- ---- ---- ---- ------- Domestic Facilities: Arizona Eloy Eloy Detention Center 1,250 Owned Florence Central Arizona 1,792 Owned Detention Center Colorado Las Bent County Correctional 335 Managed Animas Facility Florida Panama City Bay Correctional Facility 750 Managed Panama City Bay County Jail 276 Managed Panama City Bay County Jail Annex 401 Managed Brooksville Hernando County Jail 302 Managed Lake City Lake City Correctional Facility 350 Managed Lecanto Citrus County Detention 300 Managed Facility Indiana Vincennes Southwest Indiana Regional 132 Youth Village Managed Kansas Leavenworth Leavenworth Detention Center 327 Owned Louisiana Winnfield Winn Correctional Center 1,474 Managed Minnesota Appleton Prairie Correctional Facility 564 Managed Mississippi Greenwood Delta Correctional Facility 1,016 Managed New Jersey Elizabeth Elizabeth Detention Center 300 Managed New Mexico Estancia Torrance County Detention 286 Owned Facility Grants New Mexico Women's 322 Owned Correctional Facility Santa Fe Santa Fe Detention Center 201 Managed Oklahoma Hinton Great Plains Correctional 768 Managed Facility Holdenville Davis Correctional Facility 960 Managed Puerto Rico Guayama Guayama Correctional Center 1,000 Managed Ponce Ponce Correctional Center 1,500 Managed
32 33
No. of Owned or Location City Name Beds Managed - -------- ---- ---- ---- ------- South Carolina Columbia Columbia Training Center 400 Managed Tennessee Chattanooga Silverdale Facilities 414 Managed Clifton South Central Correctional 1,506 Managed Center Mason West Tennessee Detention 600 Facility Owned Memphis Shelby Training Center 200 Owned Memphis Tall Trees 63 Managed Nashville Davidson County Juvenile 48 Managed Detention Center Nashville Metro-Davidson County Detention Facility 1,092 Managed Texas Bartlett Bartlett State Jail 962 Managed Bridgeport Bridgeport Pre-Parole Transfer 200 Owned Facility Brownfield Brownfield Intermediate 200 Managed Sanction Facility Cleveland Cleveland Pre-Release Center 520 Managed Eden Eden Detention Center 1,006 Managed Houston Houston Processing Center 411 Owned Laredo Laredo Processing Center 258 Owned Liberty Liberty County Jail 382 Managed Mineral Wells Mineral Wells Pre-Parole 1,119 Owned Transfer Facility Overton B.M. Moore Pre-Release 500 Managed Center Taylor T. Don Hutto Correctional 480 Owned Center Venus Venus Pre-Release Center 1,000 Managed District of Correctional Treatment 866 Owned Columbia Facility International Facilities: Australia Queensland Borallon Corrections Centre 455 Managed Victoria Metropolitan Women's 125 Owned Correctional Centre United Kingdom Redditch Blakenhurst HM Prison 649 Managed
33 34 The Company maintains its corporate headquarters in approximately 21,600 square feet of office space at 102 Woodmont Boulevard, Nashville, Tennessee 37205, at a rate comparable for similar space in the area. In addition, the Company also leases approximately 13,000 square feet of office space in Brentwood, Tennessee, at a rate comparable for similar space in the area. The Company's wholly-owned subsidiary, TransCor, leases approximately 15,000 square feet of office space and a maintenance facility comprising approximately 8,000 square feet at 1510 Fort Negley Boulevard, Nashville, Tennessee, at a rate comparable for similar space in the area. In March 1996, the Company acquired approximately 3.25 acres in the Burton Hills Office Park, Nashville, Tennessee and is currently constructing a 75,000 square foot office building. Construction on the office building is scheduled for completion in November 1997, at which time the Company will terminate its current office leases and move the Company's corporate headquarters to the new building. ITEM 3. LEGAL PROCEEDINGS Information with respect to this Item is incorporated herein by reference to Item 1 - "Business-Litigation". ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS No matters were submitted to a vote of stockholders during the fourth quarter of 1996. 34 35 PART II ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. (a) The Common Stock is traded on the New York Stock Exchange (the "NYSE") under the symbol "CXC". The following table sets forth the quarterly high and low closing sales prices as reported on the NYSE for the periods indicated. In October 1995, the Company authorized a 2-for-1 stock split on its Common Stock effective October 31, 1995. The stock split was paid in the form of a one-share dividend for every share of Common Stock held by stockholders of record on October 16, 1995. In June 1996, the Company authorized a 2-for-1 stock split on its Common Stock effective July 2, 1996. The stock split was paid in the form of a one-share dividend for every share of Common Stock held by stockholders of record on June 19, 1996. All references herein to the Common Stock are on a post-split basis. The closing stock price for the Company's Common Stock on the New York Stock Exchange was $30.50 on December 31, 1996.
Fiscal Year 1996 High Low ---------------- ---- --- First Quarter $28.50 $17.38 Second Quarter 42.44 26.81 Third Quarter 35.50 27.25 Fourth Quarter 31.75 23.13 Fiscal Year 1995 ---------------- First Quarter $ 7.66 $ 4.13 Second Quarter 9.41 7.35 Third Quarter 12.16 8.85 Fourth Quarter 19.19 11.72
(b) As of March 18, 1997, there were approximately 1,267 holders of record of the Common Stock and 243 holders of record of the Company's warrants to purchase Common Stock. (c) The Company has not paid any cash dividends to its common stockholders since its inception and does not anticipate paying any cash dividends to its common stockholders in the foreseeable future. The Company intends to retain earnings to provide funds for its operations and growth. Future cash dividend policy will be determined by the Board of Directors based on conditions then existing, including the Company's earnings and financial condition, capital requirements and other relevant factors. In addition, cash dividends may not be paid without the consent of the Company's lenders. 35 36 In September 1992, the Company issued a warrant dividend to its holders of Common Stock by distributing one warrant for every five outstanding shares of common stock held on the record date (the "Warrants"). The Warrants expire on September 14, 1997 and are convertible into four shares of Common Stock at an exercise price of $8.50. As of March 18, 1997, an aggregate of 3,268,652 shares of Common Stock currently were issuable upon exercise of the Warrants. ITEM 6. SELECTED FINANCIAL DATA The selected historical financial data for the five years ended December 31, 1996 are derived from the Company's consolidated financial statements and include financial data reflecting the acquisitions of TransCor in December 1994, Concept in April 1995 and CPI in August 1995, all of which were accounted for as poolings-of-interests. All information contained in the following table should be read in conjunction with the consolidated financial statements and related notes of the Company included herein. 36 37 CORRECTIONS CORPORATION OF AMERICA INCOME STATEMENT (In thousands, except per share data) Years Ended December 31,
1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- Revenues: $ 95,518 $132,534 $152,375 $207,241 $292,513 Expenses: Operating 74,796 108,026 123,540 158,814 213,173 General and administrative 8,408 7,885 9,413 14,288 13,428 Depreciation and amortization 5,468 5,759 5,753 6,524 11,339 -------- -------- -------- -------- -------- 88,672 121,670 138,706 179,626 237,940 -------- -------- -------- -------- -------- Contribution from operations 6,846 10,864 13,669 27,615 54,573 Interest expense, net 4,264 4,424 3,439 3,952 4,224 -------- -------- -------- -------- -------- Income before income taxes 2,582 6,440 10,230 23,663 50,349 Income tax provision 50 832 2,312 9,330 19,469 -------- -------- -------- -------- -------- Net income 2,532 5,608 7,918 14,333 30,880 Preferred stock dividends 71 425 204 - - -------- -------- -------- -------- -------- Net income allocable to common stockholders $ 2,461 $ 5,183 $ 7,714 $ 14,333 $ 30,880 ======== ======== ======== ======== ======== Net income per share: Primary $ .06 $ .10 $ .12 $ .19 $ .38 Fully diluted $ .05 $ .10 $ .12 $ .18 $ .36 Weighted average shares outstanding: 41,544 51,762 61,908 75,110 81,664 Working capital $ 11,074 $ 12,540 $ 12,587 $ 11,093 $ 50,548 Total assets $103,295 $109,285 $141,792 $213,478 $468,888 Long-term obligations, less current portion $ 56,277 $ 50,558 $ 47,984 $ 74,865 $117,535 Redeemable convertible preferred stock $ 5,000 $ 5,000 $ --- $ --- $ --- Total stockholders' equity $ 27,928 $ 34,182 $ 61,757 $ 96,704 $281,752
37 38 SALES OF UNREGISTERED SECURITIES Since December 31, 1995, the Company has issued the following unregistered securities: (A) On February 29, 1996, the Company sold an aggregate principal amount of $30,000,000 of Convertible Subordinated Notes to PMI Mezzanine Fund, L.P. in a private placement pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"). Such notes bear interest at a rate of 7.5% per annum, mature on February 29, 2002, and the principal and accrued interest thereon are convertible into shares of Common Stock of the Company at a conversion price, as adjusted, of $25.91 per share. (B) On April 5, 1996, the Company sold an aggregate principal amount of $20,000,000 Convertible Subordinated Notes to Sodexho in a private placement pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act. Such notes bear interest at a rate of 7.5% per annum, mature on April 5, 2002 and the principal and accrued interest thereon are convertible into shares of Common Stock of the Company at a conversion price, as adjusted, of $25.91 per share. (C) On August 1, 1996, the Company issued and sold an aggregate principal amount of $24,700,000 Corrections Corporation of America Detention Center Revenue Bonds Series 1996 in a private placement pursuant to Rule 506 of Regulation D promulgated under the Securities Act. Such bonds were issued pursuant a Trust Indenture (the "Indenture") between the Company and Liberty Bank and Trust Company of Tulsa, National Association. The bonds and interest thereon are limited obligations of the Company payable solely from revenues and funds pledged under the Indenture and from moneys drawn under an irrevocable letter of credit. The bonds bear interest at a variable rate payable monthly and mature on December 15, 2015. No underwriters were engaged in connection with the foregoing sales of securities. 38 39 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company presently has contracts to manage 59 correctional and detention facilities with an aggregate design capacity of 42,537 beds. Of these 59 facilities, 47 are currently in operation and 12 are under development by the Company. The Company, through its United Kingdom joint venture, UKDS, manages one facility in the United Kingdom and, through its Australian joint venture, CC Australia, manages two facilities in Australia. The Company's ownership interest in CC Australia is accounted for under the equity method. Of the 12 facilities under development by the Company, seven are scheduled to commence operations during 1997 (three in the second quarter and four in the third quarter) and five are scheduled to commence operations during 1998. In addition, at March 18, 1997, the Company had outstanding written responses to Request for Proposals and other solicitations for 12 projects with an aggregate design capacity of 11,035 beds. The following table sets forth the number of facilities under contract or award at the end of the periods shown:
December 31, ----------------------------------- 1994 1996 1995 ---- ---- ---- Contracts(1) . . . . . . . . . . . . . . . . . . . 59 47 39 Facilities in operation . . . . . . . . . . . . . . 42 38 31 Design capacity of contracts . . . . . . . . . . . 41,135 28,607 19,735 Design capacity of facilities in operation . . . . 24,310 20,252 13,404 Compensated mandays(2) . . . . . . . . . . . . . . 7,113,794 4,799,562 3,768,095
(1) Comprised of facilities in operation and facilities under development for which contracts have been finalized. (2) Compensated mandays for a period ended are calculated, for per diem rate facilities, as the number of beds occupied by residents on a daily basis during the period ended and, for fixed rate facilities, as the design capacity of the facility multiplied by the number of days the facility was in operation during the period. The Company derives substantially all of its revenues from the management of correctional and detention facilities for national, federal, state and local governmental agencies in the United States and abroad. 39 40 Geographic Market Concentration. The Company currently manages facilities in 14 states, Washington, D.C. and Puerto Rico. Management revenues by state, as a percentage of the Company's total revenues for years ended December 31, 1996 and 1995, respectively, are as follows:
Percentage of Percentage of No. of Fiscal 1996 No. of Fiscal 1995 State Facilities Total Revenues Facilities Total Revenues - ----- ---------- -------------- ---------- -------------- Arizona 2 14.7% 2 16.5% Colorado 1 .3% 0 0.0% Florida 4 10.3% 5 7.8% Indiana 1 .4% 1 1.4% Kansas 1 3.0% 2 4.6% Louisiana 1 4.7% 1 6.1% Minnesota 1 .7% 0 0.0% Mississippi 1 1.1% 0 0.0% New Mexico 3 6.7% 3 8.4% Oklahoma 2 3.0% 1 1.9% Puerto Rico 1 4.7% 1 .1% South Carolina 1 2.1% 0 0.0% Tennessee 8 19.2% 8 25.2% Texas 12 23.6% 12 22.7%
To the extent favorable or unfavorable changes in regulations or market conditions occur in these markets, such changes would likely have a corresponding impact on the Company's results of operations. Revenues for operation of correctional and detention facilities are recognized as the services are provided, based on a net rate per day per inmate ("per diem" rate) or on a fixed monthly rate ("fixed or determined" rate). Of the Company's 44 domestic facilities in operation, 40 are compensated on a per diem basis and four are compensated at fixed monthly rates. The per diem rates or fixed monthly rates vary according to the type of facility and the extent of services provided at the facility. Transportation revenues are based on a per mile charge or a fixed fee per trip. The Company incurs all facility operating expenses, except for certain debt service and lease payments with respect to certain facilities that the Company does not own or lease. The Company owns 13 of the domestic facilities it currently manages. The Company currently manages 31 domestic facilities that are owned or leased by a governmental agency, construction of which as been financed by the agency through one or more of a variety of methods. 40 41 Facility payroll and related taxes constitute the majority of facility operating expenses. Substantially all other operating expenses consist of food, clothing, medical services, utilities, supplies, maintenance, insurance and other general operating expenses. As inmate populations increase following the start-up of a facility, operating expenses generally decrease as a percentage of related revenues. Each facility is fully staffed at the time it is open or taken over by the Company, although it may be operating at a relatively low occupancy rate at such time. General and administrative costs consist of salaries of officers and other corporate headquarters personnel, legal, accounting and other professional fees (including pooling expenses related to certain acquisitions), travel expenses, executive office rental, and promotional and marketing expenses. The most significant component of these costs relates to the hiring and training of experienced corrections and administrative personnel necessary for the implementation and maintenance of the facility management and transportation contracts. Operating income for each facility depends upon the relationship between operating costs, the rate at which the Company is compensated per manday, and the occupancy rate. The rates of compensation are fixed by contract and approximately two-thirds of all operating costs are fixed costs. Therefore, operating income will vary from period to period as occupancy rates fluctuate. Operating income will be affected adversely as the Company increases the number of newly-constructed or expanded facilities under management and experiences initial low occupancy rates. After a management contract has been awarded, the Company incurs facility start-up costs that consist principally of initial employee training, travel and other direct expenses incurred in connection with the contract. These costs are capitalized and amortized on a straight-line basis over the shorter of the term of the contract plus renewals, or five years. Depending on the contract, start-up costs are either fully recoverable as pass-through costs or are billable to the contracting agency over the original term of the contract plus renewals. The Company has historically financed start-up costs through available cash, the issuance of various securities, cash from operations and borrowings under the Company's revolving credit facility. Newly opened facilities are staffed according to contract requirements when the Company begins receiving inmates. Inmates are typically assigned to a newly opened facility on a regulated, structured basis over a one-to-three month period. Until expected occupancy levels are reached, operating losses may be incurred. 41 42 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage of revenues of certain items in the Company's statement of operations and the percentage change from period to period in such items:
Period-to-Period Percentage Changes ------------------- December 31, 1996 1995 ------------ Compared Compared 1996 1995 1994 to 1995 to 1994 ---- ---- ---- ------- ------- Revenues: 100.0% 100.0% 100.0% 41.1% 36.0% Expenses Operating 72.9 76.6 81.1 34.2 28.6 General and administrative 4.6 6.9 6.1 (6.0) 51.8 Depreciation and amortization 3.9 3.2 3.8 73.8 13.4 ----- ---- ---- Operating income 18.6 13.3 9.0 97.6 102.0 ----- ---- ---- Interest expense, net 1.4 1.9 2.3 6.9 14.9 ----- ---- ---- Income before income taxes 17.2 11.4 6.7 112.8 131.3 Provision for income taxes 6.6 4.5 1.5 108.7 303.5 ----- ---- ---- Net Income 10.6 6.9 5.2 115.4 81.0 Preferred stock dividends .0 .0 .1 0 (100.0) ----- ---- ---- Net Income allocable to common stockholders 10.6% 6.9% 5.1% 115.4% 85.8% ===== ==== ====
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995 Revenues. Total revenues increased 41% from 1995 to 1996 with increases in both management and transportation services. Management revenues increased 43% in 1996, or $84,171,000. This increase is due to the opening of new facilities and the expansion of existing facilities by the Company in 1995 and 1996. In 1996, the Company opened four new facilities with an aggregate design capacity of 2,501 beds, assumed management of two facilities with an aggregate design capacity of 899 beds and expanded five existing facilities to increase their design capacity by an aggregate of 1,058 beds. Accordingly, 4,458 new beds were brought on line in 1996. Due to the growth in beds, compensated mandays increased 48% in 1996 from 4,799,562 to 7,113,794. Average occupancy remained stable at 94.1% for 1996 as compared to 93.9% for 1995. Transportation revenues increased $1,101,000 or 12% in 1996 as compared to 1995. The 1996 growth was due to a continued marketing effort that expanded the customer base and resulted in increased compensated mileage. 42 43 During the second and fourth quarters of 1996, the Company purchased the remaining two-thirds of UK Detention Services, a United Kingdom joint venture ("UKDS") from its original joint venture partners. After consideration of several strategic alternatives related to UKDS, the Company sold 20% of the entity to Sodexho S.A. ("Sodexho"), a French conglomerate, and recognized an after-tax gain of $515,000. In conjunction with this transaction, Sodexho was also provided the option to purchase an additional 30% of UKDS, which option expires in 1997. Facility Operating Expenses. Facility operating expenses increased 34.2% to $213,173,000 in 1996 compared to $158,814,000 in 1995. This increase was due to the additional beds on line that increased compensated mandays and the growth in the transportation services. The average management operating cost per manday was $28.82 for 1996 as compared to $31.59 for 1995. The decrease in average cost per manday was due to the Company's ability to realize more economies of scale as additional beds were brought on line. As a percentage of revenues, facility operating expenses decreased to 73% from 77%. This decrease is primarily attributable to the expansion of various facilities that added lower incremental operating expenses and improved economies of scale. Salary and related employee benefits constituted approximately 63% and 58% of facility operating expenses for 1996 and 1995, respectively. General and Administrative. General and administrative costs decreased 6% in 1996 to $13,428,000 as compared to $14,288,000 in 1995. This decrease is due to the non-recurring pooling expenses associated with acquisitions during fiscal 1995 as well as the Company's ability to reduce duplication in the general and administrative areas by integrating the acquired companies into its systems. Management believes that as the Company continues to grow, general and administrative expenses should increase in volume but continue to decrease as a percentage of revenues. Depreciation and Amortization. Depreciation and amortization increased 74% to $11,339,000 in 1996 as compared to $6,524,000 in 1995. The 1996 increase is due to the growth in total beds in Company-owned facilities as well as the one- time, non-recurring reserve of $850,000 established for the termination of the Company's contract with South Carolina. Interest Expenses, Net. Interest expense, net increased 7% in 1996, consisting of a 48% or $2,666,000, increase in interest expense and a 151%, or $2,394,000, increase in interest income. Interest expense increased due primarily to the addition of $50,000,000 in convertible subordinated notes issued in February and April 1996, bearing interest at 7.5%. Interest income increased as a result of the Company investing the net proceeds from an equity offering, which closed in June 1996. YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994 As discussed in Note 2 to the accompanying consolidated financial statements, in 1994 and 1995, the Company expanded its service capabilities and broadened its geographic presence in the United States through a series of strategic acquisitions that complemented the Company's 43 44 development activities (collectively, the "Acquisitions"). In December 1994, the Company acquired TransCor America, Inc. ("TransCor"), a nationwide provider of inmate transportation services. In April 1995, the Company acquired Concept Incorporated ("Concept"), a prison management company with eight facilities and 4,400 beds under contract at the time of acquisition. In August 1995, the Company acquired Corrections Partners, Inc. ("CPI"), a prison management company with seven facilities and 2,900 beds under contract at the time of acquisition. The Company's operating results for 1995 were significantly affected by the Acquisitions. All of these business combinations were accounted for as a pooling-of- interests and, accordingly, the operations of TransCor, Concept and CPI have been combined in the accompanying consolidated financial statements. The discussion herein is based upon the combined operations of the Company, TransCor, Concept and CPI for all periods presented in the accompanying consolidated financial statements. Revenues. Total revenues increased 36% from 1994 to 1995 with increases in both management and transportation services. Management revenues increased 37% in 1995, or $53,213,000. This increase was due to the opening of new facilities and the expansions of existing facilities in 1994 and 1995 by the Company and the related Acquisitions. In 1995, the Company opened five new facilities with an aggregate design capacity 3,390 beds and assumed management of three facilities with an aggregate design capacity 1,688 beds. The Company also realized the full-year effect of three facilities added in 1994 with an aggregate design capacity 1,560 beds. The third contributing factor to growth was the expansion of 13 existing facilities to increase their design capacity by 1,887 beds. Due to the growth in the number of beds, compensated mandays increased 27% in 1995 from 3,768,095 to 4,799,562. Average occupancy remained stable at 93.9% for 1995 as compared to 93.5% for 1994. Transportation revenues increased $1,653,000 or 21% in 1995 as compared to 1994. The 1995 growth was due to a continued marketing effort that expanded the customer base and resulted in increased compensated mileage. During the first quarter of 1995, the Company purchased the remaining 50% of CC Australia from its original joint venture partner. After consideration of several strategic alternatives related to CC Australia, the Company then sold 50% of the entity to Sodexho during the second quarter of 1995. The Company accounted for the 100% ownership period on the equity basis of accounting and recognized an after-tax gain of $783,000 on the sale. Facility Operating Expenses. Facility operating expenses increased 29% to $158,814,000 in 1995 compared to $123,540,000 in 1994. This increase was due to the additional beds on line that increased compensated mandays and the growth in the transportation services. The average management operating cost per manday was $31.59 for 1995 as compared to $31.16 for 1994. The increase in average cost per manday was due to the significant number of new beds brought on line in 1995. As the five new facilities were opened, the full complement of fixed costs was being incurred prior to full occupancy. As a percentage of revenues, however, facility operating expenses decreased to 77% from 81%. This decrease was primarily attributable to the expansion 44 45 of various facilities that added lower incremental operating expenses and improved economies of scale. Salary and related employee benefits constituted approximately 58% and 55% of facility operating expenses for 1995 and 1994, respectively. General and Administrative. General and administrative costs increased 52% in 1995 to $14,288,000 as compared to $9,413,000 in 1994. Included in 1995 were approximately $950,000 of non-recurring pooling expenses related to the Acquisitions. The Company has also expanded its management staff to manage its significant growth. Additional staff was added to bring new business on line, resulting in cost being incurred prior to revenue being realized. Also, as all transition issues are finalized from the acquired operations and the duplicate services are consolidated, general and administrative costs should decrease as a percentage of revenues. Depreciation and Amortization. Depreciation and amortization increased $771,000, to $6,524,000 in 1995 as compared to $5,753,000 in 1994. The 1995 increase was due to the growth in total beds in Company-owned facilities. Interest Expenses, Net. Interest expense, net increased 15% in 1995 due to the assumption of debt related to the Eloy Detention Center in Eloy, Arizona. In July, 1995 the Company acquired the remaining 50% of the investment in a partnership and assumed the assets and debts. Income Taxes. In 1995, the Company's effective income tax rate increased to 39% as compared to 23% in 1994. This increase in taxes was due to the Company's complete utilization of net operating loss carryforwards, therefore becoming subject to full statutory tax rates. LIQUIDITY AND CAPITAL RESOURCES The Company's business is capital intensive in relation to the development of a correctional facility. The Company's efforts to obtain contracts, construct additional facilities and maintain its day-to-day operations have required the continued acquisition of funds through borrowings and equity offerings. Historically, the Company has financed these activities with cash generated from operating and bank borrowings, the issuance and sale of capital stock, subordinated convertible notes and senior secured debt, taxable and tax-exempt bonds, and by assisting governmental agencies in their issuance of municipal bonds. The Company's current ratio increased to 1.79 in 1996 as compared to 1.31 in 1995. The increase was due to the increase in accounts receivable that resulted from additional beds on line, as well as an increase in construction receivables for facilities being constructed by the Company. The ratio of long-term debt to total capitalization was 29% at December 31, 1996 compared to 44% at December 31, 1995. In October 1995, the Company declared a two-for-one stock split paid in the form of a one-share dividend for every share of Common Stock held on the record date. In June 1996, the Company declared a second two-for-one stock split paid in the form of a one-share dividend for every share of Common Stock held on the record date. All references to number of shares have been adjusted for both stock splits. 45 46 Cash flow from operations for 1996 was approximately $24,390,000 as compared to $17,766,000 in 1995 and $11,637,000 in 1994. The Company has strengthened its cash flow through its expanded business, additional focus on larger, more profitable facilities, its expansion of existing facilities where economies of scale could be realized, and its continuing effort of cost containment. In 1994, the Company entered into an international strategic alliance with Sodexho for the purpose of pursuing prison management business outside the United States. In connection with this alliance, Sodexho purchased a significant ownership interest in the Company and entered into certain agreements with the Company relating to future financings by the Company and certain corporate governance and control issues. These issues included the grant by the Company to Sodexho of a preemptive right to purchase additional shares of Common Stock in securities convertible into or exchangeable for Common Stock in any amount necessary to enable Sodexho to maintain a percentage ownership in the Company equal to 20% of the Common Stock on a fully diluted basis. In February 1996, the Company issued $30,000,000 of its convertible subordinated notes to an investor. The proceeds were used to repay the outstanding principal under the Company's working capital credit facility and construction loan. The notes bear interest at 7.5%, payable quarterly, and require the Company to maintain specific ratio requirements relating to net worth, cash flow and debt coverage. The notes are convertible into shares of the Company's Common Stock at a conversion price, as adjusted, of $25.91 per share. In April 1996, due to the triggering of its preemptive right in connection with the issuance of the convertible subordinated notes, Sodexho purchased $20,000,000 of convertible subordinated notes under the same terms and conditions. In June 1996, the Company completed a public offering of 3,750,000 shares of common stock at a price to the public of $37.50 per share. The proceeds of the offering, after deducting all associated costs, were $131,812,000. In August 1996, the Company issued $24,700,000 of Revenue Bonds to finance the construction of a 480-bed medium security detention facility located in Taylor, Texas. These bonds are taxable low floaters and are secured by an irrevocable direct pay letter of credit issued by a group of banks. In September 1996, the Company entered into a new revolving credit facility with a group of banks. The new revolving credit facility replaces the $25,000,000 revolving line of credit which was scheduled to mature in May 1997. The new revolving credit facility provides for general corporate borrowings up to $170,000,000, which includes the issuance of a maximum of $136,000,000 in letters of credit and matures in September 1999. The credit facility is secured by the pledge of stock of the Company's first tier domestic subsidiaries and bears interest, at the election of the Company, at either the agent bank's prime rate or a rate which is .5%, .75% or 1.0% above the applicable 30, 60 or 90-day LIBOR rate, depending on the Company's leverage 46 47 ratio. Interest is payable quarterly with respect to prime rate loans and at the expiration of the applicable period with respect to LIBOR rate-based loans. There are no prepayment penalties associated with the credit facility. The credit facility requires the Company, among other things, to maintain specific ratio requirements relating to net worth, leverage and debt service coverage. The facility also limits certain payments and distributions. As of December 31, 1996, there were $4,000,000 in borrowings under the facility. Letters of credit totaling $65,011,369 had been issued, leaving the unused commitment at $100,988,631. In September 1996, the Company also closed a $2,500,000 credit facility with a bank that provides for the issuance of letters of credit and matures in September 1999. As of December 31, 1996, there were $1,393,274 in letters of credit issued, leaving the unused commitment at $1,106,726. The Company anticipates making cash investments in connection with future acquisitions and expansions. In addition, the Company plans to use a portion of its cash to finance start-up costs, leasehold improvements and equity investments in facilities, if appropriate in connection with undertaking new contracts. The Company believes that the cash flow from operations, proceeds from the secondary offering and amounts available under its credit facility will be sufficient to meet its capital requirements for the foreseeable future. Furthermore, management believes that additional resources may be available to the Company through a variety of other financing methods. Statements contained in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations relating to anticipated growth in revenues, anticipated working capital and sources of funding for growth opportunities and construction expenditures, interest costs and income constitute "forward-looking statements." The projections made herein are expressed in good faith and believed by the Company to have a reasonable basis, but there can be no assurance that actual outcomes or results will not differ materially from the expected outcomes or results described herein. Important factors that could cause actual results to differ materially from the forward-looking statements identified in this paragraph are discussed in the section entitled "Business - Risk Factors" and accompany such forward- looking statements. INFLATION Many of the Company's facility contracts provide periodic adjustments in the compensation paid to the Company in accordance with changes in the consumer price index during such period. Management does not believe that inflation has had a material adverse effect on the revenues or expenses of the Company. IMPACT OF ACCOUNTING PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the Impairment of Long-Lived 47 48 Assets and Long-Lived Assets to be Disposed Of." This statement imposes stricter criteria for long-term assets by requiring that such assets be probable of future recovery at each balance sheet date. The Company adopted SFAS 121 effective January 1, 1996. Such adoption did not have a material impact on the results of operations, financial condition or cash flows of the Company. In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based Compensation." This statement requires new disclosures in the notes to the financial statements regarding stock-based compensation plans based on the fair value of equity instruments granted. Companies also may base the recognition of compensation costs for instruments issued under stock-based compensation plans on these fair values. The Company adopted the disclosure requirements of SFAS 123 effective January 1, 1996, but did not change the method of accounting for these plans. The FASB has approved a statement of financial accounting standards effective for fiscal years ending after December 15, 1997 which establishes standards for computing and presenting earnings per share and also establishes standards with respect to disclosure of information regarding an entity's capital structure. While the Company is required to adopt the provisions of the new standard in the first quarter of 1997, it does not expect the adoption thereof to have a material effect on the Company's results of operations. 48 49 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS
Page ---- Report of Independent Public Accountants . . . . . . . . . . . . . . . . . F-2 Consolidated Balance Sheets at December 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3 Consolidated Statements of Operations for the years ended December 31, 1996, 1995, and 1994 . . . . . . . . . . . . . . . . . F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995, and 1994 . . . . . . . . . . . . . . . . . F-5 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995, and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . F-10
49 50 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There have been no disagreements with the Company's accountants on any matter of accounting principles and practices or financial statement disclosures. Arthur Andersen LLP was selected by the Company's Board of Directors to serve in such capacity during the fiscal year 1996 and has been selected by the Board to serve in such capacity during the fiscal year 1997. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The information required by this item will appear in, and is incorporated by reference from, the sections entitled "Proposals for Stockholder Action - Proposal 1. Election of Directors" and "Management - Directors and Executive Officers" included in the Company's definitive Proxy Statement relating to the 1997 Annual Meeting of Stockholders, which will be filed with the Commission pursuant to Regulation 14A no later than April 30, 1997. ITEM 11. EXECUTIVE COMPENSATION The information required by this item will appear in the sections entitled "Executive Compensation," included in the Company's definitive Proxy Statement relating to the 1997 Annual Meeting of Stockholders, which will be filed with the Commission pursuant to Regulation 14A no later than April 30, 1997; which information, other than the Compensation Committee Report and Performance Graph required by Items 402(k) and (l) of Regulation S-K, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item will appear in, and is incorporated by reference from, the section entitled "Security Ownership of Directors, Officers and Principal Stockholders" included in the Company's definitive Proxy Statement relating to the 1997 Annual Meeting of Stockholders, which will be filed with the Commission pursuant to Regulation 14A no later than April 30, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item will appear in, and is incorporated by reference from, the sections entitled "Certain Relationships and Related Transactions" included 50 51 in the Company's definitive Proxy Statement relating to the 1997 Annual Meeting of Stockholders, which will be filed with the Commission pursuant to Regulation 14A no later than April 30, 1997. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Report: (1) Financial Statements. The Financial Statements as set forth under Item 8 of this report on Form 10-K have been filed herewith, beginning on Page F-1 of this report. (2) Financial Statement Schedules. All schedules specified in the accounting regulations of the Securities and Exchange Commission have been omitted because they are either inapplicable or are not required. (3) The Exhibits are listed in the Index of Exhibits Required by Item 601 of Regulation S-K included herewith. (b) No reports on Form 8-K were filed during the last quarter of the period covered by this Report. (c) Certain Exhibits. See Item 14(a)(3) above. (d) Certain Financial Statements. See Item 14(a) (1) and (2) above. 51 52 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CORRECTIONS CORPORATION OF AMERICA Date: March 28, 1997 By: /s/ Doctor R. Crants ------------------------- Doctor R. Crants, Chairman of the Board and Chief Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below constitutes and appoints DOCTOR R. CRANTS and DARRELL K. MASSENGALE, and each of them, as 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 amendments to the Annual Report on Form 10-K of Corrections Corporation of America for the fiscal year ended December 31, 1996, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission and the New York Stock Exchange, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the 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 either of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. 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 Company and in the capacities and on the dated indicated. Date: March 28, 1997 /s/ Doctor R. Crants ---------------------------------------- Doctor R. Crants, Chairman of the Board, Chief Executive Officer and Director (Principal Executive Officer) Date: March 28, 1997 /s/ Darrell K. Massengale ---------------------------------------- Darrell K. Massengale, Vice President, Finance; Chief Financial Officer; Secretary and Treasurer (Principal Financial and Accounting Officer) 53 53 Date: March 28, 1997 /s/ Thomas W. Beasley ----------------------------------------- Thomas W. Beasley, Chairman Emeritus and Director Date: March 28, 1997 /s/ Joseph F. Johnson ----------------------------------------- Joseph F. Johnson, Director Date: March 28, 1997 /s/ William F. Andrews ----------------------------------------- William F. Andrews, Director Date: March 28, 1997 /s/ R. Clayton McWhorter ----------------------------------------- R. Clayton McWhorter, Director Date: March 28, 1997 /s/ Samuel W. Bartholomew, Jr. ----------------------------------------- Samuel W. Bartholomew, Jr., Director Date: March 28, 1997 /s/ Jean-Pierre Cuny ----------------------------------------- Jean-Pierre Cuny, Director
54 54 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1996 AND 1995 TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-1 55 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Corrections Corporation of America and Subsidiaries: We have audited the accompanying consolidated balance sheets of CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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 Corrections Corporation of America and Subsidiaries as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Nashville, Tennessee February 18, 1997 F-2 56 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (IN THOUSANDS)
ASSETS 1996 1995 - --------------------------------------------------------------- -------------- --------------- CURRENT ASSETS: Cash, cash equivalents and restricted cash $ 8,282 $ 2,714 Accounts receivable, net of allowances 100,551 39,661 Prepaid expenses 2,940 1,569 Deferred tax assets 1,026 1,646 Other 1,643 1,020 -------------- -------------- Total current assets 114,442 46,610 RESTRICTED INVESTMENTS 587 443 OTHER ASSETS 29,405 18,752 PROPERTY AND EQUIPMENT, NET 288,697 137,019 NOTES RECEIVABLE 22,859 890 INVESTMENT IN DIRECT FINANCING LEASES 12,898 9,764 -------------- -------------- $ 468,888 $ 213,478 ============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY - -------------------------------------------------------------- CURRENT LIABILITIES: Accounts payable $ 39,224 $ 10,757 Accrued salaries and wages 5,487 3,480 Accrued property taxes 1,675 1,623 Other accrued expenses 9,227 8,637 Current portion of long-term debt 8,281 11,020 -------------- -------------- Total current liabilities 63,894 35,517 LONG-TERM DEBT, NET OF CURRENT PORTION 117,535 74,865 DEFERRED TAX LIABILITIES 4,717 4,164 OTHER NONCURRENT LIABILITIES 990 2,228 -------------- -------------- Total liabilities 187,136 116,774 -------------- -------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock - $1 (one dollar) par value; 150,000 shares authorized 75,029 64,540 Additional paid-in capital 165,317 16,560 Retained earnings 42,132 15,641 Treasury stock, at cost (726) (37) -------------- --------------- Total stockholders' equity 281,752 96,704 -------------- --------------- $ 468,888 $ 213,478 ============== ===============
The accompanying notes are an integral part of these consolidated statements. F-3 57 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1994 --------- --------- -------- REVENUES $ 292,513 $ 207,241 $152,375 EXPENSES: Operating 213,173 158,814 123,540 General and administrative 13,428 14,288 9,413 Depreciation and amortization 11,339 6,524 5,753 --------- --------- -------- OPERATING INCOME 54,573 27,615 13,669 INTEREST EXPENSE, NET 4,224 3,952 3,439 --------- --------- -------- INCOME BEFORE INCOME TAXES 50,349 23,663 10,230 PROVISION FOR INCOME TAXES 19,469 9,330 2,312 --------- --------- -------- NET INCOME 30,880 14,333 7,918 PREFERRED STOCK DIVIDENDS - - 204 --------- --------- -------- NET INCOME ALLOCABLE TO COMMON STOCKHOLDERS $ 30,880 $ 14,333 $ 7,714 ========= ========= ======== NET INCOME PER COMMON SHARE: Primary $ .38 $ .19 $ .12 ========= ========= ======== Fully diluted $ .36 $ .18 $ .12 ========= ========= ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 81,664 75,110 61,908 ========= ========= ========
The accompanying notes are an integral part of these consolidated statements. F-4 58 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS)
1996 1995 1994 -------------- -------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 30,880 $ 14,333 $ 7,918 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,339 6,524 5,753 Deferred and other noncash income taxes 13,117 6,162 878 Other noncash items 524 - - (Gain) loss on disposal of assets (3,501) (1,284) 11 Equity in earnings of unconsolidated entities (1,098) (619) (422) Changes in assets and liabilities, net of acquisitions: Accounts receivable (55,993) (12,750) (7,901) Prepaid expenses (1,371) (18) (70) Other current assets (623) (87) (259) Accounts payable 28,467 1,991 4,537 Accrued expenses 2,649 3,514 1,192 --------------- --------------- -------------- Net cash provided by operating activities 24,390 17,766 11,637 --------------- --------------- -------------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions of property and equipment (165,703) (25,926) (24,891) Acquisition of UCLP - (5,250) - Increase in restricted cash and investments (3,025) (619) (7) Increase in other assets (11,163) (8,500) (1,836) Investment in affiliates, net (3,138) (3,717) (426) Proceeds from disposals of assets 6,747 3,763 25 Purchase of notes receivable (22,500) - (900) Increase in direct financing leases (3,693) - - Payments received on direct financing leases and notes receivable 553 328 286 --------------- --------------- -------------- Net cash used in investing activities (201,922) (39,921) (27,749) --------------- --------------- --------------
(Continued) F-5 59 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
1996 1995 1994 ------------ ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of long-term debt $74,700 $7,111 $15,974 Payments on long-term debt (24,443) (8,648) (14,159) Payments on notes payable to stockholders - - (403) (Payments on) proceeds from line of credit, net (10,500) 13,715 270 Payment of debt issuance costs (433) (260) - Payments of dividends - - (291) Proceeds from issuance of common stock 131,006 7,859 10,571 Proceeds from exercise of stock options and warrants 9,889 868 1,137 Purchase of treasury stock and warrants - (630) - ----------- ----------- ------------ Net cash provided by financing activities 180,219 20,015 13,099 ----------- ----------- ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,687 (2,140) (3,013) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,145 4,285 7,298 ----------- ----------- ------------ CASH AND CASH EQUIVALENTS, END OF YEAR $4,832 $2,145 $4,285 =========== =========== ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest (net of amounts capitalized) $8,979 $5,145 $4,854 =========== =========== ============ Income taxes $6,630 $3,060 $1,572 =========== =========== ============
(Continued) F-6 60 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
1996 1995 1994 -------------- -------------- ------------- SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND -------------- -------------- ------------- FINANCING ACTIVITIES: - -------------------------------------------------------- The company entered into an international alliance and -------------- -------------- ------------- equity participation which included the deferral of the payment of certain issuance costs: - -------------------------------------------------------- Other assets $ - $ - $ (3,488) - -------------------------------------------------------- -------------- -------------- ------------- Other accrued expenses - - 990 - -------------------------------------------------------- -------------- -------------- ------------- Other noncurrent liabilities - - 2,970 - -------------------------------------------------------- -------------- -------------- ------------- Additional paid-in capital - - (472) - -------------------------------------------------------- -------------- -------------- ------------- $ - $ - $ - ============== ============== ============= Long-term debt was converted into common stock through the exercise of stock warrants: Other assets $ - $ 27 $ 9 Long-term debt - (1,428) (357) Common stock - 400 100 Additional paid-in capital - 1,001 248 -------------- -------------- -------------- $ - $ - $ - ============== ============== ============= Redeemable convertible preferred stock was converted into common stock: Other assets $ - $ - $ 290 Preferred stock - - (5,000) Common stock - - 1,400 Additional paid-in capital - - 3,310 -------------- -------------- -------------- $ - $ - $ - ============== ============== =============
(Continued) F-7 61 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS)
COMMON STOCK ADDITIONAL ------------------------ ------------------------- SHARES AMOUNT SHARES AMOUNT ------- ------ ------ ------ BALANCE, DECEMBER 31, 1993 48,600 $48,600 (148) $(340) Issuance of common stock 3,712 3,712 - - Stock options exercised and warrants converted to stock 3,432 3,432 70 33 Income tax benefits of incentive stock option exercises - - - - Conversion of long-term debt and preferred stock 3,636 3,636 - - Preferred stock dividends - - - - Net income - - - - BALANCE, DECEMBER 31, 1994 59,380 59,380 (78) (307) Issuance of common stock 1,158 1,158 - - Stock options exercised and warrants repurchased or converted to stock 2,228 2,228 74 270 Income tax benefits of incentive stock option exercises - - - - Conversion of long-term debt 1,774 1,774 - - Net income - - - - BALANCE, DECEMBER 31, 1995 64,540 64,540 (4) (37) Issuance of common stock 3,700 3,700 - - Stock options exercised and warrants converted to stock 6,789 6,789 (19) (689) Income tax benefits of incentive stock option exercises - - - - Compensation expense related to deferred stock awards - - - - Net income - - - - BALANCE, DECEMBER 31, 1996 75,029 $75,029 (23) $(726)
RETAINED TOTAL ISSUED CAPITAL (DEFICIT) EQUITY BALANCE, DECEMBER 31, 1993 $(10,780) $(3,298) $34,182 Issuance of common stock 6,387 - 10,099 Stock options exercised and warrants converted to stock (1,430) (550) 1,485 Income tax benefits of incentive stock option exercises 593 - 593 Conversion of long-term debt and preferred stock 4,048 - 7,684 Preferred stock dividends - (204) (204) Net income - 7,918 7,918 BALANCE, DECEMBER 31, 1994 (1,182) 3,866 61,757 Issuance of common stock 7,184 - 8,342 Stock options exercised and warrants repurchased or converted to stock 1,699 (2,558) 1,639 Income tax benefits of incentive stock option exercises 3,987 - 3,987 Conversion of long-term debt 4,872 - 6,646 Net income - 14,333 14,333 BALANCE, DECEMBER 31, 1995 16,560 15,641 96,704 Issuance of common stock 128,112 - 131,812 Stock options exercised and warrants converted to stock 8,177 (4,389) 9,888 Income tax benefits of incentive stock option exercises 11,944 - 11,944 Compensation expense related to deferred stock awards 524 - 524 Net income - 30,880 30,880 BALANCE, DECEMBER 31, 1996 $165,317 $42,132 $281,752
The accompanying notes are an integral part of these consolidated statements. F-9 62 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (Continued)
1996 1995 1994 ------------- -------------- ------------- Long-term debt was converted into common stock: Other assets $ - $ 53 $ 26 Long-term debt - (6,700) (3,000) Common stock - 887 419 Additional paid-in capital - 5,760 2,555 -------------- -------------- ------------- $ - $ - $ - ============== =============== ============== The company acquired property and equipment by assuming long-term debt: Property and equipment $ - $ (27,392) $ - Long-term debt - 27,392 - -------------- --------------- ------------- $ - $ - $ - ============== =============== ==============
The accompanying notes are an integral part of these consolidated statements. F-8 63 CORRECTIONS CORPORATION OF AMERICA AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Corrections Corporation of America (together with its subsidiaries, referred to as the "company"), a Delaware corporation, operates and manages prisons and other correctional facilities and provides prisoner transportation services for governmental agencies. The company provides a full range of related services to governmental agencies, including managing, financing, designing and constructing new facilities and redesigning and renovating older facilities. The consolidated financial statements include the accounts of the company and its wholly-owned subsidiaries, TransCor America, Inc. ("TransCor"), Concept Incorporated ("Concept"), Corrections Management Affiliates, Inc. ("CMA"), Correctional Services Group, Inc. ("CSG") and CCA International, Inc. CCA International, Inc. has two wholly-owned subsidiaries, CCA France, Inc. and CCA (UK) Limited. CCA (UK) Limited has a majority owned subsidiary, UK Detention Services Limited ("UKDS"). Concept has two wholly-owned subsidiaries, Mineral Wells R.E. Holding Corp. ("Mineral Wells") and United-Concept Inc. ("United-Concept"). Concept, together with Mineral Wells, wholly owns United-Concept Limited Partnership ("UCLP"). CMA, together with CSG, wholly owns Corrections Partners, Inc. ("CPI"). The accompanying consolidated financial statements and note information reflect the accounting for the acquisitions in 1994 and 1995 of TransCor, Concept, CMA and CSG in transactions accounted for under the pooling-of-interests method of accounting and the acquisitions in 1995 and 1996 of United-Concept, UCLP and UKDS accounted for under the purchase method of accounting. All material intercompany transactions and balances have been eliminated. At December 31, 1996, the company has a 50% interest in Corrections Corporation of Australia PTY LTD ("CC Australia"). CC Australia provides services similar to the company in Australia and surrounding countries. The company accounts for this investment under the equity method. Assets and liabilities are converted from their functional currency into the U.S. dollar utilizing the conversion rate in effect at the balance sheet date. Revenue and expense items are converted using F-10 64 the weighted average rate during the period. The excess of the company's investment in this unconsolidated subsidiary over the underlying equity is being amortized over twenty-five years. Deferred project development costs consist of costs that can be directly associated with a specific anticipated contract and, if recovery from that contract is probable, 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 property and equipment or are transferred to project development costs. Costs of unsuccessful or abandoned contracts are charged to depreciation and amortization expense when their recovery is not considered probable. Internal costs incurred in securing new clients including costs of responding to requests for proposals are expensed as incurred. Facility start-up costs, principally costs of initial employee training, travel and other direct expenses incurred in connection with opening of new facilities, to the extent recoverable under each negotiated contract, are deferred and recorded as other assets. Project development costs and start-up costs are amortized on a straight-line basis over the lesser of the initial term of the contract plus renewals or five years. Debt issuance costs are amortized on a straight-line basis over the life of the related debt. This amortization is charged to depreciation and amortization expense. Property and equipment is carried at cost. Betterments, renewals and extraordinary repairs that extend the life of the asset are capitalized; other repairs and maintenance are expensed. Interest is capitalized to the asset to which it relates in connection with the construction of major facilities. The cost and accumulated depreciation applicable to assets retired are removed from the accounts and the gain or loss on disposition is recognized in income. Depreciation is computed by the straight-line method for financial reporting purposes and accelerated methods for tax reporting purposes based upon the estimated useful lives of the related assets. Investment in direct financing leases represent the portion of the company's management contract with a governmental agency that represents payments on building and equipment leases. The leases are accounted for using the financing method and, accordingly, the minimum lease payments to be received over the term of the leases less unearned income are capitalized as the company's investment in the leases. Unearned income is recognized as income over the term of the leases using the interest method. Income taxes are accounted for under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." This statement generally requires the company to record deferred income taxes for the differences between book and tax bases of its assets and liabilities. F-11 65 The company maintains contracts with various governmental entities to manage their facilities for fixed per diem rates or monthly fixed rates. The company also maintains contracts with various federal, state and local governmental entities for the housing of inmates in company owned facilities at fixed per diem rates. These contracts usually contain expiration dates with renewal options ranging from annual to multi-year renewals. Most of these contracts have current terms that require renewal every two to five years. The company expects to renew these contracts for periods consistent with the remaining renewal options allowed by the contracts or other reasonable extensions. The company records revenues based on these per diem rates and the number of inmates housed during the revenue period. The company recognizes development revenue on the percentage-of-completion method. To meet the reporting requirements of SFAS 107, "Disclosures About Fair Value of Financial Instruments," the company calculates the fair value of financial instruments using quoted market prices. At December 31, 1996, there were no material differences in the book values of the company's financial instruments and their related fair values, except for the company s convertible subordinated notes (see Note 8) and the forward contract for convertible subordinated notes (see Note 13), which based on the conversion rate on the underlying equity securities, have an estimated fair market value of approximately $339,000. For purposes of the statements of cash flows, the company excludes restricted cash from cash and cash equivalents. The company considers all highly liquid debt instruments with a maturity of three months or less to be cash equivalents. The preparation of 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In March, 1995, the Financial Accounting Standards Board ("FASB") issued SFAS 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of." This statement imposes stricter criteria for long-term assets by requiring that such assets be probable of future recovery at each balance sheet date. The company adopted SFAS 121 effective January 1, 1996. The company did not experience a material impact on its results of operations, financial condition or cash flows as a result of adoption. SFAS No. 128, "Earnings per Share" has been issued effective for fiscal years ending after December 15, 1997. SFAS No. 128 establishes standards for computing and presenting earnings F-12 66 per share and also establishes standards with respect to disclosure of information about an entity's capital structure. The company is required to adopt the provisions of SFAS No. 128 in the first quarter of 1997 and does not expect adoption thereof to have a material effect on the company's results of operations. Certain reclassifications of 1995 and 1994 amounts have been made to conform with the 1996 presentation. 2. MERGERS AND ACQUISITIONS On August 18, 1995, the company issued 2,800 shares of its common stock for all the outstanding shares of CMA and CSG. CMA and CSG operate and manage prisons and other correctional facilities for governmental agencies. On April 25, 1995, the company issued 5,450 shares of its common stock for all the outstanding shares of Concept. Concept operates and manages prisons and other correctional facilities for governmental agencies. Of the shares issued, 273 are held in escrow for the resolution of precombination contingencies. On December 30, 1994, the company issued 5,200 shares of its common stock for all the outstanding shares of TransCor, a prisoner transportation company. Of the shares issued, 520 are held in escrow for the resolution of certain precombination contingencies. The transactions above were accounted for under the pooling-of-interests method of accounting and the company has previously filed restated financial statements. In the preparation of the consolidated financial statements, the company made certain immaterial adjustments and reclassifications to the historical financial statements of TransCor, Concept, CMA and CSG to be consistent with the accounting policies of the company. During the second and fourth quarters of 1996, the company purchased the remaining two-thirds of UKDS from its original joint venture partners. After consideration of several strategic alternatives related to UKDS, the company sold 20% of the entity to Sodexho, S.A. ("Sodexho"), a French conglomerate, and recognized an after-tax gain of $515. In conjunction with this transaction, Sodexho was also provided the option to purchase an additional 30% of UKDS. This option expires June 30, 1997. F-13 67 As discussed in Note 7, the company exercised its option to acquire the remaining 50% of its investment in UCLP during 1995. The acquisition was accounted for under the purchase method of accounting. The purchase price was allocated to assets acquired and liabilities assumed based on the estimated fair market value at the date of the acquisition. The operations of UCLP on a consolidated basis prior to the acquisition are not material to the company's results of operations. During the first quarter of 1995, the company purchased the remaining 50% of CC Australia from its original joint venture partner. After consideration of several strategic alternatives related to CC Australia, the company sold 50% of the entity to Sodexho during the second quarter of 1995. The company accounted for the 100% ownership period on the equity basis of accounting and recognized an after-tax gain of $783 on the sale. 3. OTHER ASSETS Other assets consist of the following:
DECEMBER 31, ----------------------------------------------------------------------------------------------- 1996 1995 ------------- -------------- Deferred project development costs $ 284 $ 1,230 Project development costs, less accumulated amortization of $499 and $487, respectively 3,989 2,275 Facility start-up costs, less accumulated amortization of $4,296 and $2,728, respectively 11,404 6,705 Debt issuance costs, less accumulated amortization of $1,698 and $1,289, respectively 2,555 1,669 Deferred placement fees 2,404 2,404 Investments in affiliates 7,893 3,756 Other assets 876 713 ----------- -------- $ 29,405 $ 18,752 =========== ========
F-14 68 4. PROPERTY AND EQUIPMENT Property and equipment, at cost, consists of the following:
DECEMBER 31, - --------------------------------------------------------------------------------------------------- 1996 1995 ------------- -------------- Land $ 14,276 $ 3,953 Buildings and improvements 140,470 114,863 Equipment 19,376 13,486 Office furniture and fixtures 2,937 2,262 Construction in progress 137,405 23,083 --------------- -------------- 314,464 157,647 Less accumulated depreciation (25,767) (20,628) --------------- -------------- $ 288,697 $ 137,019 =============== ==============
Depreciation expense was $7,147, $4,428 and $3,469 for 1996, 1995 and 1994, respectively. F-15 69 5. NOTES RECEIVABLE Notes receivable consists of the following:
DECEMBER 31, --------------------------------- 1996 1995 ------------- -------------- Note receivable, principal and interest payments of $206 monthly through September 2016, interest at 9.25%, secured by a first mortgage on a facility. $ 22,401 $ - Notes receivable, $700 is secured by a third mortgage on a facility and is due in January 1999, remaining balance is due in monthly principal and interest payments through April 1999, weighted average interest rate at 11.14%. 876 890 ------------- -------------- 23,277 890 ------------- -------------- Less current portion in accounts receivable (418) - ------------- -------------- $ 22,859 $ 890 ============= ==============
F-16 70 6. INVESTMENT IN DIRECT FINANCING LEASES At December 31, 1996, the company's investment in direct financing leases represents building and equipment leases between the company and the State of New Mexico for the New Mexico Women's Correctional Facility. The agreements contain provisions that allow the state to purchase the buildings and equipment for predetermined prices at specific intervals during the contract period. A schedule of minimum future rentals to be received under the direct financing leases at December 31, 1996, is as follows:
DIRECT FINANCING LEASES RENTAL RECEIVABLE ------------- 1997 $ 1,807 1998 1,807 1999 1,807 2000 1,807 2001 1,807 Thereafter 17,465 ---------------- Total minimum obligation 26,500 Less unearned income (13,129) ---------------- Present value of direct financing leases 13,371 Less current portion in accounts receivable (473) ---------------- Long-term portion at December 31, 1996 $ 12,898 ================
F-17 71 7. INVESTMENT IN UCLP At December 31, 1994, Concept and its affiliates owned 49.9% of UCLP and Concept owned 50% of the common stock of United-Concept, which owned .2% of UCLP and was the managing general partner of UCLP. In addition, Concept had an option to purchase from its partner in UCLP the other 50% partnership interests in UCLP and the other 50% of the common stock of United-Concept. On July 17, 1995, Concept exercised its option and acquired the remaining interests of UCLP for $5,250. United-Concept has issued and outstanding one thousand shares of common stock (which Concept owns) and one share of voting preferred stock, which is owned by The First National Bank of Chicago under an indenture agreement related to the financing of the Eloy Facility. Each share of stock, common and preferred, has one vote. The preferred stock does not participate in income distribution by United-Concept and has a ten dollar liquidation value. The by-laws of United- Concept require 100% shareholder approval of significant corporate actions, and also require an independent director. Concept is entitled to 100% of the income of UCLP, but the independent director effectively has veto power over certain actions of United-Concept. The company's investment in UCLP was accounted for under the equity method from inception through July 17, 1995. Since July 17, 1995, the company is entitled to 100% of the income and has responsibility for all the debt and for satisfying the contractual obligation of UCLP. As a result, the company has included UCLP in the consolidated financial statements. F-18 72 8. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, - --------------------------------------------------------------------------------------------------- 1996 1995 ------------- -------------- Senior Secured Notes, principal payments of $1,773 annually through 1997, increasing to $2,660 in 1998 with the unpaid balance due in 2000, interest payable semi-annually at 11.08%, collateralized by property and equipment with a carrying value of $8,424 at December 31, 1996, and by revenues from certain contracts. $ 10,328 $ 12,215 Secured Notes Payable, principal payments due annually in various amounts through 1997, interest payable monthly at 9.6%, collateralized by property and equipment with a carrying value of $10,935 at December 31, 1996, and by revenues from a contract. 1,210 2,981 Detention Center Revenue Bonds, interest payable monthly at variable rates (5.85% at December 31, 1996), principal due at maturity in 2015, collateralized by a letter of credit issued by a group of banks. 24,700 -
F-19 73
DECEMBER 31, - --------------------------------------------------------------------------------------------------- 1996 1995 ------------- -------------- Industrial Development Revenue Bonds, principal paid in full in November 1996. $ - $ 2,385 Notes payable to a bank, principal and interest at 10%, payable monthly until maturity in March 2000, collateralized by property and equipment with a carrying value of $30,709 at December 31, 1996, and by revenues from a contract. 20,911 25,608 Revolving Credit Facility payable to a group of banks, principal due September 1999, interest payable quarterly at the bank s prime rate (8.25% at December 31, 1996) or LIBOR plus .5% (6.0% at December 31, 1996), collateralized by the pledge of stock of the company's first tier domestic subsidiaries. 4,000 - Bank Loan, principal paid in full in February 1996. - 12,580 Line of credit payable to a bank, principal paid in full in February 1996. - 14,500 Convertible Subordinated Notes, principal due at maturity in 2002 with call provisions beginning in March 2000, interest payable quarterly at 7.5%. 50,000 - Convertible Subordinated Notes, principal due at maturity in 1999 with call provisions beginning in June 1999, interest payable semi-annually at 8.5%. 7,000 7,000
F-20 74 Convertible Subordinated Notes, principal due at maturity in 1998 with call provisions beginning in June 1997, interest payable quarterly at 8.5%. 7,500 7,500 Other 167 1,116 --------------- --------------- 125,816 85,885 Less current portion (8,281) (11,020) --------------- --------------- $ 117,535 $ 74,865 =============== ===============
At December 31, 1996, the company's revolving credit facility provides for borrowings up to $170,000. The facility bears interest at the bank's prime rate or LIBOR plus .50%, .75% or 1.0%, depending on the company's leverage ratio. The facility consists of a working capital line, which includes letters of credit. Letters of credit totaling $65,011 have been issued to support an industrial development bond, a taxable bond and to secure performance bonds. The unused commitment at December 31, 1996, was $100,989. The facility is subject to renewal on September 6, 1999. At December 31, 1996, the company has a $2,500 letter of credit facility. Letters of credit totaling $1,393 have been issued to secure the company's worker's compensation insurance policy, performance bonds and utility deposits. The unused commitment at December 31, 1996, was $1,107. The facility is subject to renewal on September 6, 1999. Restricted cash of $3,450 and $569 at December 31, 1996 and 1995, respectively, represents cash held in sinking funds established for the funding of current year principal and interest on certain bonds and current construction obligations. The company does not maintain any significant formal or informal compensating balance arrangements with financial institutions. The Convertible Subordinated Notes are convertible into the company's common stock at prices ranging from $1.69 to $25.91 per share. The company may require conversion under certain conditions after the stock has a market value of 150% of the conversion price for a specified period. In 1995, Convertible Subordinated Notes with a face value of $6,700 were converted into 1,774 shares of common stock. F-21 75 The provisions of the credit facilities, bonds, and notes contain restrictive covenants, the most restrictive of which are limits on the payment of dividends, incurrence of additional indebtedness, investments and mergers. The agreements also require that the company maintain specific ratio requirements relating to cash flow, tangible net worth, interest coverage and earnings. The company was in compliance with the covenants at December 31, 1996. The company capitalized interest of $502, $717 and $377 in 1996, 1995 and 1994, respectively. Interest expense, net is comprised of the following for each year:
1996 1995 1994 ------------- -------------- -------------- Interest expense $ 8,200 $ 5,534 $ 4,954 Interest income (3,976) (1,582) (1,515) ------------- -------------- -------------- $ 4,224 $ 3,952 $ 3,439 ============= ============== ==============
Maturities of long-term debt for the next five years and thereafter are: 1997 - $8,281; 1998 - $16,357; 1999 - $21,007; 2000 - $5,471; 2001 - $0 and thereafter - - $74,700. F-22 76 9. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The provision for income taxes is comprised of the following components:
FOR THE YEARS ENDED DECEMBER 31, - ---------------------------------------------------------------------------------------------------- 1996 1995 1994 -------------- -------------- -------------- CURRENT PROVISION Federal $ 5,567 $ 2,853 $ 1,319 State 785 315 115 -------------- -------------- -------------- 6,352 3,168 1,434 -------------- -------------- -------------- INCOME TAXES CHARGED TO EQUITY Federal 10,719 3,567 531 State 1,225 420 62 -------------- -------------- -------------- 11,944 3,987 593 -------------- -------------- -------------- DEFERRED PROVISION Federal 1,052 1,946 99 State 121 229 186 -------------- -------------- -------------- 1,173 2,175 285 -------------- -------------- -------------- Provision for income taxes $ 19,469 $ 9,330 $ 2,312 ============== ============== ==============
Significant components of the company's deferred tax assets and liabilities are as follows: F-23 77
DECEMBER 31, - ---------------------------------------------------------------------------------------------------- 1996 1995 -------------- -------------- CURRENT DEFERRED TAX ASSETS Asset reserves and liabilities not yet deductible for tax $ 2,067 $ 1,473 Alternative minimum tax carryforward - 173 ------------- ------------- Total current deferred tax assets 2,067 1,646 ------------- ------------- CURRENT DEFERRED TAX LIABILITY Income item not yet taxable 1,041 - ------------- ------------- Total current deferred tax liability 1,041 - ------------- ------------- Net current deferred tax assets $ 1,026 $ 1,646 ============= =============
DECEMBER 31, - ---------------------------------------------------------------------------------------------------- 1996 1995 -------------- -------------- NONCURRENT DEFERRED TAX ASSETS Other $ 788 $ 35 -------------- -------------- Total noncurrent deferred tax assets 788 35 -------------- -------------- NONCURRENT DEFERRED TAX LIABILITIES Tax in excess of book depreciation and 3,876 3,565 amortization Income items not yet taxable and other 1,629 634 -------------- -------------- Total noncurrent deferred tax liabilities 5,505 4,199 -------------- -------------- Net noncurrent deferred tax liabilities $ 4,717 $ 4,164 ============== ==============
A reconciliation of the statutory federal income tax rate and the effective tax rate as a percentage of pretax income for the years ended December 31, is as follows: F-24 78
1996 1995 1994 ------ ------ ------ Statutory federal rate 35.0% 34.0% 34.0% State taxes, net of federal tax benefit 4.0 4.0 4.0 Utilization of net operating loss carryforward - - (15.4) Other items, net (.3) 1.4 - ----- ----- ----- 38.7% 39.4% 22.6% ===== ===== =====
F-25 79 10. EARNINGS PER SHARE Primary net income per common share is computed using the weighted average number of shares of common stock and common stock equivalents outstanding. Stock warrants and stock options are considered common stock equivalents. The convertible subordinated notes are not common stock equivalents. In computing fully diluted net income per common share, the 8.5% convertible subordinated notes are considered dilutive using the if-converted method. In 1994, the 8.5% convertible subordinated notes were antidilutive. The following table presents information necessary to calculate fully diluted earnings per share for the years ended December 31:
1996 1995 1994 ---------- ---------- ---------- Net income allocable to common stockholders $ 30,880 $ 14,333 $ 7,714 Interest expense applicable to convertible subordinated notes, net of tax 752 740 - ----------- ----------- ----------- Adjusted net income $ 31,632 $ 15,073 $ 7,714 =========== =========== =========== Fully diluted weighted average common shares outstanding 81,740 77,355 62,440 Conversion of convertible subordinated notes 6,249 6,249 - ----------- ----------- ----------- Adjusted fully diluted common shares outstanding 87,989 83,604 62,440 =========== =========== =========== Fully diluted earnings per share $ .36 $ .18 $ .12 =========== =========== ===========
F-26 80 11. STOCKHOLDERS' EQUITY Preferred Stock - The company has authorized 1,000 shares of $1 par value preferred stock. In December 1991, the company sold 50 shares of Series A preferred stock for $5,000. The preferred stock earned dividends at 8.5% and were paid quarterly from January 31, 1993 through June 23, 1994. Each share of the Series A preferred stock was convertible into 56 shares of common stock. In June 1994, the Series A preferred stock was converted at par value into 2,800 shares of common stock. At December 31, 1996, no preferred stock was issued or outstanding. Stock Offering - On June 5, 1996, the company completed a secondary public offering of 3,700 new shares of its common stock. The net proceeds of $131,812 were used to develop, acquire and expand correctional and detention facilities. Stock Split - On June 5, 1996, the Board of Directors declared a two-for-one stock split of the company's common stock to be effective on July 2, 1996. An amount equal to the par value of the common shares outstanding as of July 2, 1996, was transferred from additional paid-in capital to the common stock account. On October 4, 1995, the Board of Directors declared a two-for-one stock split of the company's common stock to be effective on October 31, 1995. An amount equal to the par value of the common shares outstanding as of October 31, 1995, was transferred from additional paid-in capital to the common stock account. All references to number of shares and to per share data in the consolidated financial statements have been adjusted for these stock splits. Stock Warrants - The company has issued stock warrants to certain affiliated and unaffiliated parties for providing certain financing, consulting and brokerage services to the company and to stockholders as a dividend. Stock warrants outstanding at December 31, 1996, are as follows: F-27 81
DATE OF NUMBER OF EXERCISE EXPIRATION ISSUANCE WARRANTS PRICE DATE -------- --------- ------------- ----------- 9/4/92 839 $8.50/share 9/14/97 6/23/94 1,100 $15.80/share 12/31/99
Each warrant entitles the warrant holder to four common shares upon exercise. The warrants are exercisable from the date of issuance except for the warrants issued September 4, 1992, which were exercisable beginning April 30, 1993. In 1996, the company extended the expiration date of the warrants issued June 23, 1994, from December 31, 1998, to December 31, 1999. In 1996, 1,313 warrants were exercised at $8.50 per share. In 1995, 268 warrants were exercised at prices ranging from $7.14 to $8.50 per share. In 1995, the company purchased 60 warrants at the market price of $18 per share from a warrant holder. Stock Option Plans - The company has incentive and nonqualified stock option plans under which options may be granted to "key employees" as designated by the Board of Directors. The options are granted with exercise prices that equal market value on the date of grant. The options are exercisable after the later of two years from the date of employment or one year after the date of grant until ten years after the date of the grant. The company's Board of Directors approved a stock repurchase program for up to an aggregate of 400 shares of the company's stock for the purpose of funding the employee stock options, stock ownership and stock award plans. Stock option transactions relating to the company's incentive and nonqualified stock option plans are summarized below: F-28 82
1996 - -------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE NUMBER OF SHARES EXERCISE PRICE ---------------- ----------------- Outstanding at beginning of period 3,916 $ 3.73 Granted 903 27.06 Exercised (1,297) 2.92 Canceled (19) 22.97 ------- --------- Outstanding at end of period 3,503 $ 9.96 ======= ========= Available for future grant 2,950 - ======= ========= Exercisable 2,601 $ 4.06 ======= =========
1995 - -------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE NUMBER OF SHARES EXERCISE PRICE ---------------- ----------------- Outstanding at beginning of period 3,470 $ 2.31 Granted 1,248 7.61 Exercised (754) 3.49 Canceled (48) 5.82 ------- ---------- Outstanding at end of period 3,916 $ 3.73 ======= ========== Available for future grant 3,818 - ======= ========== Exercisable 2,680 $ 1.93 ======= ==========
F-29 83
1994 - -------------------------------------------------------------------------------------------------- NUMBER OF SHARES ---------------- Outstanding at beginning of period 6,382 Granted 178 Exercised (3,060) Canceled (30) ------- Outstanding at end of period 3,470 ======= Available for future grant 1,020 ======= Exercisable 3,386 =======
The weighted average fair value of options granted during 1996 and 1995 was $12.28 and $3.21 per option, respectively. The options outstanding at December 31, 1996, have exercise prices between $.96 and $33.13 and a weighted average remaining contractual life of 7 years. In addition to the plans mentioned above, the company has a nonqualified stock option plan to encourage stock ownership by selected employees of the company. Pursuant to the plan, stock options may be granted to key employees upon authorization by the Board of Directors. The aggregate number of options that may be granted under the plan is 1,440. As of December 31, 1996, 240 options were outstanding at an option price of $1.35 per share. During 1995, the company authorized the issuance of 337 shares of common stock to certain key employees as a deferred stock award. The award becomes fully vested ten years from the date of grant based on continuous employment with the company. The company is expensing the $3,670 of awards over the vesting period. In October 1995, the FASB issued SFAS 123, "Accounting for Stock-Based Compensation." SFAS 123 establishes new financial accounting and reporting standards for stock-based compensation plans. The company has adopted the disclosure-only provisions of SFAS 123. As a result, no compensation cost has been recognized for the company's stock option plans. Had compensation cost for the stock option plans been determined based on the fair value at the grant date for awards in 1996 and 1995 consistent with the provisions of SFAS 123, the company's net income and net F-30 84 income per share would have been reduced to the pro forma amounts indicated below for the years ended December 31:
1996 1995 -------------- -------------- Net income - as reported $ 30,880 $ 14,333 Net income - pro forma 25,995 13,550 Net income per share - Primary - as reported $ .38 $ .19 Net income per share - Primary - pro forma .32 .17 Net income per share - Fully Diluted - as reported $ .36 $ .18 Net income per share - Fully Diluted - pro forma .30 .16
Because the SFAS 123 method of accounting has not been applied to options granted prior to January 1, 1995, the pro forma compensation cost may not be representative of that to be expected in future years. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
1996 1995 ---------- -------- Expected dividend yield 0.0% 0.0% Expected stock price volatility 49.5% 50.3% Risk-free interest rate 5.9% 6.8% Expected life of options 4 YEARS 4 years
Employee Stock Ownership Plan - The company has an Employee Stock Ownership Plan whereby each employee of the company who is at least 18 years of age is eligible for membership in the plan as of January 1 of their first anniversary year in which they have completed at least one thousand hours of service. F-31 85 Benefits, which become 40% vested after four years of service and 100% vested after five years of service, are paid on death, retirement or termination. The Board of Directors has discretion in establishing the amount of the company contributions. The company's contributions to the plan may be in the form of common stock, cash or other property. Contributions to the plan amounted to $2,086, $1,366 and $1,059 for the years ended December 31, 1996, 1995 and 1994, respectively. 12. REVENUES AND EXPENSES Approximately 99% of the company's revenues for the years ended December 31, 1996, 1995 and 1994, relate to amounts earned from federal, state and local governmental management and transportation contracts. The company had revenues of 21%, 23% and 17% from the federal government and 54%, 49% and 54% from state governments for the years ended December 31, 1996, 1995 and 1994, respectively. One state government had revenues of 16%, 18% and 24% for the years ended December 31, 1996, 1995 and 1994, respectively. In addition, another state government had revenues of 11% for the year ended December 31, 1994. Accounts receivable include $55,924 and $37,057 due from federal, state and local governments at December 31, 1996 and 1995, respectively. Accounts receivable and accounts payable at December 31, 1996, consist of the following:
ACCOUNTS ACCOUNTS RECEIVABLE PAYABLE -------------- -------------- Trade $ 50,618 $ 10,766 Construction 44,469 28,458 Other 5,464 - -------------- -------------- $ 100,551 $ 39,224 ============== ==============
Salaries and related benefits represented 63%, 58% and 54% of operating expenses for the years ended December 31, 1996, 1995 and 1994, respectively. For the year ended December 31, 1996, the company recognized after-tax, development fee income of $1,629 related to a contract to design, construct and equip a detention facility. F-32 86 13. INTERNATIONAL ALLIANCE The company has entered into an International Alliance (the "Alliance") with Sodexho to pursue prison management business outside the United States. In conjunction with the Alliance, Sodexho purchased an equity position in the company by acquiring several instruments. In 1994, the company sold Sodexho 2,800 shares of common stock at $3.75 per share and a $7,000 convertible subordinated note bearing interest at 8.5%. Sodexho also received 1,100 warrants at $15.80 per warrant that expire December 1999. Each warrant entitles Sodexho to four common shares upon exercise. In consideration of the placement of the aforementioned securities, the company agreed to pay Sodexho $3,960 over a four-year period ending in 1998. These fees include debt issuance costs and private placement equity fees. These fees have been allocated to the various instruments and are charged to debt issuance costs or equity as the respective financings are completed. Sodexho is subject to a standstill agreement that limits their ownership to 25% in the company and has certain preemptive rights to retain its percentage ownership. In 1995, Sodexho purchased 1,090 shares of common stock for $7.63 per share pursuant to their contractual preemptive right. Also during 1995, the company and Sodexho entered into a forward contract whereby Sodexho would purchase up to $20,000 of convertible subordinated notes at any time prior to December 1997. The notes will bear interest at LIBOR plus 1.35% and will be convertible into common shares at a conversion price of $6.83 per share. In 1996, the company sold $20,000 of convertible notes to Sodexho pursuant to their contractual preemptive right. The notes bear interest at 7.5% and are convertible into common shares at a conversion price of $25.91 per share. 14. RELATED PARTY TRANSACTIONS The company pays legal fees to a law firm of which one of the partners is a stockholder and a member of the Board of Directors of the company. Legal fees, including fees related to the company's mergers and acquisitions, paid to the law firm amounted to $683, $675 and $140 in 1996, 1995 and 1994, respectively. F-33 87 15. COMMITMENTS AND CONTINGENCIES The company leases certain facilities, office space and equipment under long-term operating leases expiring through 2001. Rental expense was approximately $2,786, $5,904 and $3,490 for the years ended December 31, 1996, 1995 and 1994, respectively. Minimum rental commitments for noncancelable leases are as follows:
YEAR AMOUNT ------ ------------- 1997 $ 4,147 1998 3,520 1999 1,741 2000 322 2001 37
The nature of the company's business results in claims and litigation alleging that the company is liable 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 position or results of operations of the company. The company has an employment agreement with its chief executive officer through September 30, 1997. The agreement includes a non-compete agreement covering the same period and requires payments during the period if employment is terminated. Each of the company's management contracts and the statutes of certain states require the maintenance of insurance. The company maintains various insurance policies including employee health, worker s compensation, automobile liability and general liability insurance. These policies are fixed premium policies with various deductible amounts that are self-funded by the company. Reserves are provided for estimated incurred claims within the deductible amounts. The company guarantees $113 of a bank facility for CC Australia. The company has provided a $1,000 performance bond in connection with UKDS's management contract with the United Kingdom. F-34 88 The company provides a limited guarantee related to a bond issue on the Eden Detention Center in Eden, Texas. The maximum obligation as of December 31, 1996 was $22,875. In the event the company is required to fund amounts pursuant to this limited guarantee, the company will obtain ownership rights to the facility. 16. EVENT SUBSEQUENT TO DECEMBER 31, 1996 (UNAUDITED) On January 30, 1997, the company purchased the fixed and movable assets of a correctional treatment facility in Washington, D.C. for $52,000. The company has entered into additional agreements to manage this facility and lease it back to Washington, D.C. over a period of twenty years. F-35 89 INDEX OF EXHIBITS Exhibits marked with an * are filed herewith. Exhibits following exhibit number 10(kkkkk) are numbered beginning with 10.100. Other exhibits have previously been filed with the Commission and are incorporated herein by reference. Exhibits marked with a + are compensation plans required to be filed pursuant to Item 601(b)(10) of Regulation S-K.
Exhibit Sequential Number Description Page Number - ------- ----------- ----------- 3(a) Certificate of Incorporation of the Company. (1) 3(b) Amended and Restated By-Laws of the Company. (4) 3(d) Certificate of Amendment to the Certificate of Incorporation of the Company dated May 26, 1995.(28) 3(e)* Certificate of Amendment to the Certificate of Incorporation of the Company dated May 14, 1996 4(a) Form of 8.5% Convertible Subordinated Note due November 7, 1999 made payable to Toronto Dominion Investments, Inc. in the aggregate principal amount of $7,000,000. (12) 4(b) Form of 8.5% Convertible Subordinated Notes in the aggregate principal amount of $4,000,000, together with a schedule identifying the respective holders, execution dates, maturity dates, principal amounts, and conversion prices thereof. (12) 4(c) Form of 11.08% Senior Secured Notes, in the aggregate principal amount of $20,000,000, due November 30, 2000 made payable to Teachers Insurance and Annuity Association of America, Massachusetts Mutual Life Insurance Company, Massmutual Corporate Investors and Massmutual Participation Investors. (13) 4(d) Form of Warrant for the purchase of common stock of the Company, expiring November 30, 2000 issued to Teachers Insurance and Annuity Association of America, Massachusetts Mutual Life Insurance Company, Massmutual Corporate Investors and Massmutual Participation Investors. (13) 4(f) 8.5% Convertible Extendable Subordinated Notes originally due September 30, 1998, dated as of June 22, 1992 in the aggregate principal
90
Exhibit Sequential Number Description Page Number - ------- ----------- ----------- amount of $2,500,000, made payable to Pacific Mutual Life Insurance Company and PM Group Life Insurance Company. (16) 4(g) 8.5% Convertible Extendable Subordinated Notes originally due September 30, 1998, dated as of December 2, 1992 in the aggregate principal amount of $1,500,000, made payable to Pacific Mutual Life Insurance Company and PM Group Life Insurance Company. (16) 4(h) Warrant Agreement, dated August 21, 1992, by and between the Company and First Union National Bank of North Carolina relating to the warrants described in Exhibit 4(i) (15). 4(i) Form of Warrant Certificate issued to the Company's shareholders of record on September 4, 1992. (15) 4(j) Form of Stock Purchase Warrant for the purchase of Common Stock issued to the respective holders set forth in the schedule attached thereto, together with the execution dates, exercise prices and number of underlying shares. (16) 4(k) Stock Purchase Warrants for the purchase of Common Stock of the Company issued to the respective holders set forth in the schedule attached thereto, together with the execution dates, exercise prices and number of underlying shares. (16) 4(l) 8.5% Convertible Extendable Subordinated Notes originally due September 30, 1998, dated as of April 29, 1993 in the aggregate principal amount of $2,500,000, made payable to Pacific Mutual Life Insurance Company and PM Group Life Insurance Company.(17) 4(m) Stock Purchase Warrants for the purchase of Common Stock of the Company issued to Pacific Mutual Life Insurance Company and PM Group Life Insurance Company on April 29, 1993.(17) 4(n) Amendment No. 1 to Warrant Agreement dated August 31, 1993 by and between the Company and First Union National Bank of North Carolina relating to the Warrants described on Exhibit (i).(17)
91
Exhibit Sequential Number Description Page Number - ------- ----------- ----------- 4(o) 8.5% Convertible Subordinated Note due November 7, 1999 made payable to Sodexho S.A. in the aggregate principal amount of $7,000,000.(18) 4(p) Stock Purchase Warrant for the purchase of Common Stock of the Company issued to Sodexho, S.A. on June 23, 1994.(19) 4(q) Warrant Repurchase Agreement, dated February 1, 1995, between First Union National Bank of Tennessee and the Company.(28) 4(r) Form of Amended 8.5% Convertible Extendable Subordinated Notes originally due September 30, 1998, dated as of June 22, 1992 in the aggregate principal amount of $2,500,000, made payable to Cudd & Co. and Atwell & Co. (Original Exhibit No. 4(f)).(28) 4(s) Form of Amended 8.5% Convertible Extendable Subordinated Notes originally due September 30, 1998, dated as of December 2, 1992 in the aggregate principal amount of $1,500,000, made payable to Cudd & Co. and Atwell & Co. (Original Exhibit No. 4(g)).(28) 4(t) Form of Amended 8.5% Convertible Extendable Subordinated Notes originally due September 30, 1998, dated as of April 29, 1993 in the aggregate principal amount of $3,500,000, made payable to Cudd & Co. and Atwell & Co. (Original Exhibit No. 4(l).(28) 4(u) Form of 7.5% Convertible, Subordinated Note due February 28, 2002 made payable to PMI Mezzanine Fund, L.P. in the aggregate principal amount of $30,000,000.(28) 4(v)* Form of 7.5% Convertible, Subordinated Note due February 28, 2002 made payable to Sodexho S. A., in the aggregate principal amount of $20,000,000. 4(w)* Note Purchase Agreement, dated as of April 5, 1996, by and among Sodexho S.A. and the Company, relating to the issuance of 7.5% Convertible, Subordinated Notes in the aggregate principal amount of $20,000,000. 4(x)* Registration Rights Agreement with respect to the Note Purchase Agreement, dated as of April 5, 1996, by and among Sodexho S.A. and the Company.
92
Exhibit Sequential Number Description Page Number - ------- ----------- ----------- 4(y)* Trust Indenture dated as of August 1, 1996, with respect to the Detention Center Revenue Bonds Series 1996 in the aggregate principal amount of $24,700,000, among Liberty Bank and Trust Company of Tulsa, National Association and the Company. 10(c) Corrections Corporation of America Stock Option Plan dated January 23, 1985, as amended by First Amendment to Corrections Corporation of America Stock Option Plan, together with forms of Incentive Stock Option Agreement and Non-Qualified Stock Option Agreement. (1) 10(d)+ Non-Qualified Stock Option Plan of the Company, dated January 16, 1986, and related form of Non-Qualified Stock Option Agreement. (1) 10(e)+ Corrections Corporation of America 1988 Flexible Stock Option Plan. (7) 10(f) Loan Agreement, dated July 1, 1985, between the Company and the Industrial Development Board of the City of Memphis and County of Shelby, Tennessee, relating to $6,000,000 Industrial Revenue Bonds, Series A (Corrections Corporation of America Project) 1985, related Trust Indenture and related Guaranty, dated July 1, 1985, between the Company and Commerce Union Bank. (1) 10(v) Memorandum of Understanding regarding privatization of France's penitentiary system. (2) 10(z) Loan Agreement, dated November 1, 1986, between the Company and Bay County, Florida relating to $4,500,000 Bay County, Florida Industrial Development Correctional Facilities Revenue Bonds, Series A (Corrections Corporation of America Project) and related Indenture of Trust. (5) 10(aa)+ Second Amendment to Corrections Corporation of America Stock Option Plan of Company, dated March 27, 1987, together with form of Incentive Stock Option Agreement. (6) 10(ee) Joint Venture Agreement, dated August 27, 1986, by and among the Company, Jean-Louis Vullierme and Pierre Dejardin-Verkinder. (9)
93
Exhibit Sequential Number Description Page Number - ------- ----------- ----------- 10(ff) Shareholders' Agreement (the "COGESIP Agreement"), dated November 7, 1986, by and between the Company, Spie Batignolles, S.A. ("Spie") and Banque Worms, relating to the formation of Compagnie de Gestion de Systemes d'Interet Public, S.A. ("COGESIP"). (9) 10(gg) Agreement, dated December 18, 1986 by and among the Company, Spie, Banque Worms and Lyonnaise des Eaux, S.A. ("Lyonnaise"), relating to the admission of Lyonnaise as a participant in COGESIP. (9) 10(hh) Letter Agreement, dated December 18, 1986, by and among the Company, Spie, Banque Worms and Lyonnaise, evidencing the agreement of Lyonnaise to be joined as a party to the COGESIP Agreement. (9) 10(ii) Memorandum of Understanding, dated August 27, 1987, by and among the Company, Jean-Louis vullierme and Pierre Dejardin-Verkinder. (9) 10(jj) Agreement, dated August 31, 1987, by and among the Company, Spie, Lyonnaise and Banque Worms. (9) 10(ll) Agreement, dated February 22, 1988, by and among the Company, Jean-Louis Vullierme and Pierre Dejardin-verkinder. (9) 10(mm) Agreement, dated February 22, 1988, by and between CCA International, Inc. and Initiative Industriali S.P.A. (9) 10(qq)+ Third Amendment to Corrections Corporation of America Stock Option Plan dated March 18, 1988. (8) 10(xx) U.S. Government Lease for Real Property by and between the United States of America and the Company, dated April 10, 1984, relating to the Houston facility. (11) 10(zz)+ Corrections Corporation of America 1989 Stock Bonus Plan. (12)
94
Exhibit Sequential Number Description Page Number - ------- ----------- ----------- 10(eee) Letter of Guaranty, dated October 27, 1989, between the Company and National Australia Bank Limited, relating to the guaranty by the Company of certain advances made by National Australia Bank Limited to Corrections Corporation to Australia, Pty. Ltd. (12) 10(fff) Assignment and Assumption Agreement, dated March 2, 1990, by and between the Company and Esmor, Inc., relating to the assignment of Esmor, Inc.'s leasehold interest in real property located in San Diego County, California and the assignment of Esmor Inc.'s contract with the Immigration and Naturalization Service for the construction and operation of an INS Detention Facility. (12) 10(mmm)+ First Amendment to Corrections Corporation of America 1988 Flexible Stock Option Plan, dated June 8, 1989. (12) 10(nnn)+ First Amendment to the Corrections Corporation of America Non-Qualified Stock Option Plan, dated June 8, 1989. (12) 10(uuu) Note Purchase Agreement, dated as of December 6, 1990, by and among the Teachers Insurance and Annuity Association of America, Massachusetts Mutual Life Insurance Company, Massmutual Corporate Investors, Massmutual Participation Investors, and the Company, relating to the issuance of notes in the aggregate principal amount of $20,000,000; Security Agreement; Trust Agreement; Collection Account Agreement; and Deed of Trust, as amended by First Amendment to Note Purchase Agreement dated March 21, 1991. (13) 10(www) Agreement of Purchase and Sale of Assets, dated May 28, 1991, by and among P.B.I. Schools, Inc., Pontiac Business Institute-Oxford, Inc., Howard Weaver and Technical and Business Institute of America, Inc., a wholly-owned subsidiary of the Company, and related Bill of Sale, Assignment of Accounts Receivable and Promissory Note. (14) 10(bbbb) Standard Transfer Form, dated September 8, 1991, between the Company and Houghton Holdings Limited (formerly John Holland Holdings Limited) relating to the purchase by the Company of 7,500 shares in Corrections Corporation of Australia Pty. Ltd. and related Amended and Restated Letter of Guaranty. (14)
95
Exhibit Sequential Number Description Page Number - ------- ----------- ----------- 10(hhhh) Amendment dated March 26, 1992 to the Note Purchase Agreement described in Exhibit 10(uuu). (14) 10(iiii)+ Corrections Corporation of America Amended and Restated Employee Stock Ownership Plan.(14) 10(jjjj) Loan Agreement, dated March 17, 1992, by and between the Company and Canada Life Assurance Company, relating to a loan in the aggregate principal amount of $6,500,000; Promissory Note; First Mortgage and Security Agreement, and Assignment of Lease, Rents, Management and Securities Agreement. (16) 10(nnnn)+ Employment Agreement, dated as of September 28, 1992, between the Company and Doctor R. Crants. (16) 10(oooo) Amended and Restated Promissory Note, dated November 6, 1992, executed by Doctor R. Crants, to the order of the Corporation in the aggregate principal amount of $300,000. (16) 10(pppp) Amendment dated June 26, 1992 to Note Purchase Agreement described in Exhibit 10(uuu). (16) 10(yyyy)+ Corrections Corporation of America Non-Employee Director Stock Option Plan.(17) 10(aaaaa) Stock Repurchase Agreement, dated April 1, 1993 by and between the Company and Doctor R. Crants.(17) 10(ccccc) Notice of Redemption, Special Warranty Deed, Bill of Sale and Assignment, Lease Termination Agreement and related releases, in connection with the defeasance of the $12,000,000 Correctional Facilities Industrial Revenue Bonds, Series 1989 (Corrections Corporation of America Project).(17) 10.102+ First Amendment to Corrections Corporation of America 1991 Flexible Stock Option Plan dated March 11, 1994.(24) 10.109+ Amendments to the Amended and Restated Corrections Corporation of America Employee Savings and Stock Ownership Plan dated June 3, 1994.(24)
96
Exhibit Sequential Number Description Page Number - ------- ----------- ----------- 10.112 International Joint Venture Agreement, dated June 23, 1994, between the Company and Sodexho, S.A.(20) 10.113 Securities Purchase Agreement, dated June 23, 1994, between the Company and Sodexho, S.A., including form of 8.5% Note, form of Warrant, and form of 8.75% Notes.(21) 10.114 Stockholders Agreement, dated June 23, 1994, between the Company and Sodexho, S.A.(22) 10.132 Share Exchange Agreement by and among the Company, TransCor America, Inc. and the Shareholders of TransCor America, Inc., dated December 30, 1994.(23) 10.138+ Amended and Restated Corrections Corporation of America 1989 Stock Bonus Plan dated February 20, 1995.(24) 10.139 Corrections Corporation of America 1995 Employee Stock Incentive Plan effective as of March 20, 1995.(26) 10.140 Stock Purchase Agreement, dated March 31, 1995, between the Company and Chubb Security Holdings Australia Limited A.C.N. 003 590 921.(28) 10.141 Share Exchange Agreement, dated as of April 25, 1995, among the Company, Concept Incorporated, and the Stockholders of Concept Incorporated.(25) 10.142 Note Purchase Agreement dated as of June 22, 1992, among Pacific Mutual Life Insurance Company, PM Group Life Insurance Company and the Company as amended by Amendment No. 1 to the Note Purchase Agreement, dated as of August 25, 1992, Amendment No. 2 to the Note Purchase Agreement, dated as of October 29, 1992, Amendment No. 3 to Note Purchase Agreement, dated as of April 29, 1993 and Amendment No. 4 to the Note Purchase Agreement, dated as of April 25, 1995.(28) 10.143 Stock Purchase Agreement, dated as of June 9, 1995, between Sodexho S.A. and the Company concerning sale of shares of Corrections Corporation of Australia Pty. Ltd. A.C.N. 010 921 641.(28)
97
Exhibit Sequential Number Description Page Number - ------- ----------- ----------- 10.144 Stock Purchase Agreement, dated as of June 29, 1995, between Sodexho S.A. and the Company.(28) 10.145 Amendment No. 1 to Securities Purchase Agreement, dated as of July 11, 1995, between Sodexho S.A. and the Company.(28) 10.146 Amended and Restated Loan Agreement, dated as of July 13, 1995, between First Union National Bank of Tennessee and the Company.(28) 10.147 Letter of Credit, dated July 13, 1995, issued by First Union Bank of North Carolina to the Company.(28) 10.148 Purchase Agreement, dated July 17, 1995, between Concept Incorporated and Landmark Organization Southwest, Inc.(28) 10.149 Purchase Agreement, dated July 17, 1995, between Concept Incorporated and U.C. Eloy, Inc.(28) 10.150 Agreement and Plan of Merger, dated as of August 18, 1995, among the Company, CMA Acquisition, Inc., CSG Acquisition, Inc., Correction Management Affiliates, Inc., Correctional Services Group, Inc., the shareholders of Correction Management Affiliates, Inc. and the shareholders of Correctional Services Group, Inc.(27) 10.151 Shareholders' Agreement, dated as of October 17, 1995, among Corrections Corporation of Australia Pty. Ltd., the Company, and Sodexho S.A.(28) 10.152 First Amendment to Stock Purchase Agreement, dated October 17, 1995, between Sodexho S.A. and the Company.(28) 10.153+ First Amendment to Amended and Restated Corrections Corporation of America 1989 Stock Bonus Plan, dated November 3, 1995.(28) 10.154 Letter of Credit, dated as of December 15, 1995, issued by First Union Bank of North Carolina to the Company.(28) 10.155 Note Purchase Agreement, dated as of February 29, 1996, between the Company and PMI Mezzanine Fund, L.P.(28) 10.156* Guaranty Agreement, dated as of July 10, 1996, among the Company, as Guarantor, Eden Correctional Facilities Corporation, as the Issuer, and Liberty Bank and Trust Company of Tulsa, National Association, as the Trustee, with respect to the Taxable Detention Facility Revenue Bond, Series 1995 in the aggregate principal amount of $22,875,000.
98
Exhibit Sequential Number Description Page Number - ------- ----------- ----------- 10.157* Credit Agreement, dated as of September 6, 1996, among the Company, as Borrower, various Lenders, and First Union National Bank of Tennessee, as Administrative Agent. 10.158* Letter of Credit Facility Agreement, dated as of September 6, 1996, among the Company and First Union National Bank of Tennessee and First Union National Bank of North Carolina. 10.159* Intercompany Subordination Agreement, dated as of September 6, 1996, among the Company, five of its wholly owned subsidiaries, including CCA International, Inc., TransCor America, Inc., Concept Incorporated, Correction Management Affiliates, Inc., and Correctional Services Group, Inc. and First Union National Bank of Tennessee. 10.160* Unconditional Guaranty Agreement, with Supplement, dated as of September 6, 1996, in favor of First Union National Bank of Tennessee among the Company, five of its wholly owned subsidiaries, including CCA International, Inc., TransCor America, Inc., Concept Incorporated, Correction Management Affiliates, Inc., and Correctional Services Group, Inc. and First Union National Bank of Tennessee. 10.161* Form of Pledge Agreement, with Supplement, dated as of September 6, 1996 by the Company and five of its wholly owned subsidiaries, including CCA International, Inc., TransCor America, Inc., Concept Incorporated, Correction Management Affiliates, Inc., and Correctional Services Group, Inc., individually, in favor of First Union National Bank of Tennessee as Administrative Agent for various lenders. 10.162* Amendment No. 2, dated December 31, 1996, to the Securities Purchase Agreement dated June 23, 1994, between Sodexho S.A. and the Company. 10.163* Purchase Agreement, dated as of December 31, 1996, among the Company, Corrections Corporation of America (U.K.) Limited and Sodexho S.A., relating to U.K. Detention Services, Ltd. 10.164* Shareholders' Agreement, dated as of December 31, 1996, among the Company, Corrections Corporation of America (U.K.) Limited and Sodexho S.A., relating to U.K. Detention Services, Ltd. 10.165* Option Agreement, dated as of December 31, 1996, among the Company, Corrections Corporation of America (U.K.) Limited and Sodexho S.A., relating to U.K. Detention Services, Ltd.
99 21. The Company has the following six wholly-owned subsidiaries: CCA International, Inc., Technical and Business Institute of America, Inc., TransCor America, Inc., Concept Incorporated, Correction Management Affiliates, Inc. and Correctional Services Group, Inc. 23.* Consent of Arther Andersen LLP. 24.* Power of Attorney (Included on signature page). ________________________ (1) Incorporated herein by reference to exhibit of same number to Company's Registration Statement on Form S-1, filed August 15, 1986 (Reg. No. 33-8052). (2) Incorporated herein by reference to exhibit of same number to Amendment No. 1 to the Company's Registration Statement on Form S-1, filed September 19, 1986 (Reg. No. 33-8052). (3) Incorporated herein by reference to exhibit of same number to Amendment No. 2 to the Company's Registration Statement on Form S-1, filed October 1, 1986 (Reg. No. 33-8052). (4) Incorporated herein by reference to Exhibit 4(b) to the Company's Registration Statement on Form S-8, filed March 16, 1987 (Reg. No. 33-12503). (5) Incorporated herein by reference to Exhibit 10(z) to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1986 (File No. 0-15719). (6) Incorporated herein by reference to Exhibit 10(cc) to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1986 (File No. 0-15719). (7) Incorporated herein by reference to Exhibit A to the Company's definitive Proxy Statement relating to the 1988 Annual Meeting of Stockholders (File No. 0-15719). (8) Incorporated herein by reference to Exhibit B to the Company's definitive Proxy Statement relating to the 1988 Annual Meeting of Stockholders (File No. 0-15719). (9) Incorporated herein by reference to exhibit of same number to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1987 (File No. 0-15719). 100 (10) Incorporated herein by reference to Exhibit 10(cc) to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1987 (File No. 0-15719). (11) Incorporated herein by reference to exhibit of the same number to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1988 (File No. 0-15719). (12) Incorporated herein by reference to exhibit of the same number to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1989 (File No. 0-15719). (13) Incorporated herein by reference to exhibit of the same number to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1990 (File No. 0-15719). (14) Incorporated herein by reference to exhibit of the same number to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1991 (File No. 0-15719). (15) Incorporated herein by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A, filed August 21, 1992 (File No. 0-15719). (16) Incorporated herein by reference to exhibit of the same number to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1992 (File No. 0-15719). (17) Incorporated herein by reference to exhibit of the same number to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1993 (File No. 0-15719). (18) Incorporated herein by reference to Exhibit 2 to the Company's Report on Form 8-K filed June 30, 1994 (File No. 0-15719). (19) Incorporated herein by reference to Exhibit 2 to the Company's Report on Form 8-K filed June 30, 1994 (File No. 0-15719). (20) Incorporated herein by reference to Exhibit 1 to the Company's Report on Form 8-K filed June 30, 1994 (File No. 0-15719). (21) Incorporated herein by reference to Exhibit 2 to the Company's Report on Form 8-K filed June 30, 1994 (File No. 0-15719). (22) Incorporated herein by reference to Exhibit 3 to the Company's Report on Form 8-K filed June 30, 1994 (File No. 0-15719). 101 (23) Incorporated herein by reference to Exhibit 3 to the Company's Report on Form 8-K filed January 12, 1995 (File No. 1-13560). (24) Incorporated herein by reference to exhibit of the same number to the Company's Annual Report on Form 10-K with respect to the fiscal year ended December 31, 1994 (File No. 1-13560). (25) Incorporated herein by reference to Exhibit 2 to the Company's Report on Form 8-K filed May 10, 1995 (File No. 1-13560). (26) Incorporated herein by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8 filed July 20, 1995 (Reg. No. 33-61173). (27) Incorporated herein by reference to Exhibit 1 the Company's Report on Form 8-K filed August 31, 1995 (File No. 1-13560). (28) Incorporated herein by reference to exhibit of the same number to the Company's Annual Report in Form 10-K with respect to the fiscal year ended December 31, 1995 (File No. 1-13560). EX-3.E 2 CERT. OF AMEND. TO THE CERT. OF INCORP. 1 EXHIBIT 3 (e) CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF CORRECTIONS CORPORATION OF AMERICA CORRECTIONS CORPORATION OF AMERICA, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That at a duly called meeting held on March 20, 1995, the Board of Directors of the Corporation duly adopted resolutions setting forth a proposed amendment to the Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and submitting the proposed amendment to the stockholders of the Corporation for consideration thereby. The resolution setting forth the proposed amendment is as follows: RESOLVED, that the Certificate of Incorporation of this Corporation be amended by deleting the second sentence of Article IV of the Certificate of Incorporation of the Corporation in its entirety and substituting in lieu thereof the following: "IV. The total number of shares which the Corporation shall have the authority to issue is Fifty-One Million (51,000,000) shares, consisting of Fifty Million (50,000,000) shares of Common Stock having One Dollar ($1.00) par value per share ("Common Stock") and One Million (1,000,000) shares of Preferred Stock having One Dollar ($1.00) par value per share ("Preferred Stock")." SECOND: That thereafter, pursuant to resolution of the Board of Directors of the Corporation, the amendment was submitted to a vote of the stockholders of the Corporation and that the necessary number of shares as required by statute were voted in favor of the amendment at the annual meeting of stockholders held on May 26, 1995, called and held upon notice in accordance with Section 222 of the Delaware General Corporation Law, as amended. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the Delaware General Corporation Law, as amended. 2 IN WITNESS WHEREOF, Corrections Corporation of America has caused this Certificate to be signed by Doctor R. Crants, its Chairman, and Darrell K. Massengale, its Secretary, this _____ day of May, 1995. CORRECTIONS CORPORATION OF AMERICA By: /s/ Doctor R. Crants ---------------------------------- Doctor R. Crants, Chairman Attest: /s/ Darrell K. Massengale - ------------------------------------------- Darrell K. Massengale, Secretary ACKNOWLEDGEMENTS State of Tennessee, County of Davidson. Before me,____________________________________, a Notary Public of the state and county aforesaid, personally appeared Doctor R. Crants, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged himself to be the Chairman of Corrections Corporation of America, a Delaware corporation, the within named bargainor, a corporation, and that he as such Chairman executed, on behalf of the corporation, the foregoing instrument as the act and deed of the corporation and that the facts stated therein are true. Witness my hand and seal, at office in Nashville, Tennessee, this ____ day of May, 1995. ---------------------------------- Notary Public [SEAL] My Commission Expires: ----------------- 3 State of Tennessee, County of Davidson. Before me, ________________________________, a Notary Public of the state and county aforesaid, personally appeared Darrell K. Massengale, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged himself to be the Secretary, of Corrections Corporation of America, a Delaware corporation, the within named bargainor, a corporation, and that he as such Secretary executed, on behalf of the corporation, the foregoing instrument as the act and deed of the corporation and that the facts stated therein are true. Witness my hand and seal, at office in Nashville, Tennessee, this ____ day of May, 1995. ---------------------------------- Notary Public [SEAL] My Commission Expires: ----------------- EX-4.V 3 FORM OF 7.5% CONVERTIBLE, SUBORDINATED NOTE 1 EXHIBIT 4(v) THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE PROVISIONS OF A NOTE PURCHASE AGREEMENT DATED AS OF APRIL 5, 1996 BETWEEN THE CORPORATION AND SODEXHO S.A. AND A REGISTRATION RIGHTS AGREEMENT DATED AS OF APRIL 5, 1996 BETWEEN THE CORPORATION AND SODEXHO S.A., COPIES OF WHICH ARE ON FILE AT THE OFFICES OF THE CORPORATION. THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND QUALIFICATION UNDER APPLICABLE STATE SECURITIES OR BLUE SKY LAWS, OR PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION REQUIREMENTS. CORRECTIONS CORPORATION OF AMERICA 7.5% CONVERTIBLE, SUBORDINATED NOTE DUE FEBRUARY 28, 2002 No. 019 April 5, 1996 SECTION 1. PAYMENT OBLIGATION. CORRECTIONS CORPORATION OF AMERICA, a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Corporation"), for value received, hereby promises to pay to Sodexho S.A., a French corporation (herein called "Sodexho"), or registered assigns (hereinafter referred to as the "Holder"), the principal sum of Twenty Million Dollars ($20,000,000) on the Maturity Date, and to pay interest thereon from the date hereof quarterly on March 31, June 30, September 30, and December 31 of each year, commencing June 30, 1996, at (i) the Coupon Rate, or (ii) upon the occurrence of a Triggering Event and until the date on which such Triggering Event is cured or waived or until the date that is ninety (90) days from initial occurrence of the Triggering Event, whichever is later, at the Triggering Event Rate, until the principal hereof is paid to the person in whose name this Note is registered at the close of business on the Business Day immediately preceding the date such payment is due. Any payments due hereunder that fall due on a day that is not a Business Day shall be payable on the first succeeding Business Day and such extension of time shall be included in the computation of interest due hereunder. Payment of the principal of and interest on this Note will be made by cashiers check or by wire transfer of immediately available funds, in currency of the United States of America as at the time of payment is legal tender for 2 payment of public and private debts, at such address or to such account, as applicable, as shall be designated to the Corporation by the Holder. SECTION 2. DEFINITIONS. As used herein, the following terms will be deemed to have the meanings set forth below: "BOARD" means the board of directors of the Corporation. "BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday, or Friday that is not a day on which banking institutions in Nashville, Tennessee are authorized or obligated by law or executive order to close. "CHANGE EVENT" shall mean: (a) the acquisition by any individual, entity, or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, but excluding, for this purpose, any such acquisition by (i) the Corporation or any of its subsidiaries, (ii) any employee benefit plan (or related trust) of the Corporation or its subsidiaries, or (iii) any corporation with respect to which, following such acquisition, more than 50% of the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by individuals and entities who were the beneficial owners of voting securities of the Corporation immediately prior to such acquisition in substantially the same proportion as their ownership, immediately prior to such acquisition, of the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors; or (b) the Incumbent Board shall cease for any reason to constitute at fifty percent (50%) of the members of the Board; or (c) approval by the stockholders of the Corporation of a reorganization, merger, or consolidation, in each case, with respect to which all or substantially all the individuals and entities who were the respective beneficial owners of the voting securities of the Corporation immediately prior to such reorganization, merger, or consolidation do not, following such reorganization, merger, or consolidation beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such reorganization, merger, or consolidation; or 2 3 (d) the sale or other disposition of all or substantially all the assets or property of the Corporation in one transaction or a series of related transactions. "CLOSING DATE" shall have the meaning ascribed thereto in Section 2.2 of the Note Purchase Agreement. "COMMON STOCK" means the common stock of the Corporation, par value $l.00 per share. "CONVERSION PRICE" means $53.30 per share of Common Stock, subject to adjustment from time to time as herein set forth. "CONVERSION RATIO" means the number of Conversion Shares to be delivered upon conversion of One Hundred Dollars ($100) of principal amount of this Note. Subject to the provisions for adjustment set forth herein, the Conversion Ratio shall be determined as the quotient of (i) the principal amount of this Note to be converted, divided by (ii) the Conversion Price. Subject to the provisions for adjustment set forth herein, the Conversion Ratio initially shall be 1.8762. "CONVERSION SHARES" means fully paid and nonassessable shares of Common Stock issuable upon conversion of the indebtedness evidenced by this Note. "CONVERTIBLE NOTES" means the Corporation's (a) $7,000,000 aggregate principal amount 8.5% Convertible Subordinated Notes due November 7, 1999, (b) $7,500,000 aggregate principal amount 8.5% Convertible, Extendable, Subordinated Notes due on September 30, 1998 or, if extended, on various dates, the latest of which is September 30, 2000, (c) $20,000,000 aggregate principal amount 7.5% Convertible Subordinated Notes due February 28, 2002, (d) option to purchase the Floating Rate Notes, and (e) the Floating Rate Notes when issued. "CONVERTIBLE SECURITIES" means rights, warrants, options or other securities convertible into or exchangeable for shares of Common Stock. "COUPON RATE" means seven and one-half percent (7.5%) per annum. "CURRENT MARKET PRICE" when used with reference to shares of Common Stock, shall mean the closing price per share of Common Stock on such date and, when used with reference to shares of Common Stock for any period shall mean the average of the daily closing prices per share of Common Stock for such period. If the Common Stock is listed or admitted to trading on a national securities exchange, the closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Common Stock is not listed or admitted to trading on 3 4 the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Common Stock is listed or admitted to trading. If the Common Stock is not publicly held or so listed or publicly traded, "Current Market Price" shall mean the fair market value per share of Common Stock as determined in good faith by the Board based on an opinion of an independent investment banking firm with an established national reputation as a valuer of securities, which opinion may be based on such assumptions as such firm shall deem to be necessary and appropriate. "EVENT OF DEFAULT" shall have the meaning set forth in Section 7.1 of the Note Purchase Agreement. "EXCHANGE ACT" shall have the meaning set forth in Section 3.1 of the Note Purchase Agreement. "FLOATING RATE NOTES" shall have the meaning set forth in the Sodexho Agreement. "INCUMBENT BOARD" means the individuals who, as of the Closing Date, constitute the Board; provided, however, that any individual becoming a director subsequent to the Closing Date, whose election, or nomination for election by the Corporation's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed to be a member of the Incumbent Board. "MAJOR TRANSACTION" shall mean: (a) approval by the stockholders of the Corporation of a reorganization, merger, or consolidation, in each case, with respect to which all or substantially all the individuals and entities who were the respective beneficial owners of the voting securities of the Corporation immediately prior to such reorganization, merger, or consolidation do not, following such reorganization, merger, or consolidation beneficially own, directly or indirectly, more than 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such reorganization, merger, or consolidation; or (b) the sale or other disposition of all or substantially all the assets or property of the Corporation in one transaction or a series of related transactions. "MANDATORY CONVERSION DATE" means the Business Day specified by the Corporation, in compliance with the provisions hereof, as the date on which all or a portion of the indebtedness evidenced by this Note will be converted into shares of Common Stock pursuant to the Corporation's right to compel such conversion. 4 5 "MANDATORY CONVERSION NOTICE" means a written notice substantially in the form of the notice attached hereto as Exhibit A and incorporated herein by this reference. "MANDATORY PREPAYMENT DATE" means the Business Day specified by the Holder, in compliance with the provisions hereof, as the date on which all or a portion of the indebtedness evidenced by this Note must be prepaid pursuant to the Holder's right to compel such prepayment. "MANDATORY PREPAYMENT NOTICE" means a written notice substantially in the form of the notice attached hereto as Exhibit B and incorporated herein by this reference. "MATURITY DATE" means February 28, 2002. "NOTE" means this 7.5% convertible, subordinated note issued by the Corporation. "NOTE PURCHASE AGREEMENT" means that certain Note Purchase Agreement, dated as of April 5, 1996, between the Corporation and Sodexho S.A. "OPTIONAL CONVERSION NOTICE" means a written notice substantially in the form of the notice attached hereto as Exhibit C and incorporated herein by this reference. "SENIOR INDEBTEDNESS" means the principal of and premium, if any, and unpaid interest on (a) indebtedness (other than indebtedness evidenced by the Convertible Notes, indebtedness that is subordinated in right of payment to one or more item or type of indebtedness of the Corporation, or indebtedness incurred in violation of the terms and conditions of the Note Purchase Agreement) of the Corporation, irrespective of whether secured and whether heretofore or hereafter (i) incurred for borrowed money, or (ii) evidenced by a note or similar instrument given in connection with the acquisition by the Corporation of any business, properties, or assets, including securities (but not including any account payable or other obligation created or assumed by the Corporation in the ordinary course of business in connection with the obtaining of materials or services), (b) any refundings, renewals, extensions, or deferrals of any of the indebtedness included as Senior Indebtedness by virtue of clause (a) hereof, and (c) obligations under capital leases; in each case for the payment of which the Corporation is liable directly or indirectly by guarantee, letter of credit, obligation to purchase or acquire, or otherwise, unless the terms of the instrument evidencing such indebtedness or capital lease or pursuant to which such indebtedness or capital lease is outstanding specifically provide that such indebtedness or capital lease is not superior in right of payment to the indebtedness evidenced by this Note. "SODEXHO AGREEMENT" means that certain Securities Purchase Agreement, dated as of June 23, 1994, between Sodexho S.A., a French corporation, or its designee and the Corporation, as amended by that certain Amendment No. 1 to Securities Purchase Agreement, dated as of July 11, 1995 5 6 "TRADING DAY" means, if the Common Stock is listed or admitted to trading on any national securities exchange, a day on which such exchange is open for the transaction of business, otherwise, a Business Day. "TRIGGERING EVENT" means the occurrence of any Unmatured Event of Default of Event of Default described in clauses (i), (ii), and (iv) through (x), inclusive, of Section 7.1 of the Note Purchase Agreement. For purposes of determining the period during which the Triggering Event Rate shall be in effect, a Triggering Event shall not be deemed to have occurred until the date on which the Holder shall have given notice of the occurrence thereof to the Corporation. "TRIGGERING EVENT RATE" means nine and one-half percent (9.5%) per annum. "UNMATURED EVENT OF DEFAULT" shall mean 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. SECTION 3. OPTIONAL CONVERSION. (a) Subject to and upon compliance with the provisions of this Note, the Holder is entitled, at its option, at any time on or before the close of business on the Business Day prior to the Maturity Date, or in case this Note or a portion hereof is called for conversion by the Corporation in accordance with the terms hereof, then until and including, but not after, the close of business on the third Business Day prior to the Mandatory Conversion Date, to convert all or a portion of the principal amount of the indebtedness evidenced by this Note into Conversion Shares. (b) The principal amount of the indebtedness evidenced by this Note or any portion of the principal amount of the indebtedness evidenced hereby that is One Thousand Dollars ($1,000), an integral multiple of One Thousand Dollars ($1,000), or the remaining balance of the principal amount of the indebtedness evidenced by this Note may be converted into Conversion Shares. Subject to the provisions for adjustment set forth hereinafter, the indebtedness evidenced by the Note shall be convertible into Conversion Shares at a price per share equal to the Conversion Price and the number of Conversion Shares to be deliverable to the Holder upon conversion of One Hundred Dollars ($100) of the principal amount of this Note shall be equal to the Conversion Ratio. (c) Conversion of all or a portion of the indebtedness evidenced by this Note may be effected by the Holder upon the surrender to the Corporation at the principal office of the Corporation in the State of Tennessee or at the office of any agent or agents of the Corporation, as may be designated by the Board, of this Note, duly endorsed or assigned to the Corporation or in blank, accompanied by a Optional Conversion Notice to the Corporation that the Holder elects to convert the principal amount of the indebtedness evidenced by this Note or, if less than the entire principal amount of the indebtedness evidenced by this Note is to be converted, the portion thereof to be converted. Such Optional Conversion Notice shall specify the name or names in which the Holder wishes the certificate or certificates for shares of Common Stock to be issued. In case such notice shall specify a name or names other than that of the Holder, such notice shall be accompanied 6 7 by payment of all transfer taxes payable upon the issuance of shares of Common Stock in such name or names. Other than such taxes, the Corporation will pay any and all issue and other taxes (other than taxes based on income) that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of the indebtedness evidenced by this Note. No payment or adjustment shall be made upon any conversion of this Note on account of any dividends or other distributions payable on the Conversion Shares; provided, however, that the Holder shall be entitled to receive the full amount of any dividends or other distributions declared with respect to the Conversion Shares with a record date on or after the effective date of such conversion. As promptly as practicable, and in any event within five (5) Business Days after the surrender of this Note and the receipt of such notice relating thereto and, if applicable, payment of all transfer taxes (or the demonstration to the satisfaction of the Corporation that such taxes have been paid), the Corporation shall deliver or cause to be delivered, either by personal delivery or by certified or registered mail or by a recognized overnight courier service, in any such case, properly insured, to the Holder in accordance with the written instructions of the Holder (i) certificates representing the number of Conversion Shares to which the Holder shall be entitled, and (ii) if less than the entire principal amount of indebtedness evidenced by this Note is being converted, a new promissory note, in the form of this Note, for the balance of the indebtedness that is not being so converted. Such conversion shall be deemed to have been made at the close of business on the date of giving such notice and of such surrender of this Note so that the rights of the Holder (as a noteholder) with respect to the principal amount being converted shall cease, and the person or persons entitled to receive the Conversion Shares issuable upon conversion shall be treated for all purposes as the record holder or holders of such Common Stock as of such day. All accrued but unpaid interest through the Business Day immediately preceding the date of such conversion with respect to the principal amount of the indebtedness evidenced by this Note being converted shall be payable upon conversion. The Corporation shall not be required to convert, and no surrender of this Note shall be effective for that purpose, while the transfer books of the Corporation for the Common Stock are closed for any purpose (but not for any period in excess of 15 days); but the surrender of this Note for conversion during any period while such books are so closed shall become effective for conversion immediately upon the reopening of such books, as if the conversion had been made on the date this Note is surrendered, and at the Conversion Ratio in effect at the date of such surrender. (d) In case this Note is to be prepaid pursuant to the mandatory prepayment provisions hereof, such right of conversion shall cease and terminate as to the portion of this Note that is to be prepaid at the close of business on the Business Day next preceding the date fixed for mandatory prepayment unless the Corporation shall default in the payment of the mandatory prepayment amount. (e) In connection with the conversion of the indebtedness evidenced by this Note, no fractions of shares of Common Stock shall be issued, but in lieu thereof the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest 7 8 multiplied by the Current Market Price per share of Common Stock on the Trading Day on which such indebtedness evidenced by this Note is deemed to have been converted. If more than one note shall be surrendered for conversion by the Holder at the same time, the number of full shares of Common Stock issuable on conversion thereof shall be computed on the basis of the total amount of indebtedness to be converted. (f) (i) The Corporation shall at all times reserve and keep available for issuance upon the conversion of the indebtedness evidenced by this Note, free from any preemptive rights, such number of its authorized but unissued shares of Common Stock as will from time to time be sufficient to permit the conversion of all of the indebtedness evidenced by this Note, and shall take all action required to increase the authorized number of shares of Common Stock if necessary to permit the conversion of all of the indebtedness evidenced by this Note. (ii) If the Corporation shall issue shares of Common Stock upon conversion of indebtedness evidenced by this Note as contemplated by this Section 3, the Corporation shall issue together with each such share of Common Stock any rights issued to holders of Common Stock of the Corporation, irrespective of whether such rights shall be exercisable at such time, but only if such rights are issued and outstanding and held by other holders of Common Stock of the Corporation at such time and have not expired. (g) The Conversion Ratio will be subject to adjustment from time to time as follows: (i) In case the Corporation shall at any time or from time to time after the Closing Date (A) pay a dividend, or make a distribution, on the outstanding shares of Common Stock in shares of Common Stock, (B) subdivide the outstanding shares of Common Stock, (C) combine the outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification of the shares of Common Stock any shares of capital stock of the Corporation, then, and in each such case, the Conversion Ratio in effect immediately prior to such event or the record date therefor, whichever is earlier, shall be adjusted so that the Holder shall be entitled to receive the number of shares of Common Stock (or other capital stock) of the Corporation that the Holder would have owned or have been entitled to receive after the happening of any of the events described above, had the indebtedness evidenced by this Note been converted immediately prior to the happening of such event or the record date therefor, whichever is earlier. An adjustment made pursuant to this clause (i) shall become effective (x) in the case of any such dividend or distribution, immediately after the close of business on the record date for the determination of holders of shares of Common Stock entitled to receive such dividend or distribution, or (y) in the case of such subdivision, reclassification, or combination, at the close of business on the day upon which such corporate action becomes effective. No adjustment shall be made pursuant to this clause (i) in connection with any transaction to which subsection (h) applies. 8 9 (ii) In case the Corporation shall issue shares of Common Stock or Convertible Securities after the Closing Date at a price per share (or having a conversion price per share) less than the Current Market Price per share of Common Stock, as of the date of issuance of such shares or of such Convertible Securities, then, and in each such case, the Conversion Ratio shall be adjusted so that the Holder shall be entitled to receive, upon the conversion hereof, the number of shares of Common Stock determined by multiplying (A) the applicable Conversion Ratio on the day immediately prior to such date by (B) a fraction, the numerator of which shall be the sum of (1) the number of shares of Common Stock outstanding on such date, plus (2) the number of additional shares of Common Stock issued (or into which the Convertible Securities may convert), and the denominator of which shall be the sum of (a) the number of shares of Common Stock outstanding on such date, plus (b) the number of shares of Common Stock purchasable at the then Current Market Price per share with the aggregate consideration received or receivable by the Corporation for the total number of shares of Common Stock so issued (or into which the Convertible Securities may convert). Notwithstanding the foregoing, in the event that after the date hereof the Corporation (x) issues the Floating Rate Notes, or (y) sells up to 1,000,000 shares (dilution adjustments for future public stock issuances in excess of 1,000,000 shares after adjustment is made for the first 1,000,000 shares pursuant to this sentence, shall be made in accordance with the previous sentence) of its Common Stock to the public in a registered offering or offerings (on Forms other than S-4, S-8, or any successor Forms or similar Forms) (each such issuance an "Adjustment Event"), then, and in each such case, the Conversion Ratio shall be adjusted so that the holder shall be entitled to receive, upon the conversion hereof, the number of shares of Common Stock determined by multiplying the applicable Conversion Ratio on the day immediately prior to such Adjustment Event by a fraction, (i) the numerator of which shall be the number of shares of Common Stock outstanding, plus, in the case of an Adjustment Event described in clause (x), the number of shares of Common Stock into which the Floating Rate Notes may convert, immediately after such Adjustment Event, and (ii) the denominator of which shall be the number of shares of Common Stock outstanding, immediately prior to such Adjustment Event. An adjustment made pursuant to this clause (ii) shall be made on the next Business Day following the date on which any such issuance is made and shall be effective retroactively to the close of business on the date of such issuance. For purposes of this clause (ii), the aggregate consideration received or receivable by the Corporation in connection with the issuance of shares of Common Stock or of rights, warrants, or other securities convertible into shares of Common Stock shall be deemed to be equal to the sum of the aggregate offering price (before deduction of underwriting discounts or commissions and expenses payable to third parties) of all such Common Stock, rights, warrants, and convertible securities plus the minimum aggregate amount, if any, payable upon exercise of conversion of any such rights, warrants, and convertible securities into shares of Common Stock. The issuance of any shares of Common Stock (whether treasury shares or newly issued shares) pursuant to (a) a dividend or distribution on, or subdivision, combination or reclassification of, the outstanding shares of Common Stock requiring an adjustment in the conversion ratio 9 10 pursuant to clause (i) of this subsection (g), or (b) other than as provided in clause (y) above, the terms of a firmly committed underwritten public offering, shall not be deemed to constitute an issuance of Common Stock or Convertible Securities by the Corporation to which this clause (ii) applies. Upon the expiration of any unexercised options, warrants, or rights to convert any convertible securities for which an adjustment has been made pursuant to this clause (ii), the adjustments shall forthwith be reversed to effect such rate of conversion as would have been in effect at the time of such expiration or termination had such options, warrants, or rights or convertible securities, to the extent outstanding immediately prior to such expiration or termination, never been issued. If the purchase price provided for in any option, warrant, or rights to convert any convertible securities for which an adjustment has been made pursuant to this clause (ii), the additional consideration, if any, payable upon the conversion or exchange of any convertible securities for which an adjustment has been made, or the rate at which any convertible securities referred to above are convertible into or exchangeable for Common Stock shall, at any time, increase or decrease (other than under or by reason of provisions designed to protect against dilution), then, the Conversion Ratio in effect at the time of such event shall forthwith be readjusted to the Conversion Ratio that would have been in effect at such time had such options, warrants, or rights or convertible securities still outstanding provided for such changed purchase price, additional consideration, or conversion rate, as the case may be, at the time initially granted, issued, or sold. No adjustment shall be made pursuant to this clause (ii) in connection with any transaction to which subsection (h) applies. (iii) In case the Corporation shall at any time or from time to time after the Closing Date declare, order, pay, or make a dividend or other distribution (including, without limitation, any distribution of stock or other securities or property or rights or warrants to subscribe for securities of the Corporation or any of its subsidiaries by way of dividend or spinoff), on its Common Stock, other than (A) dividends payable in cash in an aggregate amount not to exceed 50% of net income from continuing operations before extraordinary items of the Corporation, determined in accordance with generally accepted accounting principles, during the period (treated as one accounting period) commencing on December 31, 1995, and ending on the date such dividend is paid; provided, that, to the extent required by the terms thereof, such dividend shall have been previously consented to by the holders of the notes issued pursuant to the Note Purchase Agreement, or (B) dividends or distributions of shares of Common Stock which are referred to in clause (i) of this subsection (g), then, and in each such case, the Conversion Ratio shall be adjusted so that the Holder shall be entitled to receive, upon the conversion hereof, the number of shares of Common Stock determined by multiplying (1) the applicable Conversion Ratio on the day immediately prior to the record date fixed for the determination of stockholders entitled to receive such dividend or distribution by (2) a fraction, the numerator of which shall be the Current Market Price per share of Common Stock for the period of 30 Trading Days preceding such record date, and the denominator of which shall be such Current Market Price per share of Common Stock less 10 11 the fair market value, as determined in good faith by the Board, a certified resolution with respect to which shall be mailed to the Holder, per share of Common Stock of such dividend or distribution. No adjustment shall be made pursuant to this clause (iii) in connection with any transaction to which subsection (h) applies. (iv) For purposes of this subsection (g), the number of shares of Common Stock at any time outstanding shall not include any shares of Common Stock then owned or held by or for the account of the Corporation. (v) The term "dividend," as used in this subsection (g), shall mean a dividend or other distribution upon stock of the Corporation. (vi) Anything in this subsection (g) to the contrary notwithstanding, the Corporation shall not be required to give effect to any adjustment in the Conversion Ratio unless and until the net effect of one or more adjustments (each of which shall be carried forward), determined as above provided, shall have resulted in a change of the Conversion Ratio by at least one one-hundredth (.01) of one share of Common Stock, and when the cumulative net effect of more than one adjustment so determined shall be to change the Conversion Ratio by at least one one-hundredth (.01) of one share of Common Stock, such change in Conversion Ratio shall thereupon be given effect. (vii) The certificate of any firm of independent public accountants of recognized standing selected by the Board (which may be the firm of independent public accountants regularly employed by the Corporation) shall be presumptively correct for any computation made under this subsection (g). (viii) If the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, and shall thereafter and before the distribution to stockholders thereof legally abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment in the number of shares of Common Stock issuable upon exercise of the right of conversion granted by this subsection (g) or in the Conversion Ratio then in effect shall be required by reason of the taking of such record. (h) In the case of any Major Transaction occurring at any time, at the option of the Holder, the indebtedness evidenced by the Note shall thereafter be convertible into, in whole and in part and in lieu of the Common Stock issuable upon such conversion prior to consummation of such Major Transaction, the kind and amount of shares of stock and other securities and property receivable (including cash) upon the consummation of such Major Transaction by a holder of that number of shares of Common Stock into which such indebtedness, or portion thereof, was convertible immediately prior to such Major Transaction (including, on a pro rata basis, the cash, securities, or property received by holders of Common Stock in any tender or exchange offer that is a step in such Major Transaction). In case securities or property other than Common Stock shall be issuable or 11 12 deliverable upon conversion as aforesaid, then all references in this Section 3 shall be deemed to apply, so far as appropriate and nearly as may be, to such other securities or property. (i) In case at any time or from time to time the Corporation shall pay any stock dividend or make any other non-cash distribution to the holders of its Common Stock, or shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or any other right, or there shall be any capital reorganization or reclassification of the Common Stock of the Corporation or consolidation or merger of the Corporation with or into another corporation or other entity, or any sale or conveyance to another corporation or other entity of the assets or property of the Corporation as an entirety or substantially as an entirety, or there shall be a voluntary or involuntary dissolution, liquidation, or winding up of the Corporation, then, in any one or more of said cases the Corporation shall give at least 20 days prior written notice (the time of mailing of such notice shall be deemed to be the time of giving thereof) to the Holder at the address of the Holder as shown on the books of the Corporation as of the date of which (i) the books of the Corporation shall close or a record shall be taken for such stock dividend, distribution, or subscription rights, or (ii) such reorganization, reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation, or winding up shall take place, as the case may be, provided that in the case of any Major Transaction to which subsection (h) applies the Corporation shall give at least 30 days prior written notice as aforesaid. Such notice also shall specify the date as of which the holders of the Common Stock of record shall participate in said dividend, distribution, or subscription rights or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, or conveyance or participate in such dissolution, liquidation, or winding up, as the case may be. Failure to give such notice shall not invalidate any action so taken. (j) Anything herein to the contrary notwithstanding, the issuance or sale of the following shares of Common Stock or options, warrants, or other rights to purchase Common Stock shall be excluded from any calculation of, and shall not be deemed issued or sold for purposes of calculating, any reduction, adjustment, or readjustment of the Conversion Ratio hereunder: (i) shares of Common Stock issued upon conversion of the indebtedness evidenced by this Note or any portion thereof; (ii) shares of Common Stock or options, warrants, or other rights to purchase Common Stock issuable, reserved for issuance, or issued pursuant to a stock option plan, employee stock ownership plan, or other compensatory benefit plan of the Corporation, duly adopted by the Board; (iii) shares of Common Stock, issuable, reserved for issuance, or issued pursuant to any currently outstanding warrants or options (other than as provided in clause (x) of subparagraph (g)(ii) above), or any options, warrants, or other rights issuable, reserved for issuance, or issued to officers of the Corporation in the future for compensatory purposes, if duly authorized by the Board; and (iv) shares of Common Stock issued upon conversion of the indebtedness evidenced by the Convertible Notes (other than as provided in clause (x) of subparagraph (g)(ii) above). Section 4. REPORTS AS TO ADJUSTMENTS. Upon any adjustment of the Conversion Ratio then in effect and any increase or decrease in the number of shares of Common Stock issuable upon the operation of the conversion set forth in Section 3, then, and in each such case, the 12 13 Corporation shall promptly deliver to the Holder, a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation setting forth in reasonable detail the event requiring the adjustment and the method by which such adjustment was calculated and specifying the Conversion Ratio then in effect following such adjustment and the increased or decreased number of shares issuable upon the conversion granted by Section 3, and shall set forth in reasonable detail the method of calculation of each and a brief statement of the facts requiring such adjustment. Where appropriate, such notice to the Holder may be given in advance and included as part of the notice required under the provisions of Section 3(i). SECTION 5. MANDATORY CONVERSION. (a) At any time after the fourth anniversary of the Closing Date, and so long as at such time the Common Stock is listed or admitted to trading on a national securities exchange, the Corporation may require the Holder to convert all or a portion of the principal amount of the indebtedness evidenced by this Note into shares of Common Stock if, at such time, the Current Market Price of the Common Stock has equalled or exceeded one hundred fifty percent (150%) of the Conversion Price (as it may from time to time be adjusted) for forty- five (45) consecutive Trading Days following the forty-fifth monthly anniversary of the Closing Date. To exercise such right, the Corporation must deliver a Mandatory Conversion Notice of the exercise of such right to the Holder within thirty (30) days of the last day of such forty-five (45) day period, such Mandatory Conversion Notice must be given at least ten (10) Business Days, but not more than fifteen (15) Business Days prior to the proposed Mandatory Conversion Date, and such Mandatory Conversion Notice must specify the proposed Mandatory Conversion Date and the portion of the principal amount of the indebtedness evidenced by this Note to be converted into Common Stock. (b) All conversions effected pursuant to the preceding paragraph will be made effective as of the close of business on the Mandatory Conversion Date at the Conversion Ratio in effect on the Mandatory Conversion Date; provided, however, that, in order to be able to convert, the Current Market Price on the Mandatory Conversion Date must equal or exceed one hundred fifty percent (150%) of the Conversion Price in effect on the Mandatory Conversion Date. If the Current Market Price on the Mandatory Conversion Date does not equal or exceed one hundred fifty percent (150%) of the Conversion Price in effect on the Mandatory Conversion Date, the Corporation's election to require conversion will be deemed void and no conversion will be effected pursuant to such notice. Such event will not be deemed, however, to alter or restrict the Corporation's right to again require conversion at such time as the Current Market Price equals or exceeds one hundred fifty percent (150%) of the then current Conversion Price for forty-five (45) consecutive Trading Days prior to such time. Upon conversion required by the Corporation pursuant to this paragraph and the immediately preceding paragraph, all accrued but unpaid interest with respect to the principal amount of the indebtedness evidenced by this Note being converted shall be payable in accordance with the provisions of the following paragraph. (c) Conversions of the indebtedness evidenced by this Note effected by the exercise of the Corporation's right to require conversion will be deemed effective as of the close of business on the Mandatory Conversion Date without any action by the Holder and the Holder will, as of such 13 14 time, be a stockholder of the Corporation with respect to the number of shares of Common Stock into which the principal balance evidenced by this Note (or such portion of the principal balance evidenced by this Note as the Corporation shall have specified) shall have been converted. The Holder agrees promptly to surrender this Note for cancellation following mandatory conversion. Certificates representing the shares of Common Stock issuable by the Corporation as a result of the mandatory conversion of all or a portion of the principal balance of the indebtedness evidenced by this Note and all dividends and other distributions payable with respect to such shares and all accrued but unpaid interest payable pursuant to the immediately preceding paragraph will be retained by the Corporation pending surrender of this Note for cancellation. As promptly as practicable, and in any event within five (5) Business Days after the surrender of this Note, the Corporation shall deliver or cause to be delivered, either by personal delivery or by certified or registered mail or by a recognized overnight courier service, in any such case, properly insured, to the Holder in accordance with the written instructions of the Holder (i) certificates representing the number of Conversion Shares to which the Holder shall be entitled, and (ii) if less than the entire principal amount of indebtedness evidenced by this Note is being converted, a new promissory note, in the form of this Note, for the balance of the indebtedness that is not being so converted. (d) In connection with the conversion of the indebtedness evidenced by this Note, no fractions of shares of Common Stock shall be issued, but in lieu thereof the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest multiplied by the Current Market Price per share of Common Stock on the Trading Day on which such indebtedness evidenced by this Note is deemed to have been converted. If more than one note shall be surrendered for conversion by the Holder at the same time, the number of full shares of Common Stock issuable on conversion thereof shall be computed on the basis of the total amount of indebtedness to be converted. SECTION 6. MANDATORY PREPAYMENT. In the case of any Change Event occurring at any time, at the option of the Holder, the Holder may require the Corporation to prepay all or a portion of the then outstanding principal amount of the indebtedness evidenced by this Note. To exercise such right of prepayment, the Holder must provide the Corporation with a Mandatory Prepayment Notice at least thirty (30) days prior to the proposed Mandatory Prepayment Date which Mandatory Prepayment Notice shall specify the portion of the principal amount of the indebtedness evidenced by this Note (which must be in integral multiples of One Thousand Dollars ($1,000)) to be prepaid. On the Mandatory Prepayment Date specified, the Corporation shall prepay the portion of the principal amount of the indebtedness evidenced by this Note that the Holder has specified must be prepaid on such date, plus accrued interest on such principal amount to the date of the prepayment. Any prepayment shall be made by cashiers check or by wire transfer of immediately available funds, in currency of the United States of America as at the time of payment is legal tender for payment of public and private debts, at such address or to such account, as applicable, as shall be designated to the Corporation by the Holder. SECTION 7. SUBORDINATION. (a) The Corporation covenants and agrees, and the Holder likewise covenants and agrees, that no payment shall be made by the Corporation on account 14 15 of principal of or interest on this Note, or otherwise, if there shall have occurred and be continuing, and the Corporation and the Holder shall have received notice from the holder or holders of, a default with respect to any Senior Indebtedness (i) permitting the acceleration thereof and such default is the subject of a judicial proceeding, or (ii) in an aggregate principal amount of not less than One Million Dollars ($1,000,000) entitling such holder or holders to compel the acceleration thereof (provided, however, that in the case of Senior Indebtedness issued pursuant to an indenture, such notice may be validly given only by the trustee under such indenture), unless and until such default or Event of Default shall have been cured or waived or shall have ceased to exist or such notice is withdrawn or found by a court of competent jurisdiction to be invalid. (b) Upon any payment by the Corporation or distribution of assets of the Corporation of any kind or character, whether in cash, property, or securities, to creditors of the Corporation upon any dissolution or winding up or liquidation or reorganization of the Corporation, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership, or other similar proceedings, all amounts due or to become due upon all Senior Indebtedness shall first be paid in full in money or money's worth, or payment thereof provided for, before any payment is made on account of the principal of or interest on this Note and upon such dissolution or winding up or liquidation or reorganization, any payment by the Corporation, or distribution of assets of the Corporation of any kind or character, whether in cash, property, or securities, to which the Holder would be entitled except for the provisions hereof, shall be paid by the Corporation or by any receiver, trustee in bankruptcy, liquidating trustee, agent, or other person making such payment or distribution directly to the holders of Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay all Senior Indebtedness in full in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of Senior Indebtedness, before any payment or distribution is made to the Holder. (c) The foregoing notwithstanding, in the event that any payment of or distribution of assets of the Corporation of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Holder before all Senior Indebtedness is paid in full in money or money's worth, or provision is made for such payment, then and in such event such payment or distribution shall be paid over or delivered to the holders of Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any Senior Indebtedness may have been issued, as their respective interests may appear, for application to the payment of all Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior Indebtedness in full in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness (but subject to the power of a court of competent jurisdiction to make other equitable provision, which shall have been determined by such court to give effect to the rights conferred herein upon the Senior Indebtedness and the holders thereof with respect to this Note or the Holder hereof by a lawful plan or reorganization or readjustment under applicable bankruptcy law). 15 16 (d) The holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Holder, without incurring responsibility to the Holder and without impairing or releasing the obligations of the Holder to the holders of Senior Indebtedness: (i) change the manner, place, or terms of payment or change or extend the time of payment of, or renew or alter Senior Indebtedness, or otherwise amend, in any manner, Senior Indebtedness or any instrument evidencing the same or any agreement under which such Senior Indebtedness is outstanding; provided, however, that the average weighted maturity of such Senior Indebtedness shall not be decreased without the consent of the Holder; (ii) sell, exchange, release, or otherwise deal with any property pledged, mortgaged, or otherwise securing Senior Indebtedness; (iii) release any person liable in any manner for the collection of Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Corporation and any other person. (e) Subject to the payment in full of all amounts then due (whether by acceleration of the maturity thereof or otherwise) on account of the principal of, premium, if any, and interest on all Senior Indebtedness at the time outstanding, the Holder shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of cash, property, or securities of the Corporation applicable to the Senior Indebtedness until the principal of and interest on this Note shall be paid in full; and, for the purposes of such subrogation, no payments or distributions by the Corporation to the holders of Senior Indebtedness of any cash, property, or securities to which the Holder would be entitled except for the provisions hereof, and no payments over pursuant to the provisions hereof to the holders of Senior Indebtedness by the Holder, shall, as between the Corporation, its creditors other than holders of Senior Indebtedness, and the Holder, be deemed to be a payment by the Corporation to or on account of the Senior Indebtedness. (f) It is understood that the foregoing provisions of this Note are and are intended solely for the purpose of defining the relative rights of the Holder on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Note is intended to or shall impair, as among the Corporation, its creditors other than the holders of Senior Indebtedness, and the Holder, the obligation of the Corporation, which is absolute and unconditional, to pay to the Holder the principal of and interest on this Note as and when the same shall become due and payable in accordance with its terms, or is intended to or shall affect the relative rights of the Holder and creditors of the Corporation other than the holders of Senior Indebtedness, nor shall anything herein prevent the Holder from exercising all remedies otherwise permitted by applicable law upon default under this Note or the Note Purchase Agreement. (g) Upon any payment or distribution of assets of the Corporation referred to herein, the Holder shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation, or reorganization proceedings are pending, or certificate of the receiver, trustee in bankruptcy, liquidating trustee, agent, or other person making such payment or distribution, delivered to the Holder, for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Corporation, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon, and all other facts pertinent thereto. 16 17 (h) The Corporation shall give prompt written notice to the Holder of any fact known to the Corporation that would prohibit the making of any payment of moneys to or by the Corporation in respect of this Note. SECTION 8. ACCELERATION. This Note and the indebtedness evidenced hereby is subject to acceleration under the terms and conditions set forth in the Note Purchase Agreement. SECTION 9. NO OPTIONAL PREPAYMENT. This Note and the indebtedness evidenced hereby shall not be prepaid at the option of the Corporation. SECTION 10. MISCELLANEOUS. (a) Any notice required by the provisions of this Note to be given to the Holder or the Corporation shall be given and deemed received or delivered in accordance with the provisions of Section 10.4 of the Note Purchase Agreement. (b) In the event of prepayment or conversion of this Note in part only, a new note or notes for the unpaid or unconverted portion hereof will be issued in the name or names requested by the Holder upon the cancellation hereof. (c) The transfer of this Note is registrable on the books of the Corporation upon surrender of this Note for registration of transfer at the offices of the Corporation in Nashville, Tennessee, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Corporation duly executed by, the Holder or its attorney duly authorized in writing, and thereupon one or more new notes of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. New notes are issuable only in registered form without coupons in denominations of One Thousand Dollars ($1,000) and any integral multiple thereof. This Note is exchangeable for a like aggregate principal amount of notes of a different authorized denomination, as requested by the Holder. No service charge shall be made for any such registration of transfer or exchange, but the Corporation may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. (d) Prior to the due presentment of this Note for registration of transfer, the Corporation and any agent of the Corporation may treat the person in whose name this Note is registered as the owner hereof for all purposes, irrespective of whether this Note be overdue, and neither the Corporation nor any such agent shall be affected by notice to the contrary. (e) This Note shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be governed by, construed under, and enforced in accordance with the laws of the State of New York. (f) The Corporation agrees, to the extent permitted by law, to pay to the Holder all costs and expenses (including attorneys' fees) incurred by it in the collection hereof or the enforcement of any right or remedy provided for herein (including such costs and expenses incurred in connection with a workout or an insolvency or bankruptcy proceeding). 17 18 (g) The provisions of the Note Purchase Agreement are hereby incorporated into this Note by this reference. IN WITNESS WHEREOF, the undersigned has executed this Note effective as of the date first above written. CORRECTIONS CORPORATION OF AMERICA, a Delaware corporation By: /s/ ----------------------------- Title: ----------------------------- ATTEST: - ------------------------------ Secretary 18 19 Exhibit A [FORM OF MANDATORY CONVERSION NOTICE] _________________________ _________________________ _________________________ Notice hereby is given that, in accordance with the terms and conditions of the Note hereinafter described and that certain Note Purchase Agreement, dated April 5, 1996, between Corrections Corporation of America and ______________, Corrections Corporation of America hereby elects to require conversion of the 7.5% Convertible, Subordinated Note, due February 28, 2002, issued by it (the "Note"). The Note to be converted and the principal amount thereof to be converted are as follows:
Principal Number of Outstanding Amount to be Shares to Note Number Principal Amount Converted Be Delivered - ---------------------------------------------------------------------------------------------------------
The Mandatory Conversion Date will be . --------------------- CORRECTIONS CORPORATION OF AMERICA By: --------------------------------- Name: --------------------------------- Title: --------------------------------- 19 20 Exhibit B [FORM OF MANDATORY PREPAYMENT NOTICE] TO: CORRECTIONS CORPORATION OF AMERICA __________________________________ __________________________________ The undersigned owner of the attached Note hereby gives notice that, in accordance with the terms and conditions of such Note and that certain Note Purchase Agreement, dated April 5, 1996, between Corrections Corporation of America and _________________, it hereby exercises its right to require prepayment of such Note or portion thereof (which is $1,000 or an integral multiple thereof), plus all accrued but unpaid interest with respect to such principal amount. The Mandatory Prepayment Date shall be ______________. The principal amount to be prepaid shall be $____________________________. [Name of Holder] Dated: By: --------------------- ----------------------------------- Name: -------------------------------- Title: ------------------------------- 20 21 Exhibit C [FORM OF OPTIONAL CONVERSION NOTICE] TO: CORRECTIONS CORPORATION OF AMERICA __________________________________ __________________________________ The undersigned owner of the attached Note hereby gives notice that, in accordance with the terms and conditions of such Note and the Note Purchase Agreement, dated April 5, 1996, between Corrections Corporation of America, ______________________, it hereby exercises its right to convert such Note, or portion hereof (which is $1,000 or an integral multiple thereof) below designated, into shares of Common Stock of Corrections Corporation of America and directs that the shares issuable and deliverable upon the conversion, and any notes representing any unconverted principal amount thereof, be issued and delivered to the registered holder of such Note unless a different name has been indicated below. If shares or a new note representing unconverted principal are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. [Name of Holder] Dated: By: --------------------- ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Principal Amount to be converted (in an integral multiple of $1,000, if less than all): $________________ 21 22 Fill in for registration of shares of Common Stock and note if to be issued other than to the registered Holder. ______________________ Name ______________________ Address ______________________ Please print name and address (including zip code number) SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFYING NUMBER ______________________ 22 EX-4.W 4 NOTE PURCHASE AGREEMENT DATED APRIL 5, 1996 1 ================================================================================ EXHIBIT 4(w) CORRECTIONS CORPORATION OF AMERICA ____________________________________ NOTE PURCHASE AGREEMENT ____________________________________ 7.5% Convertible, Subordinated Notes due February 28, 2002 ($20,000,000) Dated as of April 5, 1996 ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- 1. Authorization of Issue of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2. Sale and Purchase of the Notes; Closing Date; Conditions for Closing . . . . . . . . . . . . . . . . . . . . 1 2.1 Sale and Purchase of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.3 Conditions for Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.4 Waiver of Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3. Definitions; Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3.2 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3.3 Changes in Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4. Representations and Warranties of the Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.1 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.2 Due Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.4 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.6 Actions Pending; Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.7 Title to Properties; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 4.8 Governmental Consents, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.9 Holding Corporation Act and Investment Corporation Act Status . . . . . . . . . . . . . . . . . . . 13 4.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.11 Conflicting Agreements and Charter Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 4.12 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 4.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 4.14 Status of Conversion Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.15 Registration Under Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.16 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.17 Possession of Franchises, Licenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 4.18 Environmental and Other Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.19 Offering of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.20 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.21 Offering of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 4.22 Regulations G, T, U, and X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 5. Representations and Warranties of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.1 Due Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.2 Conflicting Agreements and Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.3 Acquisition for Investment; Source of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.4 Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
i 3 5.5 Accredited Investor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.1 Financial Statements and Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 6.2 Inspection of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.3 Use of Proceeds; Regulations G, T, U, and X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.4 Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.5 Consolidated Fixed Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 6.6 Consolidated Senior Funded Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.7 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.8 Maintenance of Properties; Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 6.9 Performance of Government Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.10 Notice to Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.11 Waiver of Stay, Extension, or Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.12 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.13 Amendments or Waivers of Certain Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6.14 Limitation on Issuance of Other Subordinated Indebtedness Senior to the Notes . . . . . . . . . . . 22 6.15 Limitation on Subsidiary Funded Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7. Events Of Default; Remedies Therefor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 7.2 Acceleration of Maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 8. Agreements of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 8.1 Transfer of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 8.2 No General Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 8.3 No Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 8.4 Transfer Restrictions; Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 8.5 Restrictions on Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 8.6 Further Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 9. Nondisclosure of Confidential Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 10. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 10.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 10.2 Survival of Covenants, Representations, and Warranties . . . . . . . . . . . . . . . . . . . . . . . 28 10.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 10.4 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 10.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 10.6 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 10.7 Satisfaction Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 10.8 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 10.9 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 10.10 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 10.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ii 4 10.12 Execution in Counterparts; Telecopy Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 10.13 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 10.14 Direct Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 LIST OF EXHIBITS Exhibit L - 1 Legal Opinion Exhibit N - 1 Form of Subordinated Note Exhibit R - 1 Registration Rights Agreement LIST OF SCHEDULES Schedule 4.3 Subsidiaries Schedule 4.6 Pending Actions Schedule 4.11 Conflicts Schedule 4.12 Options/Warrants Schedule 10.14 Purchaser's Schedule
iii 5 This NOTE PURCHASE AGREEMENT (this "Agreement"), dated as of April 5, 1996, between SODEXHO S.A. a French corporation ("Purchaser"), and CORRECTIONS CORPORATION OF AMERICA, a Delaware corporation (the "Corporation"). WHEREAS, the Corporation has duly authorized the issuance of convertible, subordinated notes in the aggregate principal amount of $20,000,000 that are to be convertible into shares of the Corporation's common stock; WHEREAS, Purchaser wishes to purchase the convertible, subordinated notes from the Corporation, and the Corporation wishes to sell such convertible, subordinated notes to Purchaser; and WHEREAS, Purchaser and the Corporation are entering into this Agreement to provide for such purchase and sale and to establish various rights and obligations in connection therewith. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, the parties hereto agree as follows: 1. AUTHORIZATION OF ISSUE OF THE NOTES. The Corporation has duly authorized the issuance of convertible, subordinated notes (the "Notes") in the aggregate principal amount of $20,000,000, to be dated the date of issuance thereof, to bear interest on the unpaid balance thereof from the date thereof quarterly at the Coupon Rate and, upon the occurrence of a Triggering Event and until the date on which such Triggering Event is cured or waived or until the date that is ninety (90) days from the initial occurrence of Triggering Event, whichever is later, at the Triggering Event Rate, until the principal thereof shall become due and payable. The indebtedness evidenced by the Notes shall be convertible into shares of the Corporation's common stock, $1.00 par value, upon such terms and at a conversion rate as set forth in the Notes. The Notes shall be substantially in the form attached hereto as Exhibit N-1 and shall be issued to Purchaser on the Closing Date. 2. SALE AND PURCHASE OF THE NOTES; CLOSING DATE; CONDITIONS FOR CLOSING. 2.1 Sale and Purchase of the Notes. Subject to the terms and conditions of this Agreement, Purchaser agrees to purchase, and the Corporation agrees to sell and issue to Purchaser, on the Closing Date, the Notes for an aggregate purchase price of Twenty Million Dollars ($20,000,000). 2.2 Closing Date. The closing of the sale and purchase of the Notes shall take place at the offices of Ropes & Gray, New York, New York, at 10:00 a.m., local time, on April 5, 1996 or at such other time, date, or place as the Corporation and Purchaser shall mutually agree (which time, date, and place are referred to in this Agreement as the "Closing Date"). 2.3 Conditions for Closing. Purchaser's obligation to purchase the Notes on the Closing Date shall be subject to the performance by the Corporation of its agreements hereunder that 6 by the terms hereof are to be performed at or prior to the time of delivery of the Notes and to the following further conditions precedent: (i) Closing Date. The Closing Date shall occur on or before April 5, 1996; (ii) Closing Certificate. Purchaser shall have received a certificate dated the Closing Date, signed by the President or a Vice President of the Corporation, to the effect that: (i) the representations and warranties of the Corporation set forth in Sections 4.1 through 4.22 are true and correct in all material respects on and with respect to the Closing Date; (ii) the Corporation has performed all of its obligations hereunder that are to be performed on or prior to the Closing Date; and (iii) no Unmatured Event of Default or Event of Default has occurred and is continuing; (iii) Legality. The Notes shall qualify as a legal investment for Purchaser under the laws and regulations of each jurisdiction to which Purchaser is subject (without reference to any so-called "basket" provision which permits the making of an investment without restrictions to the character of the particular investment being made) and the purchase of and payment for the Notes shall not be prohibited by any applicable law or governmental regulation. (iv) Satisfactory Proceedings. All corporate proceedings taken in connection with the transactions contemplated by this Agreement, and all documents necessary to the consummation thereof, shall be satisfactory in form and substance to Purchaser and special counsel to Purchaser, and Purchaser shall have received a copy (executed or certified as may be appropriate) of all documents or corporate proceedings taken in connection with the consummation of said transactions, including the following: a. Certified copies of the Certificate of Incorporation and By-laws of the Corporation; b. Certified copies of resolutions of the Board of Directors of the Corporation authorizing the execution, delivery, and performance of the Transaction Documents, and any other documents provided for in this Agreement; and c. A certificate of the Secretary of the Corporation certifying the names of the officer or officers of the Corporation authorized to sign the Transaction Documents and any other documents provided for in this Agreement, together with a sample of the true signature of each such officer; (v) Legal Opinion. Purchaser shall have received from Stokes & Bartholomew, counsel to the Corporation, an opinion letter dated the Closing Date, in form 2 7 and substance satisfactory to Purchaser and its counsel, and covering the matters set forth in Exhibit L-1 hereto; (vi) Issuance of the Notes. The Corporation shall have executed and delivered the Notes to Purchaser or its nominee; (vii) Registration Rights Agreement. The Corporation and Purchaser shall have entered into a registration rights agreement in the form of Exhibit R-1 hereto (the "Registration Rights Agreement"); (viii) Arrangement Fee. The Corporation shall pay to Purchaser an arrangement fee of $300,000 by wire transfer of immediately available funds; (ix) No Material Adverse Change. No material adverse change in the business, condition, or operations (financial or otherwise) of the Corporation and its Subsidiaries taken as a whole from that set forth in the balance sheet as of December 31, 1995, included in the SEC Reports, other than changes disclosed to Purchaser in writing prior to the execution and delivery by Purchaser of this Agreement, shall have occurred; (x) Approvals and Consents. The Corporation shall have duly received all authorizations, consents, approvals, licenses, franchises, permits, and certificates by or of all federal, state, and local governmental authorities necessary for the issuance of the Notes; (xi) Payment of Legal Fees. The Corporation shall have reimbursed Purchaser in full for the fees and expenses of its counsel, Ropes & Gray, incurred in connection with the preparation, negotiation, and execution of the Transaction Documents, and any other documents executed in connection herewith; (xii) Representations and Warranties. The representations and warranties of the Corporation contained in this Agreement shall be true and correct in all respects on and as of the Closing Date, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date); (xiii) Events of Default. No Unmatured Event of Default or Event of Default shall have occurred and be continuing on the Closing Date, nor shall either result from the purchase and sale of the Notes; and 2.4 Waiver of Conditions. If, on the Closing Date, the Corporation fails to deliver the Notes to Purchaser or if any of the other conditions specified in Section 2.3 have not been satisfied, Purchaser shall be relieved of all further obligations under this Agreement. Without limiting the foregoing, if the conditions specified in Section 2.3 have not been satisfied, Purchaser may waive compliance by the Corporation with any such condition to such extent as it may in its sole discretion determine. Nothing in this Section 2.4 shall operate to relieve the Corporation of any of its 3 8 obligations hereunder or to waive any of Purchaser's rights against the Corporation occasioned by any such breach. 3. DEFINITIONS; CONSTRUCTION. 3.1 Definitions. For purposes of this Agreement, the following terms shall have the following meanings: "Affiliate" has the meaning set forth in Rule 12b-2 under the Exchange Act (as in effect on the date of this Agreement), it being understood that any limited partner of a partnership shall not be an Affiliate of such partnership solely by virtue of its status as such a limited partner. "Agreement" shall have the meaning ascribed thereto in the preamble. "Business Day" means each Monday, Tuesday, Wednesday, Thursday, or Friday that is not a day on which banking institutions in Nashville, Tennessee are authorized or obligated by law or executive order to close. "Capital Lease" means as to any Person any lease or rental of real or personal property that, under generally accepted accounting principles, is or will be required to be capitalized on the balance sheet of such Person. "Capital Lease Obligation" means any rental obligation in respect of a Capital Lease taken at the amount thereof accounted for as indebtedness (net of interest expense) in accordance with generally accepted accounting principles. "Closing Date" shall have the meaning ascribed thereto in Section 2.2 hereof. "Code" means the Internal Revenue Code of 1986, or any successor statute thereto, as the same may be amended from time to time. "Commission" means the United States Securities and Exchange Commission. "Common Stock" means the common stock of the Corporation, par value $l.00 per share. "Concept" means Concept Incorporated, a Delaware corporation. "Concept Acquisition" means the acquisition by the Corporation of Concept pursuant to the terms and conditions of the Concept Share Exchange Agreement. 4 9 "Concept Acquired Indebtedness" means Funded Debt of Concept existing immediately prior to the consummation of the Concept Acquisition; provided, however, that the foregoing shall not include the United Concept Partnership Funded Debt. "Concept Share Exchange Agreement" means a share exchange agreement, containing such terms and conditions reasonably acceptable to Purchaser, involving the exchange of shares between the Corporation and the stockholders of Concept. "Confidential Information" shall have the meaning ascribed thereto in Section 9.1 hereof. "Consolidated Fixed Charge Coverage" means at the end of any fiscal quarter the quotient of (a) twice the Consolidated Operating Cash Flow for such fiscal quarter and the immediately preceding fiscal quarter, divided by (b) Consolidated Fixed Charges for the next succeeding four fiscal quarters. "Consolidated Fixed Charges" means, for any period, the sum of Consolidated Rentals and Consolidated Interest Expense for such period. In the event that Consolidated Fixed Charges are to be determined for any future period or periods and any component of Consolidated Rentals or Consolidated Interest Expense may fluctuate or is determined on the basis of a rate or criterion that may fluctuate during such period, Consolidated Rentals or Consolidated Interest Expense, as the case may be, shall be calculated assuming that such amount, rate, or criterion in effect on the date such calculation is made shall be in effect throughout such period. "Consolidated Interest Expense" means, for any period, total interest, whether paid or accrued (including that attributable to Capital Leases), of the Corporation and the Restricted Subsidiaries on a consolidated basis, including all amounts payable on the First Mortgage Notes and all commissions, discounts, and other fees and charges owed with respect to letters of credit and banker's acceptance financing and net costs under interest rate exchange or cap agreements providing interest rate protection, all as determined in conformity with generally accepted accounting principles. "Consolidated Net Income" means, for any period, the net earnings (or losses) of the Corporation and the Restricted Subsidiaries, on a consolidated basis, for such period taken as a single accounting period determined in conformity with generally accepted accounting principles consistently applied, but excluding: a. any gain that under generally accepted accounting principles consistently applied would be properly classified as an extraordinary gain; b. any gain arising from a sale of capital assets that is not made in the ordinary course of business of the Corporation or its Restricted Subsidiaries; c. any gain arising from any write-up of assets; 5 10 d. the proceeds of any life insurance policy; e. earnings of any Person substantially all of the assets of that have been acquired in any manner (whether through merger or otherwise) to the extent that such earnings were realized prior to the date of such acquisition; and f. earnings of any Person to which substantially all the assets of the Corporation shall have been sold or transferred, into which the Corporation shall have been merged, or with which the Corporation shall have been consolidated, to the extent that such earnings were realized prior to the date of such transfer, merger, or consolidation. All losses (including any loss that, under generally accepted accounting principles consistently applied, would be properly classified as an extraordinary loss) shall be included in determining such net earnings (or losses). "Consolidated Net Worth" means, as of the time of any determination thereof, the excess of (a) the sum of (i) the par value (or value stated on the books of the Corporation) of the capital stock of all classes of the Corporation, plus (or minus in the case of surplus deficit) (ii) the amount of consolidated surplus, whether capital or earned, of the Corporation and the Restricted Subsidiaries, plus (iii) the face amount of the Subordinated Funded Debt, over (b) the amount of all treasury stock; all determined on a consolidated basis for the Corporation and the Restricted Subsidiaries in accordance with generally accepted accounting principles consistent with those followed in the preparation of the financial statements referred to in Section 4.5, including the making of appropriate deductions for minority interests, if any, in the Restricted Subsidiaries. "Consolidated Operating Cash Flow" means for any period, without duplication, (a) Consolidated Net Income plus (b) to the extent deducted in computing Consolidated Net Income, depreciation and amortization and other similar non-cash charges, accrued income tax expense, and interest expense of the Corporation and the Restricted Subsidiaries for such period. "Consolidated Rentals" means, for any period, all amounts payable by the Corporation and any Restricted Subsidiary as lessee or sublessee relating to Operating Leases. "Consolidated Senior Funded Debt" means all Funded Debt other than Subordinated Funded Debt. "Consolidated Total Capitalization" means, as of the time of any determination thereof, the sum of Consolidated Senior Funded Debt and Consolidated Net Worth. "Conversion Shares" means the shares of Common Stock issuable upon conversion of the indebtedness evidenced by the Notes. 6 11 "Convertible Notes" means the Corporation's (a) $7,000,000 aggregate principal amount 8.5% Convertible Subordinated Notes due November 7, 1999, (b) $7,500,000 aggregate principal amount 8.5% Convertible, Extended, Subordinated Notes due on September 30, 1998 or, if extended, on various dates, the latest of which is September 30, 2000, (c) $20,000,000 aggregate principal amount 7.5% Convertible Subordinated Notes due February 28, 2002, (d) option to purchase the Floating Rate Notes, and (e) the Floating Rate Notes when issued. "Corporation" shall have the meaning ascribed thereto in the preamble to this Agreement and shall include the Corporation's permitted successors and assigns. "Coupon Rate" means seven and one-half percent (7.5%) per annum. "Eloy Facility" means the Bureau of Prisons facility that is located in Eloy, Arizona and owned by United Concept Partnership. "ERISA" means the Employee Retirement Income Security Act of 1974. "Event of Default" shall have the meaning set forth in Section 7.1. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Exchange Act shall include reference to the comparable section, if any, of any successor federal statute. "Federal Government Contract" means a contract between the Corporation and the federal government of the United States of America or any subdivision or agency thereof. "Floating Rate Notes" shall have the meaning set forth in the Sodexho Agreement. "Foreign Government Contract" means a contract between the Corporation and any foreign (other nation) government or any subdivision or agency thereof. "First Mortgage Note Purchase Agreement" means the Note Purchase Agreement dated as of December 6, 1990, as amended, between the Corporation and the purchasers of the First Mortgage Notes listed therein. "First Mortgage Notes" means the Corporation's $20,000,000 aggregate principal amount of 11.08% first mortgage notes due November 30, 2000 issued pursuant to the First Mortgage Note Purchase Agreement. "Funded Debt" means and includes without duplication (a) any obligation payable more than one year from the date of the creation thereof (including the current portion of Funded Debt), that under generally accepted accounting principles is shown on the balance sheet as a liability 7 12 (including obligations under Capital Leases and excluding reserves for deferred income taxes and other reserves to the extent that such reserves do not constitute an obligation), (b) guarantees, endorsements (other than endorsements of negotiable instruments for collection in the ordinary course of business), and other contingent liabilities (whether direct or indirect) in connection with the obligations, stock, or dividends of any Person, including obligations under contracts to supply funds to or in any other manner invest in any Person, (c) obligations under any contract to purchase, sell, or lease (as lessee or lessor) property or to purchase or sell services, primarily for the purpose of enabling a Person to make payment of obligations or to assure the holder of such obligations against loss including obligations under any contract for the purchase of materials, supplies, or other property or services if such contract (or any related document) requires that payment for such materials, supplies, or other property or services shall be made regardless of whether delivery of such materials, supplies, or other property or services is ever made or tendered, (d) obligations under any contract to pay or purchase obligations of a Person, or to advance or supply funds for the payment or purchase of such obligations, and (e) any agreement to assure a creditor of a Person against loss. For all purposes of this Agreement (other than for purposes of calculating United Concept Partnership Funded Debt), all United Concept Partnership Funded Debt shall be deemed to constitute "Funded Debt." "Government Contract" means any Federal Government Contract, Foreign Government Contract, or any State Government Contract. "indemnified party" shall have the meaning ascribed thereto in Section 10.1 hereof. "indemnifying party" shall have the meaning ascribed thereto in Section 10.1 hereof. "Margin Stock" shall have the meaning given such term in Regulation G (12 CFR part 207) of the Board of Governors of the Federal Reserve System. "Notes" shall have the meaning ascribed thereto in Section 1 hereof. "Operating Lease" means any lease of real, personal, or mixed property that is not a Capital Lease. "Permitted Businesses" means the design, construction, ownership, start up, management, or operation of detention and correctional facilities, and the operation of services involving the transportation and extradition of prisoners, together with associated consulting and educational services. "Person" means any individual, partnership, joint venture, corporation, trust, unincorporated organization, government, or department or agency of a government. "Purchaser" shall mean Sodexho S.A. and shall include Sodexho's permitted successors and assigns. 8 13 "Registration Rights Agreement" shall have the meaning ascribed thereto in Section 2.3(vii) hereof. "Representative" shall have the meaning ascribed thereto in Section 7.1 hereof. "Restricted Subsidiary" means a Subsidiary of the Corporation that is (a) organized under the laws of any state of the United States of America and at least 80% of the total combined voting power of all classes of Voting Stock shall at the time as of which any determination is being made, be owned by the Corporation either directly or through any Restricted Subsidiary, (b) engaged in a Permitted Business, and (c) whose assets and operations are located within the United States of America. "Security" or "Securities" means the Notes or the Conversion Shares. "SEC Reports" shall have the meaning ascribed thereto in Section 4.4 hereof. "Securities Act" means the Securities Act of 1933. "Senior Indebtedness" shall have the meaning ascribed to such term in the Notes. "Sodexho Agreement" means that certain Securities Purchase Agreement, dated as of June 23, 1994, between Sodexho S.A., a French corporation, or its designee and the Corporation, as amended by that certain Amendment No. 1 to Securities Purchase Agreement, dated as of July 11, 1995. "State Government Contract" means a contract between the Corporation or any of its Subsidiaries and the government of any state, county, or municipality or any political subdivision or agency thereof. "Subordinated Funded Debt" means the indebtedness of the Corporation evidenced by the Convertible Notes and the Notes. "Subsidiary" means any corporation, partnership, or other entity of which a majority of the total combined voting power of all classes of Voting Stock at the time as of which any determination is being made, is owned by a Person either directly, through one or more Subsidiaries, or both. "Transaction Documents" means this Agreement, the Notes, and the Registration Rights Agreement. "Transfer" shall have the meaning ascribed thereto in Section 8.4 hereof. 9 14 "Triggering Event" means the occurrence of any Unmatured Event of Default of Event of Default described in clauses (i), (ii), and (iv) through (x), inclusive, of Section 7.1. For purposes of determining the period during which the Triggering Event Rate shall be in effect, a Triggering Event shall not be deemed to have occurred until the date on which Purchaser shall have given notice of the occurrence thereof to the Corporation. "Triggering Event Rate" means nine and one-half percent (9.5%) per annum. "UCI" means United Concept, Inc., a Delaware corporation, one hundred percent (100%) of the issued and outstanding common stock of which is owned by Concept. "United Concept Partnership" means United Concept Limited Partnership, a Delaware limited partnership of which UCI is the managing general partner. "United Concept Partnership Funded Debt" means (a) the approximately $20,000,000 of indebtedness of United Concept Partnership that is secured by a first mortgage lien upon the Eloy Facility, and (b) any and all other indebtedness of United Concept Partnership that constitutes Funded Debt (without giving effect to the last sentence of such definition). "Unmatured Event of Default" shall mean 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. "Voting Stock" means, when used with respect to any Person, any shares of stock or other ownership interests of such Person having general voting power under ordinary circumstances to elect a majority of the board of directors of such Person (irrespective of whether at the time stock or ownership interests of any other class or classes shall have or might have voting power by reason of the happening of any contingency). 3.2 Construction. Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular and to the singular include the plural, the part includes the whole, the terms "include" and "including" are not limiting, and the term "or" has, except where otherwise indicated, the inclusive meaning represented by the phrase "and/or". The words "hereof," "herein," "hereby," "hereunder" and similar terms in this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Section, subsection, clause, exhibit, and schedule references are to this Agreement unless otherwise specified. Any reference herein to the Transaction Documents includes any and all alterations, amendments, changes, extensions, modifications, renewals, or supplements thereto or thereof, as applicable. 3.3 Changes in Accounting Principles. If any changes in accounting principles from those in effect at the time of preparation of the financial statements referred to in Section 4.5 are hereafter occasioned by the promulgation of rules, regulations, pronouncements, and opinions by or required by the Financial Accounting Standards Board or the American Institute of Certified Public Accountants (or successors thereto or organizations with similar functions) result in a change in the 10 15 method of calculation of financial covenants, standards, or terms found in this Agreement or there is any change in the Corporation's fiscal quarters or fiscal year, the parties hereto agree to enter into negotiations to amend this Agreement so as to equitably reflect such changes with the desired result that the criteria for evaluating the financial condition of the Corporation shall be the same after such changes as if such changes had not been made. 4. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION. The Corporation represents and warrants to Purchaser, as of the date hereof and as of the Closing Date, that: 4.1 Organization and Qualification. Each of the Corporation and its Subsidiaries is a corporation duly organized and existing in good standing under the laws of the jurisdiction in which it is incorporated and has the power to own its respective property and to carry on its respective business as now being conducted. Each of the Corporation and its Subsidiaries is duly qualified as a foreign corporation to do business and in good standing in every jurisdiction in which the nature of the respective business conducted or property owned by it makes such qualification necessary and where the failure so to qualify would have a material adverse effect on the business or financial position of the Corporation and its Subsidiaries taken as a whole. 4.2 Due Authorization. The execution and delivery of this Agreement, the Registration Rights Agreement, and the other Transaction Documents, and the issuance and sale of the Notes and the Conversion Shares by the Corporation and compliance by the Corporation with all the provisions of the Transaction Documents and the Conversion Shares (i) are within the corporate power and authority of the Corporation; (ii) do not require the approval or consent of any stockholders of the Corporation; and (iii) have been authorized by all requisite corporate proceedings on the part of the Corporation. The Transaction Documents have been duly executed and delivered by the Corporation and constitute valid and binding agreements of the Corporation enforceable in accordance with their respective terms, except that (i) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors rights, and (ii) the remedy of specific performance and injunctive and other form of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. The Corporation has furnished to Purchaser true and correct copies of the Corporation's current Certificate of Incorporation and By-laws. 4.3 Subsidiaries. The Subsidiaries of the Corporation, together with their jurisdiction of incorporation, are set forth on Schedule 4.3 hereto. 4.4 SEC Reports. The Corporation has filed all proxy statements, reports, and other documents required to be filed by it under the Exchange Act and the Corporation has furnished Purchaser copies of its Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and all proxy statements and reports under the Exchange Act filed by the Corporation after such date, each as filed with the Commission (collectively, the 11 16 "SEC Reports"). Each SEC Report was in substantial compliance with the requirements of its respective report form and did not, on the date of filing, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 4.5 Financial Statements. The financial statements (including any related schedules or notes) included in the SEC Reports have been prepared in accordance with generally accepted accounting principles consistently followed (except as indicated in the notes thereto) throughout the periods involved and fairly present the consolidated financial condition, results of operations, and changes in stockholders' equity of the Corporation and its Subsidiaries as of the dates thereof and for the periods ended on such dates (in each case subject, as to interim statements, to changes resulting from year-end adjustments (none of which will be material in amount or effect)), and the Corporation has no material liabilities, contingent or otherwise, not reflected in the balance sheet as of December 31, 1995 included in the SEC Reports or otherwise referred to in the SEC Reports or otherwise disclosed to Purchaser in writing prior to the execution by Purchaser of this Agreement, other than any such liabilities incurred in the ordinary course of business since December 31, 1995. There has been no material adverse change in the business, condition, or operations (financial or otherwise) of the Corporation and its Subsidiaries taken as a whole from that set forth in the balance sheet as of December 31, 1995 included in the SEC Reports, other than changes disclosed or referred to in the SEC Reports, or otherwise disclosed to Purchaser in writing prior to the execution by Purchaser of this Agreement. 4.6 Actions Pending; Compliance with Law. Except as disclosed on Schedule 4.6 hereto, there is no action, suit, criminal investigation, or proceeding pending or, to the knowledge of the Corporation, threatened by any public official or governmental authority, against the Corporation or any of its Subsidiaries or any of their respective properties or assets by or before any court, arbitrator, or governmental body, department, commission, board, bureau, agency, or instrumentality, which questions the validity of the Transaction Documents or the Conversion Shares or any action taken or to be taken pursuant hereto or thereto, or, except as set forth in the SEC Reports, that are reasonably likely to result in any material adverse change in the business or financial condition of the Corporation, and neither the Corporation nor any of its Subsidiaries is in default in any material respect with respect to any judgment, order, writ, injunction, decree, or award, and, except as disclosed in the SEC Reports, the businesses of the Corporation and its Subsidiaries are in compliance in all material respects with applicable federal, state, local, and foreign governmental laws and regulations and all Government Contracts, all to the extent necessary to avoid any material adverse effect on the business, properties, or condition (financial or otherwise) of the Corporation and its Subsidiaries, taken as a whole. 4.7 Title to Properties; Insurance. The Corporation and its Subsidiaries have good and valid title to their respective properties and assets, free of all liens and 12 17 encumbrances other than those referred to in the financial statements of the Corporation (or the notes thereto) for the quarter ended December 31, 1995, included in the SEC Reports, except in each case for such defects in title and such other liens and encumbrances that are otherwise disclosed or referred to in the SEC Reports or that do not in the aggregate materially detract from the value to the Corporation of the properties and assets of the Corporation and its Subsidiaries taken as a whole. The Corporation and its Subsidiaries maintain insurance in such amounts (to the extent available in the public market), including self-insurance, retainage, and deductible arrangements, and of such a character as the Corporation believes is reasonable for companies engaged in the same or similar business. 4.8 Governmental Consents, Etc. The Corporation is not required to obtain any consent, approval, or authorization of, or to make any declaration or filing with, any governmental authority as a condition to or in connection with the valid execution, delivery, and performance of the Transaction Documents and the valid offer, issue, sale, or delivery of the Notes or the Conversion Shares, or the performance by the Corporation of its obligations in respect thereof, except for any filings required to effect any registration pursuant to the Registration Rights Agreement, and filings required pursuant to state and federal securities laws that will be timely made after the Closing Date. 4.9 Holding Corporation Act and Investment Corporation Act Status. The Corporation is not a "holding company" or a "public utility company" as such terms are defined in the Public Utility Holding Corporation Act of 1935. The Corporation is not an "investment company," or a company "controlled" by an "investment company," within the meaning of the Investment Corporation Act of 1940. 4.10 Taxes. The Corporation and its Subsidiaries have filed or caused to be filed all income tax returns that are required to be filed and have paid or caused to be paid all taxes as shown on said returns and on all assessments received by it to the extent that such taxes have become due, except taxes the validity or amount of which is being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been set aside. The federal income tax returns of the Corporation and its Subsidiaries have been examined and reported on by the Internal Revenue Service (or closed by applicable statutes) and all tax liabilities including additional assessments have been satisfied for all fiscal years prior to and including the fiscal year ended December 31, 1991. The Corporation and its Subsidiaries have paid or caused to be paid, or have established reserves that the Corporation reasonably believes to be adequate in all material respects, for all federal income tax liabilities and state income tax liabilities applicable to the Corporation and its Subsidiaries for all fiscal years that have not been examined and reported on by the taxing authorities (or closed by applicable statutes). 4.11 Conflicting Agreements and Charter Provisions. Neither the Corporation nor its Subsidiaries is a party to any contract or agreement or subject to any charter or other corporate restriction that materially and adversely affects its business, 13 18 property, or assets or financial condition. Except as set forth on Schedule 4.11 attached hereto, neither the execution and delivery of the Transaction Documents nor the issuance of the Conversion Shares nor fulfillment of or compliance with the terms and provisions hereof or thereof or the prepayment of the Notes as contemplated hereby and by the Notes, and the conversion of the indebtedness evidenced by the Notes into the Conversion Shares as contemplated hereby and by the Notes will conflict with or result in a breach of the terms, conditions, or provisions of, or give rise to a right of termination under, or constitute a default under, or result in any violation of, the Certificate of Incorporation or By-laws of the Corporation or any mortgage, agreement, instrument, order, judgment, decree, statute, law, rule, or regulations to which the Corporation or any of its Subsidiaries or any of their respective properties is subject. Neither the Corporation nor any of its Subsidiaries is in default under any outstanding indenture or other debt instrument or with respect to the payment of the principal of or interest on any outstanding obligations for borrowed money, or is in default under any of their respective contracts or agreements, or under any instrument by which the Corporation or any of its Subsidiaries is bound, in each case that materially and adversely affects the business, operations, or financial condition of the Corporation and its Subsidiaries, taken as a whole. 4.12 Capitalization. The authorized capital stock of the Corporation consists of (i) 50,000,000 shares of Common Stock, of which, as of the date hereof, 33,881,485 shares are outstanding and 8,722 shares are held in its treasury; and (ii) 1,000,000 shares of preferred stock, $1.00 par value, of which, as of the date hereof, no shares are outstanding; all of such outstanding shares have been validly issued and are fully paid and nonassessable. Except as set forth on Schedule 4.12 hereto, no shares of Common Stock of the Corporation are entitled to preemptive rights. Except for the options and warrants listed on Schedule 4.12 hereto and except for the Convertible Notes, there are no outstanding options, warrants, scrip, rights to subscribe to, calls, or commitments of any character whatsoever relating to, or securities or rights convertible into, shares of any capital stock of the Corporation, or contracts, commitments, understandings, or arrangements by which the Corporation is or may become bound to issue additional shares of its capital stock. Since September 30, 1995, the Corporation has not changed the amount of its authorized capital stock or subdivided or otherwise changed any shares of any class of its capital stock, whether by way of reclassification, recapitalization, stock split, or otherwise, or issued or reissued, or agreed to issue or reissue, any of its capital stock, except as disclosed in this Section 4.12 and has not since such date declared or paid any dividend in cash or stock or made any other distribution of assets to its stockholders. 4.13 Disclosure. Neither this Agreement nor the SEC Reports nor the financial statements included in the SEC Reports nor any certificate or written disclosure statement referred to herein and furnished to Purchaser by or on behalf of the Corporation in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact peculiar to the Corporation or 14 19 any of its Subsidiaries that the Corporation has not disclosed to Purchaser in writing that materially affects adversely or, so far as the Corporation can now reasonably foresee, will materially affect adversely the properties, business, or condition (financial or otherwise) of the Corporation and its Subsidiaries, taken as a whole, or the ability of the Corporation to perform this Agreement, the Notes, the Registration Rights Agreement, or its obligations in respect of the Conversion Shares. 4.14 Status of Conversion Shares. The Conversion Shares have been duly authorized by all necessary corporate action on the part of the Corporation (no consent or approval of stockholders being required by law, the Certificate of Incorporation or the By-laws of the Corporation, or otherwise), and such shares of Common Stock have been validly reserved for issuance, and upon issuance, will be validly issued and outstanding, fully paid, and nonassessable. 4.15 Registration Under Exchange Act. The Conversion Shares will not be registered as a class pursuant to Section 12 of the Exchange Act and such registration is not required except as otherwise required by the provisions of the Registration Rights Agreement. 4.16 ERISA. No accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), irrespective of whether waived, exists with respect to any Plan (as defined below) (other than a Multiemployer Plan (as defined below)). No liability to the Pension Benefit Guaranty Corporation has been incurred with respect to any Plan (other than a Multiemployer Plan) by the Corporation or any of its Subsidiaries that is or would be materially adverse to the Corporation and its Subsidiaries, taken as a whole. Neither the Corporation nor any of its Subsidiaries has incurred any withdrawal liability under Title IV of ERISA with respect to any Multiemployer Plan that is or would be materially adverse to the Corporation and its Subsidiaries, taken as a whole. The execution and delivery of this Agreement and the Registration Rights Agreement and the issuance and sale of the Notes and the conversion of the indebtedness evidenced by the Notes into the Conversion Shares will not involve any transaction that is subject to the prohibitions of Section 406 of ERISA or in connection with which a tax could be imposed pursuant to Section 4975 of the Code. The representation by the Corporation in the immediately preceding sentence is made in reliance upon and subject to the accuracy of Purchaser's representation in Section 5.3 as to the source of the funds to be used to pay the purchase price of the Conversion Shares. As used in this Section 4.16, the term "Plan" shall mean an "employee pension benefit plan" (as defined in Section 3(2) of ERISA) that is or has been established or maintained, or to which contributions are or have been made, by the Corporation or by any trade or business, irrespective of whether incorporated, that, together with the Corporation, is under common control, as described in Section 414(b) or (c) of the Code, and the term "Multiemployer Plan" shall mean any Plan that is a "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA). 15 20 4.17 Possession of Franchises, Licenses, Etc. The Corporation and its Subsidiaries possess all franchises, certificates, licenses, permits, and other authorizations from governmental or political subdivisions or regulatory authorities and all patents, trademarks, service marks, trade names, copyrights, licenses, and other rights, free from burdensome restrictions, that are necessary in any material respect to the Corporation and its Subsidiaries, taken as a whole for the ownership, maintenance, and operation of their respective properties and assets, and neither the Corporation nor any of its Subsidiaries is in violation of any thereof in any material respect. 4.18 Environmental and Other Regulations. The Corporation and its Subsidiaries are in compliance in all material respects with all laws and regulations, including those relating to environmental control, equal employment opportunity, and employee safety, in all jurisdictions in which the Corporation and its Subsidiaries are presently doing business and where the failure to effect such compliance would have a material adverse effect on the business, operations, or financial condition of the Corporation and its Subsidiaries, taken as a whole. 4.19 Offering of Securities. Neither the Corporation nor any Person acting on its behalf has offered the Securities or any similar securities of the Corporation for sale to, solicited any offers to buy the Securities or any similar securities of the Corporation from, or otherwise approached or negotiated with respect to the Corporation with any Person other than Purchaser and a limited number of other "accredited investors" (as defined in Rule 501(a) under the Securities Act). Neither the Corporation nor any Person acting on its behalf has taken or will take any action (including any offering of any securities of the Corporation under circumstances that would require the integration of such offering with the offering of the Securities under the Securities Act and the rules and regulations of the Commission thereunder) that might subject the offering, issuance, or sale of the Securities to the registration requirements of Section 5 of the Securities Act. 4.20 Brokers or Finders. No agent, broker, investment banker, or other firm or Person is or will be entitled to any broker's fee or any other commission or similar fee as a result of the activities of the Corporation or its Subsidiaries, agents, or employees undertaken in connection with any of the transactions contemplated by this Agreement or the Registration Rights Agreement. 4.21 Offering of Notes. Neither the Corporation nor, to the best knowledge of the Corporation, any person authorized to act on behalf of the Corporation has taken or will take any action that would subject the issuance or sale of the Notes to the provisions of Section 5 of the Securities Act or violate the provisions of any securities, "blue sky", or similar law of any applicable jurisdiction. 4.22 Regulations G, T, U, and X. Neither the Corporation nor any of its Subsidiaries owns or has any present intention of acquiring any Margin Stock. Neither the 16 21 Corporation, any of its Subsidiaries, nor any agent acting on its behalf has taken take any action that might cause this Agreement to violate Regulations G, T, U, or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act. 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and warrants to the Corporation, as of the date hereof and as of the Closing Date, as follows: 5.1 Due Authorization. Purchaser has all right, power, and authority to enter into the Transaction Documents to which it is a party and to consummate the transactions contemplated hereby and thereby. The execution and delivery by Purchaser of the Transaction Documents to which it is a party and the consummation by Purchaser of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on behalf of Purchaser. The Transaction Documents to which Purchaser is a party have been duly executed and delivered by Purchaser and constitute valid and binding agreements of Purchaser enforceable in accordance with their terms, except that (i) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors' rights, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. 5.2 Conflicting Agreements and Other Matters. Neither the execution and delivery of the Transaction Documents to which Purchaser is a party nor the performance by Purchaser of its obligations hereunder or thereunder will conflict with, result in a breach of the terms, conditions, or provisions of, constitute a default under, result in the creation of any mortgage, security interest, encumbrance, lien, or charge of any kind upon any of the properties or assets of Purchaser pursuant to, or require any consent, approval, or other action by or any notice to or filing with any court or administrative or governmental body pursuant to the organizational documents or agreements of Purchaser or any agreement, instrument, order, judgment, decree, statute, law, rule, or regulation by which Purchaser is bound, except, possibly, for filings after the Closing Date, as applicable, under Section 13(d) of the Exchange Act. 5.3 Acquisition for Investment; Source of Funds. The Purchaser is acquiring the Notes (and its rights with respect to the Conversion Shares) for its own account for the purpose of investment and not with a view to or for sale in connection with any distribution thereof, and the Purchaser has no present intention or plan to effect any distribution of the Conversion Shares. No portion of the funds to be used by the Purchaser to purchase the Notes, as of the Closing Date, are "plan assets," within the meaning of 29 CFR Section 2510.3-101, of an "employee benefit plan," as defined in Section 3(3) of ERISA, subject to Part 4 of Title I of ERISA, or a "plan," as defined in Section 4975(e)(1) of the Code, subject to Section 4975 of the Code. 17 22 5.4 Brokers or Finders. No agent, broker, investment banker, or other firm or Person is or will be entitled to any broker's fee or any other commission or similar fee as a result of the activities of Purchaser or its Subsidiaries, agents, or employees undertaken in connection with any of the transactions contemplated by this Agreement or the Registration Rights Agreement. 5.5 Accredited Investor. Purchaser is an "accredited investor" within the meaning of Regulation D under the Securities Act. 6. COVENANTS. The Corporation covenants that so long as any amount due or to become due under the Notes or this Agreement remains unpaid: 6.1 Financial Statements and Other Reports. (i) it will, as soon as practicable and in any event within 45 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, furnish to Purchaser statements of consolidated net income and cash flows and a statement of changes in consolidated stockholders equity of the Corporation and its Subsidiaries for the period from the beginning of the then current fiscal year to the end of such quarterly period, and a consolidated balance sheet of the Corporation and its Subsidiaries as of the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding period or date in the preceding fiscal year, all in reasonable detail and certified by an authorized financial officer of the Corporation, subject to changes resulting from year-end adjustments; provided, however, that delivery pursuant to clause (iii) below of a copy of the Quarterly Report on Form 10-Q of the Corporation for such quarterly period filed with the Commission shall be deemed to satisfy the requirements of this clause (i); (ii) it will, as soon as practicable and in any event within 90 days after the end of each fiscal year, furnish to Purchaser statements of consolidated net income and cash flows and a statement of changes in consolidated stockholders' equity of the Corporation and its Subsidiaries for such year, and a consolidated balance sheet of the Corporation and its Subsidiaries as of the end of such year, setting forth in each case in comparative form the corresponding figures from the preceding fiscal year, all in reasonable detail and examined and reported on by independent public accountants of recognized standing selected by the Corporation; provided, however, that delivery pursuant to clause (iii) below of a copy of the Annual Report on Form 10-K of the Corporation for such fiscal year filed with the Commission shall be deemed to satisfy the requirements of this clause (ii); (iii) it will, promptly upon transmission thereof, furnish to Purchaser copies of all financial statements, proxy statements, notices, and reports as it shall send to its stockholders and copies of all registration statements (without exhibits), other than 18 23 registration statements relating to employee benefit or dividend reinvestment plans, and all regular and periodic reports as it shall file with the Commission; and (iv) it will, with reasonable promptness, furnish to Purchaser such other financial and other data of the Corporation and its Subsidiaries as Purchaser may request, including operating financial information for each facility owned or operated by the Corporation or any of its Subsidiaries. Together with each delivery of financial statements required by clauses (i) and (ii) above, the Corporation will deliver to Purchaser a certificate of an authorized financial officer of the Corporation regarding compliance by the Corporation with the covenants set forth in Sections 6.4., 6.5, and 6.6. At such other time or times that the Corporation delivers a compliance certificate to any other holder of Funded Debt, the Corporation will deliver such certificate, and any supporting detail, to Purchaser. 6.2 Inspection of Property. The Corporation will permit representatives of Purchaser to visit and inspect, at Purchaser's expense, any of the properties of the Corporation and its Subsidiaries, to examine the corporate books and make copies or extracts therefrom and to discuss the affairs, finances, and accounts of the Corporation and its Subsidiaries with the principal officers of the Corporation, all at such reasonable times, upon reasonable notice, and as often as Purchaser may reasonably request; provided, however, that the foregoing shall be subject to compliance with reasonable safety requirements and shall not require the Corporation or any of its Subsidiaries to permit any inspection that, in the reasonable judgment of the Corporation, would result in the violation of any statute or regulation with respect to confidentiality or security. Purchaser agrees that the information received pursuant to this Section 6.2 or Section 6.1(iv) is subject to Section 9 hereof. 6.3 Use of Proceeds; Regulations G, T, U, and X. All of the proceeds of the sale of the Notes will be used by the Corporation for general corporate purposes. None of such proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any Margin Stock or for the purpose of reducing or retiring any indebtedness that was originally incurred to purchase or carry Margin Stock or for any other purpose that might constitute this transaction a "purpose credit" within the meaning of Regulations G, T, U, or X. 6.4 Consolidated Net Worth. The Corporation will not permit Consolidated Net Worth at any time to be less than the sum of (a) Ninety-Five Million Dollars ($95,000,000) at December 31, 1995, plus (b) an amount during each fiscal quarter thereafter equal to the sum of (i) the amount of Consolidated Net Worth required hereunder for the immediately preceding fiscal quarter, plus (ii) if positive, fifty percent (50%) of Consolidated Net Income for such immediately preceding fiscal quarter. 19 24 6.5 Consolidated Fixed Charges. a. The Corporation shall not permit Consolidated Fixed Charge Coverage to be less than (i) 2.00 as at the end of any fiscal quarter occurring in 1996, (ii) 2.25 as at the end of any fiscal quarter occurring in 1997, and (iii) 2.50 as at the end of any fiscal quarter occurring thereafter. b. The Corporation will not, and will not permit any Restricted Subsidiary to, incur, assume, or suffer to exist any obligation under Operating Leases or under any transaction giving rise to Consolidated Interest Expense after the Closing Date unless, after giving effect on a pro forma basis to such obligation or transaction, the Corporation will be in compliance with Section 6.5(a) (calculated as at the end of the most recently completed fiscal quarter). 6.6 Consolidated Senior Funded Debt. The Corporation will not permit Consolidated Senior Funded Debt to exceed eighty percent (80%) of Consolidated Total Capitalization. 6.7 Compliance with Laws. The Corporation at all times will, and will cause each of its Subsidiaries to, observe and comply in all material respects with all laws (including environmental laws applicable to the Corporation and its Subsidiaries), ordinances, orders, judgments, rules, regulations, certifications, franchises, permits, licenses, directions, and requirements of all governmental authorities that are now and may at any time be applicable to the Corporation or its Subsidiaries, a violation of which could reasonably be expected to have a material adverse effect on the business, assets, operations, prospects, or condition (financial or otherwise) of the Corporation and its Subsidiaries, taken as a whole, except such thereof as shall be contested in good faith and by appropriate proceedings promptly instituted and diligently conducted by the Corporation or its Subsidiaries, as the case may be, so long as adequate reserves or other appropriate provisions as shall be required in accordance with generally accepted accounting principles shall have been made therefor. 6.8 Maintenance of Properties; Insurance. The Corporation will maintain and will cause its Subsidiaries to maintain in good repair, working order, and condition (normal wear and tear excepted) all properties used or useful in the business of the Corporation and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals, and replacements thereof. The Corporation will maintain and will cause its Subsidiaries to maintain in full force and effect, with financially sound and reputable insurers acceptable to Purchaser, insurance (subject to customary deductibles and retentions) with respect to its properties and business and the properties and business of its Subsidiaries against hazards, contingencies, loss, or damage of the kinds customarily insured against by corporations of established reputation or similar size engaged in the same or similar business and similarly situated, of such types and in such amounts as are customarily carried under similar circumstances by such other corporations; provided, however, in no event shall 20 25 the coverage and amount of such insurance be less than the coverage and amount of insurance in force on the Closing Date. Without limiting the generality of the foregoing, the Corporation will maintain (i) public liability insurance against claims for personal injury, death, or property damage occurring upon, in, about, or in connection with the use of any property owned, occupied, or controlled by the Corporation or any of its Subsidiaries in an amount per occurrence of at least $10,000,000, (ii) workers' compensation and business interruption insurance covering loss of rents and builders' all risk insurance, and (iii) such other insurance for the Corporation and its Subsidiaries as may be required by law. 6.9 Performance of Government Contracts. The Corporation will and will cause each of its Subsidiaries to perform each and every term and condition of the Government Contracts relating to the facilities owned or operated by the Corporation or such Subsidiary and will not, and will not permit any Subsidiary to consent to any termination, cancellation, or material amendment, modification, or supplement to any Government Contract relating to the facilities owned or operated by the Corporation or any of its Subsidiaries which termination, cancellation, amendment, modification, or supplement could reasonably be expected to have a material adverse effect on the business, assets, operations, prospects, or condition (financial or otherwise) of the Corporation and its Subsidiaries, taken as a whole. 6.10 Notice to Purchaser. When any Unmatured Event of Default or Event of Default has occurred, the Corporation agrees to give written notice thereof to Purchaser within three (3) days of the Corporation's discovery of such event. 6.11 Waiver of Stay, Extension, or Usury Laws. The Corporation covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of any stay or extension law or any usury law or other law which would prohibit or forgive the Corporation from paying all or any portion of the principal of, or interest, or premium, if any, on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Agreement; and (to the extent that it may lawfully do so) the Corporation hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay, or impede the execution of any power herein granted to the holders of the Notes, but will suffer and permit the execution of every such power as though no such law had been enacted. 6.12 Conduct of Business. The Corporation will not, and will not permit any of its Subsidiaries to, engage in any business other than the construction and management of prisons and other correctional facilities for governmental agencies, the ownership and operation of a proprietary school, the operation of services involving the transportation and extradition of prisoners, and other businesses or activities substantially similar or related thereto. 21 26 6.13 Amendments or Waivers of Certain Documents. The Corporation will not agree to any material amendment, modification, supplement to, or waiver of any agreement related to the Convertible Notes that would increase the interest rates thereof, shorten the average maturities thereof, or alter financial covenants contained therein in a manner that could be expected to be materially adverse to the interests of Purchaser. The Corporation acknowledges and confirms the registration rights of Purchaser contained in that certain Registration Rights Agreement dated June 23, 1994 by and between the Corporation and Purchaser. Promptly after the Closing, the Corporation will use its best efforts to obtain an amendment to Section 6(b) of its 1996 Registration Rights Agreement with PMI Mezzanine Fund, L.P. to add the following sentence to the end of that paragraph: Notwithstanding the foregoing, the Corporation may include shares of Registrable Stock pursuant to Section 5 only to the extent that such shares do not reduce the amount of securities that Sodexho S.A., or its designee, could include in such Registration pursuant to its June 23, 1994 Registration Rights Agreement with the Corporation. 6.14 Limitation on Issuance of Other Subordinated Indebtedness Senior to the Notes. The Corporation will not create, incur, assume, guarantee, or in any other manner become liable with respect to any indebtedness that is subordinate in right of payment to any Senior Indebtedness unless such indebtedness is also pari passu with, or subordinate pursuant to provisions substantially similar to those contained in the Notes, in right of payment to the Notes. 6.15 Limitation on Subsidiary Funded Debt. The Corporation shall not permit any of its Subsidiaries to incur, create, assume, or guarantee any Funded Debt (which shall be deemed to include preferred stock issued by a Subsidiary of the Corporation that is not held by the Corporation), unless, after giving effect thereto, (a) the total amount of Funded Debt of the Corporation's Subsidiaries does not exceed 10% of Consolidated Total Capitalization, and (b) the Corporation would be entitled to incur at least $1.00 of additional Consolidated Senior Funded Debt under Section 6.6. The foregoing to the contrary notwithstanding, Concept shall be entitled to be obligated with respect to (and there shall be excluded from the above calculation) the United Concept Partnership Funded Debt and the Concept Acquired Indebtedness, so long as the aggregate amount of Funded Debt of the Corporation incurred, assumed, or acquired in connection with the Concept Acquisition (inclusive of the United Concept Partnership Funded Debt and the Concept Acquired Indebtedness does not exceed Forty Million Dollars ($40,000,000). 7. EVENTS OF DEFAULT; REMEDIES THEREFOR. 7.1 Events of Default. Any one or more of the following shall constitute an "Event of Default": (i) default in the payment of any interest due under the Notes when it becomes due and payable, and continuance of such default for a period of ten (10) days; or 22 27 (ii) default in the payment of the principal of the Notes when due (whether at scheduled maturity, as a result of a mandatory prepayment requirement, by acceleration, or otherwise); or (iii) default under any bond, debenture, note, or other evidence of indebtedness for money borrowed in excess of $100,000 by the Corporation or any of its Subsidiaries, whether such indebtedness now exists or shall hereafter be created, which default (i) shall consist of a failure to pay such indebtedness at final maturity and after the expiration of any applicable grace period, or (ii) shall have resulted in such indebtedness (A) becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable, without such acceleration having been rescinded or annulled, or (B) having been discharged within a period of ten (10) days after there shall have been given, by registered or certified mail, to the Corporation or such Subsidiary, as applicable, by any holder of such indebtedness a written notice specifying such default and requiring the Corporation or such Subsidiary, as applicable, to cause such indebtedness to be discharged; or (iv) default shall occur in the observance or performance of any covenant or agreement or any other provision of this Agreement or the Notes that is not remedied within twenty (20) days after receipt by the Corporation of written notice of such default from Purchaser; (v) any representation or warranty made by the Corporation herein, or made by the Corporation in any statement or certificate furnished by the Corporation in connection with the consummation of the issuance and delivery of the Notes or thereafter pursuant to the terms of this Agreement, is untrue in any material respect as of the date of the issuance or making thereof; or (vi) a final judgment or judgments entered by a court of competent jurisdiction for the payment of money aggregating in excess of $1,000,000 is or are outstanding against the Corporation or any of its Subsidiaries and any one such judgment in excess of $1,000,000 has, or such judgments aggregating in excess of $1,000,000 have remained unpaid, unvacated, unbonded, or unstayed by appeal or otherwise for a period of thirty (30) days from the date of entry; or (vii) a court or other governmental authority or agency having jurisdiction in the premises shall enter a decree or order (a) for the appointment of a receiver, liquidator, assignee, trustee, sequestrator, or other similar official of the Corporation or any Subsidiary of the Corporation or of a material portion of the assets of either, or for the winding-up or liquidation of its affairs, and such decree or order shall remain in force, undischarged and unstayed for a period of more than thirty (30) days, or (b) for the sequestration or attachment of any material portion of the assets of the Corporation or any Subsidiary of the Corporation, without its unconditional return to the possession of the 23 28 Corporation or such Subsidiary, or its unconditional release from such sequestration or attachment, within thirty (30) days thereafter; or (viii) the Corporation or any Subsidiary of the Corporation makes an assignment for the benefit of creditors, or the Corporation or any Subsidiary of the Corporation applies for or consents to the appointment of a custodian, liquidator, trustee, or receiver for the Corporation or such Subsidiary or for a material portion of the assets of either; or (ix) the entry of a decree or order by a court having jurisdiction in the premises adjudging the Corporation or any of its Subsidiaries a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment, or composition of or in respect of the Corporation under federal bankruptcy law or any other applicable federal or state law, or appointing a receiver, liquidator, assignee, trustee, sequestrator, or other similar official for the Corporation or any of its Subsidiaries or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of sixty (60) consecutive days or until an order for relief has been entered; or (x) the institution by the Corporation or any of its Subsidiaries of proceedings to be adjudicated a debtor or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under federal bankruptcy law or any other applicable federal or state law or the consent by it to the filing such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, or similar official for the Corporation or any of its Subsidiaries or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Corporation or any of its Subsidiaries in furtherance of any such action. 7.2 Acceleration of Maturities. When any Event of Default described in clauses (i) through (vi), inclusive, of Section 7.1 has occurred and is continuing, Purchaser may, by notice in writing sent to the Corporation, declare the entire principal and all interest accrued on the Notes to be, and the Notes shall thereupon become, forthwith due and payable, without any presentment, demand, protest, or other notice of any kind, all of which are hereby expressly waived. When any Event of Default described in clauses (vii) through (x), inclusive, of Section 7.1 has occurred, then the Notes shall immediately become due and payable without presentment, demand, protest, or notice of any kind. When any Event of Default described in clause (iv) of Section 7.1 has occurred and is continuing as a result of the Corporation's breach of its obligation to convert the indebtedness evidenced by the Notes into Conversion Shares in accordance with the terms and conditions of the Notes, Purchaser shall be entitled to specific performance of such obligation of the Corporation; it being expressly acknowledged and agreed by the Corporation that no adequate remedy at law exists for any 24 29 such breach and that Purchaser will be irreparably harmed by any such breach by the Corporation. Upon the Notes becoming due and payable as a result of any Event of Default as aforesaid, the Corporation shall forthwith pay to Purchaser the entire principal and interest accrued on the Notes. No course of dealing on the part of Purchaser nor any delay or failure on the part of Purchaser to exercise any right shall operate as a waiver of such right or otherwise prejudice Purchaser's rights, powers, and remedies. The Corporation further agrees, to the extent permitted by law, to pay to Purchaser all costs and expenses (including attorneys' fees) incurred by it in the collection of the Notes upon any default hereunder or thereon (including such costs and expenses incurred in connection with a workout or an insolvency or bankruptcy proceeding). 8. AGREEMENTS OF PURCHASER. Purchaser agrees with the Corporation as follows: 8.1 Transfer of the Notes. Purchaser will not attempt to sell, transfer, convey, exchange, or otherwise dispose of all or any part of the Notes, except in accordance with applicable law. 8.2 No General Solicitation. Purchaser acknowledges and agrees that it has not received nor is it aware of any general solicitation or general advertising of the Notes, including any advertisement, article, notice, or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio, and that it was not invited to attend any seminar or meeting by means of any such general solicitation or general advertising. 8.3 No Registration. Purchaser understands and agrees that, neither the Notes nor, except as provided in the Registration Rights Agreement, any Conversion Shares will be registered under the Securities Act or any state securities law, that the Notes and Conversion Shares may be required to be held until they are subsequently registered under the Securities Act and any applicable state securities law, or any corresponding provisions of succeeding laws, unless an exemption from the registration requirements of such laws is available, and that the Corporation is under no obligation to register the Notes or, except as provided in the Registration Rights Agreement, any Conversion Shares, for resale. 8.4 Transfer Restrictions; Legends. Purchaser understands and agrees that the Notes and, when issued, the Conversion Shares have not been registered under the Securities Act or the securities laws of any state and that they may be sold or otherwise disposed of only in one or more transactions registered under the Securities Act and, where applicable, such laws unless an exemption from the registration requirements of the Securities Act and, where applicable, such laws is available. Purchaser acknowledges that, except as provided in the Registration Rights Agreement, Purchaser has no right to require the Corporation to register the Conversion Shares. Purchaser understands and agrees that each certificate representing Conversion Shares shall bear the following legends: 25 30 "THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY AN AGREEMENT ON FILE AT THE OFFICES OF THE CORPORATION." "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS." Purchaser will not, directly or indirectly, sell, transfer, pledge, encumber, or otherwise dispose of (collectively, "Transfers") any Conversion Shares except for (i) Transfers to any Affiliate of Purchaser, (ii) Transfers to other institutional investors that are not competitors of the Corporation in blocks of not less than 10,000 shares (or such lesser number as may then be outstanding), (iii) Transfers pursuant to any bona fide tender or exchange offer to acquire Voting Stock of the Corporation or pursuant to any merger, consolidation, or other business combination of the Corporation with any other Person; or (iv) the redemption of the Conversion Shares. 8.5 Restrictions on Conversion. Purchaser further understands and agrees that any conversion of the indebtedness evidenced by the Notes into Conversion Shares must comply with all applicable securities laws, including the Securities Act and any applicable state securities laws, as such laws exist on the date hereof and on such future dates that the indebtedness evidenced by the Notes, or any portion thereof, may be converted into Conversion Shares. 8.6 Further Cooperation. Purchaser will do all acts and things reasonably requested of it by the Corporation in connection with any attempt by the Corporation to achieve compliance with federal and state securities laws in connection with the offering and sale of the Notes or the conversion of all or any portion of the indebtedness evidenced by the Notes into Conversion Shares. 9. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. 9.1 Without the prior written consent of the Corporation, any information relating to the Corporation provided to Purchaser in connection with its acquisition of the Notes or the Conversion Shares that is either confidential, proprietary, or otherwise not generally available to the public (but excluding information Purchaser has obtained independently from third-party sources without Purchaser's knowledge that the source has violated any fiduciary or other duty not to disclose such information (the "Confidential Information") will be kept 26 31 confidential by Purchaser and their directors, officers, employees, agents, auditors, participants, transferees, assignees, and representatives (collectively, "Representatives"), using the same standard of care in safeguarding the Confidential Information as Purchaser employs in protecting its own proprietary information that Purchaser desires not to disseminate or publish. It is understood (a) that such Representatives shall be informed by Purchaser of the confidential nature of the Confidential Information, (b) that such Representatives shall be bound by the provisions of this Section 9.1 as a condition of receiving the Confidential Information, and (c) that, in any event, Purchaser shall be responsible for any breach of Sections 9.1, 9.2, or 9.3 of this Agreement by any of its Representatives (other than Purchaser's participants, transferees, or assignees). 9.2 Without the prior consent of the Corporation, other than as required by applicable law, Purchaser will not, and will direct its Representatives not to disclose to any Person (other than its Representatives) either the fact that the Confidential Information has been made available to Purchaser or that Purchaser has inspected any portion of the Confidential Information. 9.3 If Purchaser or its Representatives are requested or required (by oral question, interrogatories, requests for information or documents, subpoena, civil investigative demand, or similar process) to disclose any Confidential Information, Purchaser will, as soon as practicable, notify the Corporation of such request or requirement so that the Corporation may seek an appropriate protective order. If, in the absence of a protective order or the receipt of a waiver hereunder, Purchaser or its Representatives are, in the opinion of Purchaser's counsel, compelled to disclose the Confidential Information or else stand liable for contempt or suffer other censure or significant penalty, Purchaser, or its Representative, as the case may be, may disclose only such of the Confidential Information to the party compelling disclosure as is required by law. Purchaser shall not be liable for the disclosure of Confidential Information pursuant to the preceding sentence. Purchaser will exercise all reasonable efforts to assist the Corporation in obtaining a protective order or other reliable assurance that confidential treatment will be accorded the Confidential Information. 10. MISCELLANEOUS. 10.1 Indemnification. Each party (an "indemnifying party") hereto agrees to indemnify and hold harmless the other parties (an "indemnified party") against and in respect of any and all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries, and deficiencies, including reasonable attorneys' fees, that such indemnified party and each of its officers and directors shall incur or suffer, that arise, result from, or relate to any breach of, or failure by such indemnifying party to perform, any of its representations, warranties, covenants, or agreements set forth in the Transaction Documents. 10.2 Survival of Covenants, Representations, and Warranties. All covenants, representations, and warranties contained herein and in any certificates delivered pursuant hereto in connection with the transactions occurring on the Closing Date shall survive the closing and the delivery of the Transaction Documents, regardless of any investigation made by or on behalf of any party. 27 32 10.3 Successors and Assigns. This Agreement shall be binding upon the Corporation and its successors and assigns and shall inure to Purchaser's benefit and to the benefit of its successors and assigns, including each successive holder or holders of the Notes or any interest therein. 10.4 Notices. Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other agreement entered into in connection herewith shall be in writing and (except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail, postage prepaid, return receipt requested, or by prepaid telex, telefacsimile, or telegram (with messenger delivery specified) to the Corporation or to Purchaser, as the case may be, at the addresses set forth below: If to Purchaser, to: Sodexho S.A 3 avenue Newton 78180 Montigny-le-Bretonneux FRANCE Attention: Jean-Pierre Cuny With a copy to: ROPES & GRAY One International Place Boston, Massachusetts 02110 Attention: Jane D. Goldstein, Esq. If to the Corporation, to: CORRECTIONS CORPORATION OF AMERICA The CCA Building 102 Woodmont Boulevard Nashville, Tennessee 37205 Attention: Doctor R. Crants, Jr. With a copy to: STOKES & BARTHOLOMEW, P.A. 424 Church Street, Suite 2800 Nashville, Tennessee 37219 Attention: Elizabeth Enoch Moore, Esq.
The parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to the other. The failure of the Corporation or Purchaser to send a copy of any notice to the individuals who are shown above as being required to receive such copies shall not invalidate or otherwise affect the validity of a notice that is otherwise effectively given. All notices or demands sent in accordance with this Section 10.4 shall be deemed received on the earlier of the date of actual receipt or three (3) days after the deposit thereof in the mail or the transmission thereof by telefacsimile or other similar method as set forth above. 28 33 10.5 Expenses. In addition to the payments provided for in Section 2.3(xi), the Corporation agrees to pay Purchaser for all fees and all out-of-pocket expenses incurred by Purchaser arising in connection with the Transaction Documents and the transactions hereby and thereby contemplated, including the conversion of the indebtedness evidenced by the Notes into Conversion Shares, all stamp and other taxes payable (other than taxes based on income) with respect to the issuance of the Conversion Shares, filing fees, reasonable fees and expenses of counsel, and all such expenses incurred with respect to the preparation, execution, delivery, or enforcement of any provision of such agreement or instrument, or any amendment or waivers requested by the Corporation (irrespective of whether the same become effective) under or in respect of any such agreement, including costs and expenses in any bankruptcy proceeding. 10.6 Descriptive Headings. The descriptive headings of the various Sections or parts of this Agreement are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. 10.7 Satisfaction Requirement. If any agreement, certificate, or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to Purchaser, the determination of such satisfaction shall be made by Purchaser in its sole and exclusive judgment exercised reasonably and in good faith. 10.8 Remedies. In case any one or more of the covenants or agreements set forth in the Transaction Documents shall have been breached by the Corporation or Purchaser, the Corporation or Purchaser, as applicable, may proceed to protect and enforce its rights either by suit in equity or by action at law, including an action for damages as a result of any such breach or an action for specific performance of any such covenant or agreement contained in the Transaction Documents. 10.9 Entire Agreement. The Transaction Documents and the other writings referred to herein or delivered pursuant hereto contain the entire agreement among the parties with respect to the subject matter hereof and supersede all prior and contemporaneous arrangements or understandings with respect thereto. 10.10 Amendments. This Agreement may be amended, and the observance of any term of this Agreement may be waived, with (and only with) the written consent of the Corporation and Purchaser. 10.11 Severability. Should any part of this Agreement, for any reason, be determined to be invalid or unenforceable, such determination shall not affect the validity or enforceability of any remaining portion, which remaining portion shall remain in full force and effect as if this Agreement had been executed with the invalid or unenforceable part hereof eliminated, and it is hereby declared the intention of the parties hereto that they would have executed the remaining portion of this Agreement without including therein any such part which may, for any reason, be hereafter declared invalid or unenforceable. 29 34 10.12 Execution in Counterparts; Telecopy Execution. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto. Delivery of an executed counterpart of the signature page(s) of this Agreement by telecopier shall be equally effective as delivery of a manually executed counterpart. Any party delivering an executed counterpart of the signature page(s) of this Agreement by telecopier shall thereafter also promptly deliver a manually executed counterpart, but the failure to deliver such manually executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. 10.13 Governing Law. The Transaction Documents shall be governed by, and construed and enforced in accordance with, the laws of the State of New York. The Corporation and the Purchaser each hereby irrevocably submit to the jurisdiction of said court and agree that neither will sue in connection with any matter covered under this Agreement in any other court. The English language version of all documents related to the transaction contemplated hereby will govern. 10.14 Direct Payment. Anything in this Agreement or the Notes to the contrary notwithstanding, the Corporation will punctually pay when due the principal of the Notes, and any interest thereon, without any presentment thereof, directly to Purchaser or to the nominee of Purchaser at the address set forth in Schedule 10.14 or such other address as Purchaser or Purchaser's nominee may from time to time designate in writing to the Corporation, or, if a bank account with a United States bank is designated for Purchaser or Purchaser's nominee on Schedule 10.14 hereto or in any written notice to the Corporation from Purchaser or Purchaser's nominee, the Corporation will make such payments in immediately available funds to such bank account, marked for attention as indicated. Purchaser agrees that in the event that it shall sell or transfer any Notes, it will, prior to the delivery of such Notes, make a notation thereon of all principal, if any, prepaid on such Notes and will also note thereon the date to which interest has been paid on such Notes. The Corporation agrees that transferees of Notes shall be entitled to the benefits of this Section 10.14 so long as any such transferee has made the same agreements relating to the transferred Notes as Purchaser has made in this Section 10.14. The Corporation shall be entitled to presume conclusively that Purchaser or any subsequent noteholders remain the holders of the Notes until such Notes shall have been presented to the Corporation as evidence of the transfer of such Notes. 30 35 The execution hereof by the Corporation and Purchaser shall constitute a contract between them for the uses and purposes hereinabove set forth. CORRECTIONS CORPORATION OF AMERICA, a Delaware corporation By: /s/ ----------------------------- Title: --------------------------- SODEXHO S.A. By: /s/ ----------------------------- Title: 31 EX-4.X 5 REGISTRATION RIGHTS AGREEMENT DATED APRIL 5, 1996 1 EXHIBIT 4(x) CORRECTIONS CORPORATION OF AMERICA REGISTRATION RIGHTS AGREEMENT This Agreement is made and dated as of April 5, 1996, by and between CORRECTIONS CORPORATION OF AMERICA, a Delaware corporation with its principal office located at 102 Woodmont Boulevard, Nashville, Tennessee 37205 (the "Corporation"), and Sodexho S.A., a French corporation (the "Investor"). The parties hereby agree as follows: 1. Definitions. As used in this Agreement, the following terms have the following meanings: "Act" means the Securities Act of 1933, as amended, or any federal statute or code which is a successor thereto. "Commission" means the Securities and Exchange Commission. "Exchange Act" means the Securities and Exchange Act of 1934, as amended, or any federal statute or code which is a successor thereto. "Holder" means a holder of Registrable Stock and any person holding Registrable Stock to whom registration rights have been transferred pursuant to this Agreement. "Initiating Holders" has the meaning specified in Section 2. "Register, Registered, and Registration" refer to a registration effected by filing a registration statement in compliance with the Act and the declaration or ordering by the Commission of the effectiveness of such registration statement. "Registrable Stock" means all shares of the Corporation's common stock, $1.00 par value (the "Common Stock"), issued or issuable upon conversion of the Convertible, Subordinated Notes, originally due February 28, 2002 (the "Notes"), issued by the Corporation pursuant to that certain Note Purchase Agreement of even date herewith between the Investor and the Corporation (the "Note Purchase Agreement"), and held by the original purchaser of such Notes or by a person to whom Registration rights have been transferred pursuant to the provisions of this Agreement, all shares of Common Stock issued in lieu of such shares in any reorganization of the Corporation and all shares of Common Stock issued in respect of such shares as a result of a stock split, stock dividend, recapitalization, or combination. 2 "Rule 144" means Rule 144 issued by the Commission under the Act, as may be amended from time to time, or any subsequent rule pertaining to the disposition of securities without registration. 2. Required Registration. (a) At any time after June 22, 1997 and from time to time thereafter, if the Holder or Holders of the then Registrable Stock propose to dispose of at least twenty-five percent (25%) of the then Registrable Stock (such Holder or Holders being herein called the "Initiating Holders"), the Initiating Holders may request the Corporation in writing to effect such Registration, stating the number of shares of Registrable Stock to be disposed of by such Initiating Holders (which shall be not less than twenty-five percent (25%) of the then Registrable Stock). Any such Registration will be a registration of a delayed and continuous offering pursuant to Rule 415 under the Act (a "Shelf Registration"). Upon receipt of such request, the Corporation will give prompt written notice thereof to all other Holders whereupon such other Holders shall give written notice to the Corporation and the Initiating Holders within fifteen (15) days after receipt of the Corporation's notice (the "Notice Period") if they propose to dispose of any shares of Registrable Stock pursuant to such Registration, stating the number of shares of Registrable Stock they propose to dispose of pursuant thereto, which number shall, subject to the provisions hereof, be allocated on a pro rata basis to any offerings and sales of Registrable Stock made pursuant to the Shelf Registration. (b) Subject to Section 4(c), the Corporation will use its best efforts to effect promptly after the Notice Period (but in any event within sixty (60) days following receipt of the request for Registration) the Registration under the Act of all the shares of Registrable Stock specified in the requests of the Initiating Holders and the requests of such other Holders, notice of which is respectively subject, however, to the limitations set forth in Section 4. If such Registration is a Shelf Registration, the Corporation shall take all necessary actions, at its expense, to permit each offer and sale of Registrable Stock requested by the Initiating Holders (including the offer and sale of any shares of Registrable Stock of such other Holders) within three (3) Business Days of receipt of written request therefor, or as soon thereafter as is reasonably practicable and without unreasonable expense, prior to the expiration of the Shelf Registration as provided in Section 3(b). 3. Registration Procedures. Whenever the Corporation is required by the provisions of Sections 2 or 5 to use its best efforts to effect the Registration of shares of Registrable Stock under the Act, the Corporation will: (a) prepare and file with the Commission a registration statement with respect to such shares and use its best efforts to cause such registration statement to become and remain effective as provided herein; (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus and any prospectus supplement used in connection therewith as may be necessary to keep such registration statement effective and current and to comply 2 3 with the provisions of the Act with respect to the disposition of all shares of Common Stock covered by such registration statement, but for no longer than six (6) months subsequent to the initial effective date of such registration statement; provided, however, that any Shelf Registration shall be kept effective until the earlier of (i) the sale of all Registrable Stock registered thereunder and (ii) such time as, in the reasonable opinion of counsel to the Corporation, further offers and sales under the Shelf Registration are no longer permissible pursuant to Rule 415 under the Act and the pronouncements of the Commission thereunder. (c) enter into and perform its obligations under an underwriting agreement with respect to any underwritten offering, in usual and customary form, with the managing underwriter of such offering, and each Holder participating in such Registration shall, subject to the terms and conditions of this Section 3 set forth below, also enter into and perform its obligations under such an agreement; (d) furnish to each underwriter and each Holder participating in a Registration pursuant to Sections 2 or 5 such number of copies of a prospectus, including a preliminary prospectus and any prospectus supplement, a registration statement, the exhibits thereto, and all documents incorporated therein by reference, in conformity with the requirements of the Act, and such other documents as such underwriter or Holder may reasonably request in order to facilitate the public sale of the shares of Common Stock by such underwriter or Holder, as the case may be, and promptly furnish to each underwriter and Holder notice of any stop order or similar notice issued by the Commission or state agency charged with the regulation of securities, and notice of any NASDAQ or other listing of the shares of Common Stock covered by such Registration Statement; (e) use its best efforts (i) to register or qualify the shares of Common Stock covered by such registration statement under such other securities or blue sky or other applicable laws of such jurisdictions within the United States as each Holder selling shares shall reasonably request, (ii) to keep such registration or qualification in effect for so long as such registration statement remains in effect, and (iii) to take any other action which may be reasonably necessary or advisable to enable such Holder to consummate the disposition in such jurisdictions of the shares of Common Stock owned by such Holder; provided, however, that in no event shall the Corporation be obligated to qualify to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this paragraph (e) be obligated to be so qualified or to consent to general service of process in any such jurisdiction; (f) use its best efforts to furnish to each Holder selling shares a signed counterpart, addressed to the Holder selling shares, of (i) an opinion of counsel to the Corporation, dated the effective date of the registration statement, and (ii) a "comfort" letter, dated the effective date of the registration statement, signed by the independent public accountants who have certified the Corporation's financial statements included in the registration statement, covering substantially the same matters with respect to the registration statement (and the prospectus and any prospectus supplement included therein) and (in the case of the "comfort" letter) with respect to events subsequent to the date of the financial statements and with respect to financial data contained in the 3 4 prospectus that is not extracted from the Corporation's audited financial statements, as are customarily covered (at the time of such Registration) in opinions of issuer's counsel and in "comfort" letters delivered to underwriters in underwritten public offerings of securities; (g) furnish to each Holder participating in a Registration pursuant to Sections 2 or 5, upon request of such Holder, copies of all correspondence between the Corporation, the Commission and any applicable state securities regulatory agencies relating to such Registration; (h) permit each Holder participating in a Registration pursuant to Sections 2 and 5 and the designated representatives of such Holder to inspect and copy all records of the Corporation reasonably related to such Registration; provided, however, the Corporation shall not be required to permit the examination of any portion of its records for which the Commission has granted a request for confidentiality; (i) use its best efforts to obtain all approvals required from the National Association of Securities Dealers, Inc., if any; (j) during the period referred to in Section 3(b) that the Corporation is required to keep such registration statement effective, promptly notify each Holder of Registrable Stock covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act, of the happening of any event as a result of which the prospectus or any prospectus supplement included in such registration statement, as then in effect, or any material incorporated by reference therein, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, or if it is necessary to amend or supplement such prospectus or any prospectus supplement or registration statement or material incorporated by reference therein to comply with the law, and at the request of any such Holder, prepare and furnish to such Holder a reasonable number of copies of a supplement to or an amendment of such prospectus or any prospectus supplement or material incorporated by reference therein as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Stock, such prospectus or any prospectus supplement or material incorporated by reference therein shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and so that such prospectus or prospectus supplement or registration statement or material incorporated by reference therein, as amended or supplemented, will comply with the law; (k) upon delivery of the certificates with respect to the Registrable Stock to be Registered pursuant hereto, issue to any underwriter to which the Holder may sell such Registrable Stock in connection with any such Registrations (and to any direct or indirect transferee or any such underwriter) certificates evidencing such Registrable Stock without any legend restricting the transferability of the Registrable Stock; 4 5 (l) make available, as soon as reasonably practicable, an earnings statement satisfying the provisions of Section 11(a) of the Act and Rule 158 promulgated thereunder; and (m) that in conjunction with any Registration pursuant to Section 2 or 5, it will, at its expense, use its best efforts to cause the Registrable Stock covered by such Registration to be listed on the New York Stock Exchange or such other national securities exchange on which the Common Stock is listed, subject to notice of issuance, and will provide prompt notice to such exchange of the issuance thereof from time to time. If the Corporation fails to keep a Registration requested pursuant to Section 2 effective for such period as is required by Section 3(b) and all of the shares of Registrable Stock subject to such Registration are not sold, the rights of the Holders to request Registration pursuant to Section 2 will not be deemed to have been affected by operation of the provisions of Section 4(a). Any Holder dissatisfied with the terms and conditions of the underwriting agreement referred to in Section 3(c) may withdraw from the request for Registration made pursuant to Section 5 and may refuse to execute such underwriting agreement. 4. Limitations on Required Registration. (a) The Corporation shall not be required to effect more than three (3) Registrations pursuant to Section 2. A Registration requested pursuant to Section 2 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective or (ii) if after it has become effective, such Registration is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason not attributable to the Holders participating in such Registration and has not thereafter become effective. (b) The Corporation shall not Register securities for sale for its own account in any Registration requested pursuant to Section 2 unless permitted to do so by the written consent of Holders who hold at least a majority of the Registrable Stock as to which Registration has been requested. (c) The Corporation shall be entitled to postpone for a reasonable period of time (but not exceeding 90 days) the filing of any registration statement otherwise required to be prepared and filed by it pursuant to Section 2(a) if the Corporation determines, in its reasonable judgment, that such registration and offering would interfere with any financing, acquisition, corporate reorganization or other material transaction involving the Corporation or any of its Affiliates or would require premature disclosure thereof, and promptly gives the holders of Registrable Stock requesting registration thereof pursuant to Section 2(a) written notice of such determination, containing a general statement of the reasons for such postponement and an approximation of the anticipated delay. If the Corporation shall so postpone the filing of a registration statement, such holders of Registrable Stock requesting registration thereof pursuant to Section 2(a) shall have the right to 5 6 withdraw the request for registration by giving written notice to the Corporation within 30 days after receipt of the notice of postponement and, in the event of such withdrawal, such request shall not be counted for purposes of the requests for registration to which holders of Registrable Stock are entitled pursuant to Section 2(a) hereof. 5. Incidental Registration. If the Corporation at any time after June 22, 1997 proposes to Register any of its securities under the Act (other than a Registration effected to implement an employee benefit plan, a transaction to which Rule 145 of the Commission is applicable, or a Registration required pursuant to Section 2), it will each such time give written notice to all Holders of its intention to do so not less than thirty (30) days prior to the intended filing date of such Registration, together with a list of all jurisdictions in which the Corporation intends to register the securities to be offered. Upon the written request of a Holder or Holders given within fifteen (15) days after receipt of any such notice (stating the number of shares of Registrable Stock to be disposed of by such Holder or Holders and the intended method of disposition), the Corporation will use its best efforts to cause all such shares of Registrable Stock intended to be sold by Holders who or which have requested Registration thereof, to be Registered under the Act so as to permit the disposition by such Holder or Holders of the shares so Registered, subject, however, to the limitations set forth in Section 6. 6. Limitations on Incidental Registration. (a) If the Registration of which the Corporation gives notice pursuant to Section 5 is for an underwritten offering, only securities (including, without limitation, Registrable Stock) which are to be included in the underwriting may be included in the Registration. (b) If the managing underwriter of any underwritten offering shall inform the Corporation by letter of its belief that the number or type of Registrable Stock requested to be included in a Registration pursuant to Section 5 would materially adversely affect such offering, then the Corporation will include in such Registration, to the extent of the number and type which the Corporation is so advised can be sold in (or during the time of) such offering, first, all securities proposed by the Corporation to be sold for its own account and, second, all other registered securities of the Corporation requested to be included in such Registration pro rata among such holders on the basis of the estimated gross proceeds of the securities of such holders requested to be so included. (c) Subject to the Corporation's complying with the priorities set forth in Section 6(b), nothing contained in this Section 6 shall prevent the Corporation from withdrawing any securities requested to be included for its own account in such a Registration either before or after the effectiveness of such Registration. (d) The Corporation shall not be required to effect any registration of Registrable Stock pursuant to Section 5 if it shall deliver to the Holder or Holders requesting such registration an opinion (which opinion shall be reasonably satisfactory to such Holder or Holders) of Stokes and Bartholomew (or other counsel reasonably satisfactory to such Holder or Holders) to the effect that 6 7 all Registrable Stock held by such Holder or Holders may be sold in the public market without registration under the Securities Act and any applicable State securities laws. 7. Designation of Managing Underwriter. In the case of any Registration which is intended to be an underwritten public offering, the Corporation shall have the right to designate a managing underwriter of such underwritten offering, which shall be a nationally recognized investment banking firm. 8. Cooperation of Prospective Sellers. (a) Each Holder that is a prospective seller of Registrable Stock will furnish to the Corporation such information regarding such Holder and the distribution of such Registrable Stock as the Corporation may from time to time reasonably request in writing. Such Holder shall not be required to make any representations or warranties to or agreements with the Corporation or the underwriters, if any, other than representations, warranties or agreements regarding such Holder, such Holder's intended method of distribution and any other representations required by law. (b) Failure of a Holder that is a prospective seller of Registrable Stock to furnish the information and agreements described in this Section 8 shall be deemed sufficient reason to exclude any shares of Registrable Stock to be sold by such Holder. However, such failure shall not affect the obligations of the Corporation under this Agreement to remaining Holders who furnish such information and agreements unless, in the opinion of counsel to the Corporation or the managing underwriter, such failure impairs or may impair the legality of the registration statement or the underlying offering. (c) The Holders of Registrable Stock included in the registration statement will not (until receipt of a supplemental or amended prospectus or prospectus supplement) effect sales thereof after receipt of telegraphic or written notice from the Corporation to suspend sales to permit the Corporation to correct or update a registration statement or prospectus or prospectus supplement; but the obligations of the Corporation with respect to maintaining any registration statement current and effective shall be extended by a period of days equal to the period such suspension is in effect. (d) At the end of the period during which the Corporation is obligated to keep the registration statement current and effective as described in paragraph (b) of Section 3 (and any extensions thereof required by the preceding paragraph), the Holders of Registrable Stock included in the registration statement shall discontinue sales of Registrable Stock pursuant to such registration statement upon receipt of notice from the Corporation of its intention to remove from Registration the Registrable Stock covered by such registration statement which remain unsold, and such Holders shall notify the Corporation of the number of Registered shares of Registrable Stock which remain unsold immediately upon receipt of such notice from the Corporation. 9. Expenses of Registration. All expenses (other than underwriting discounts and commissions incurred pursuant to this Agreement in effecting any Registration), including, without 7 8 limitation, all registration and filing fees, printing and engraving expenses, expenses of compliance with blue sky laws, registrar, transfer agent, and escrow fees, fees and disbursements of counsel and public accountants to the Corporation, and reasonable fees and expenses of a single legal counsel for all selling Holders shall be borne by the Corporation, provided that any additional registration and qualification fees and expenses that directly result from the inclusion of securities held by the Holders in the case of any Registration effected pursuant to Section 5 shall be borne pro rata by the Holders in proportion to the number of shares of Registrable Stock being offered by them. 10. Indemnification. (a) The Corporation will indemnify each Holder requesting or joining in a Registration, each officer, director, agent, or partner thereof, and such Holder's legal counsel and independent accountants, and each person, if any, who controls any thereof within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and each underwriter of the securities so Registered, and their respective successors (collectively, "Indemnitees"), against all claims, losses, damages and liabilities, joint or several, or actions in respect thereof, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, prospectus supplement, offering circular or other document prepared by or at the direction of the Corporation incident to any Registration, qualification or compliance (or in any related registration statement, notification or the like) or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances in which they were made, or any violation of any rule or regulation promulgated under the Act or any state securities law applicable to the Corporation or relating to action or inaction required of the Corporation in connection with any such Registration, qualification, or compliance, and will reimburse each such Indemnitee for any legal and any other expenses reasonably incurred in connection with investigating, settling or defending any such claim, loss, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 10(a) shall not apply to amounts paid in settlement of any such claim, loss, damage, liability, or action if such settlement is effected without the consent of the Corporation (which consent shall not be unreasonably withheld) nor shall the Corporation be liable in any such case to the extent that any such claim, loss, damage or liability arises out of or is based on any untrue statement or omission in any such document made in reliance on and in conformity with information furnished to the Corporation in writing by such Indemnitee(s) specifically for use therein and except that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement (or alleged untrue statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in an amended prospectus on file with the Commission at the time the registration statement becomes effective or in an amended or supplemented prospectus filed with the Commission pursuant to Rule 424(b) (a "Final Prospectus"), such indemnity agreement shall not inure to the benefit of any underwriter, or any Indemnitee if there is no underwriter, if a copy of such Final Prospectus was not furnished to the person or entity asserting the loss, liability, claim, or damage at or prior to the time such furnishing is required by the Act so long as such Final Prospectus has been furnished to such underwriter or such Indemnitee prior to such time; provided, further, that this indemnity shall not be deemed to relieve any underwriter of any of its due diligence obligations. 8 9 (b) Each Holder of shares of Registrable Stock included in a Registration which is effected will, severally, but not jointly, indemnify (and the Corporation and each such Holder will use its best efforts to cause each underwriter of the securities so registered so to indemnify) the Corporation and its officers and directors and its legal counsel, and each person, if any, who controls any of the foregoing within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, and their respective successors, against all claims, losses, damages, and liabilities, joint or several, or actions in respect thereof, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, prospectus supplement, offering circular or other document prepared by or at the direction of the Holder or underwriter incident to any registration, qualification or compliance (or in any related registration statement, notification or the like) or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances in which they were made and will reimburse the Corporation and each other person indemnified pursuant to this paragraph (b) for any legal and any other expenses reasonably incurred in connection with investigating, settling, or defending any such claim, loss, damage, liability or action; provided, however, that this paragraph (b) shall apply only if such statement, alleged statement, omission, or alleged omission was made in reliance upon and in conformity with information (including, without limitation, written negative responses to inquiries) furnished to the Corporation by such Holder or underwriter in writing, specifically for use therein, and except that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement (or alleged untrue such statement) or omission (or alleged omission) made in the preliminary prospectus but eliminated or remedied in a Final Prospectus, such indemnity agreement shall not inure to the benefit of the Corporation, if a copy of such Final Prospectus was not furnished to the person or entity asserting the loss, liability, claim, or damage at or prior to the time such furnishing is required by the Act so long as such Final Prospectus has been furnished to such Holder or underwriter prior to such time; provided, further, that this indemnity shall not be deemed to relieve any underwriter of any of its obligations, as to any Holder; provided, further, that the indemnity agreement contained in this Section 10(b) shall not apply, as to any Holder, to amounts paid in settlement of any such claim, loss, damage, liability, or action if such settlement is effected without the consent of such Holder, which consent shall not be unreasonably withheld; provided, further, that the liability of any such holder under this Section 10(b) and Section 10(e) shall be limited in the aggregate to the total public offering price of the Registrable Stock sold by such Holder. (c) Each party entitled to indemnification hereunder (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party (at its expense) to assume the defense of any claim or any litigation resulting therefrom; provided, however, that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be satisfactory to the Indemnified Party, and the Indemnified Party may participate in such defense at such party's expense; provided, further, that the omission by any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 10 except to the extent that the omission is materially prejudicial to the ability of the Indemnifying Party to defend such claim or litigation. No Indemnifying 9 10 Party, in defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. (d) If the indemnification provided for in this Section 10 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage, or expense referred to herein, then the Indemnifying Party hereunder shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense, in such proportion as is appropriate to reflect the relative benefit of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage, or expense. If the allocation provided above is held by a court of competent jurisdiction to be unavailable, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage, or expense, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and the Indemnified Party on the other hand in connection with the statements or omissions which resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relevant intent, knowledge, access to information and opportunities to correct or prevent such statement or omission. The parties agree that it would not be just and equitable if contribution pursuant to this Section 10 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to above. The amount paid or payable by an Indemnified Party as a result of the claims, losses, damages, and liabilities referred to above shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. (e) No Holder that is a seller of Registrable Stock covered by such registration statement or person controlling such seller other than the Corporation shall be obligated to make contribution hereunder that in the aggregate exceeds the total public offering price of the Registrable Stock sold by such Holder, less the aggregate amount of any damages that such Holder and its controlling persons have otherwise been required to pay pursuant to this Section 10. The obligations of such Holders to contribute are several in proportion to their respective ownership of the securities covered by such registration statement and not joint. (f) The indemnity and contribution provided herein shall be in addition to, and not in lieu of, any other liability that one party may have to another. 10 11 (g) The obligation of the Corporation under this Section 10 shall survive the prepayment and/or conversion, if any, of the Notes, the completion of any offering of Registrable Stock in a registration statement under this Agreement, or otherwise. 11. Rule 144 Requirements. The Corporation shall take all actions reasonably necessary to enable Holders of Registrable Stock to sell such securities without registration under the Act within the limitation of the exemptions provided by Rule 144 including, without limiting the generality of the foregoing, filing on a timely basis all reports required to be filed by the Exchange Act. Upon the request of any Holder of Registrable Stock, the Corporation will deliver to such Holder a written statement as to whether it has complied with such requirements. 12. "Stand-Off" Agreement. In consideration for the Corporation performing its obligations under this Agreement, each Holder severally agrees for a period of time (not to exceed ninety (90) days) from the effective date of the Registration of securities of the Corporation (upon the written request of the Corporation or the underwriters managing any underwritten offering of the Corporation's securities) not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Stock, other than shares of Registrable Stock included in the Registration, without the prior written consent of the Corporation or of such underwriters, as the case may be. 13. Delay of Registration. Unless jointly exercised by the Holders of at least 66-2/3% of the Registrable Stock, no Holder shall have any right to take any action to restrain, enjoin or otherwise delay any Registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Agreement. 14. Miscellaneous. (a) Amendment. This Agreement shall not be amended without the written consent of the Corporation and the Holders of at least 66-2/3% of the Registrable Stock. (b) Governing Law. This Agreement shall be governed in all respects by and construed in accordance with the local laws of the State of New York and not the choice of law rules of such state. Any legal action or proceeding with respect to this Agreement may be brought in the courts of the State of New York or of the United States of America for the District of New York and, by execution and delivery of this Agreement, each of the Corporation and the Purchaser hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The Corporation irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the Corporation at its address set forth herein, such service to become effective thirty (30) days after such mailing. The English language version of all documents related to the transactions contemplated hereby shall govern. 11 12 (c) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and, with respect to the Corporation, its respective successors and assigns, and, with respect to the Investor, any holder of any Registrable Stock, subject to the provisions respecting the minimum numbers of percentages of shares of Registrable Stock required in order to be entitled to certain rights, or take certain actions, contained herein. The Investor (and not any other Holder or any other Person) shall be permitted, in connection with a transfer or disposition of Registrable Stock permitted by the Note Purchase Agreement, to impose conditions or constraints on the ability of the transferee, as a Holder, to request a Registration pursuant to Section 2 and shall provide the Corporation with copies of such conditions or constraints and the identity of such transferees. (d) Notices, Etc. All notices, requests, consents, and other communications hereunder shall be in writing and shall be mailed, certified mail, return receipt requested, postage prepaid, or delivered by overnight courier service, or by telex or telefacsimile transmission, addressed as follows: if to the Corporation to the address set forth on the first page of this Agreement (telefacsimile number (615) 269-8635); if to a Holder, to the address and telex or telefacsimile transmission number set forth below such Holder's signature on this Agreement; if to any subsequent Holder, to it at such address as may have been furnished to the Corporation in writing by such Holder; or, in any such case, at such other address or addresses as shall have been furnished in writing to the Corporation (in the case of a Holder of Registrable Stock) or to the Holders of Registrable Stock (in the case of the Corporation) in accordance with the provisions of this Section; and shall be deemed to have been given three (3) days after mailing, if mailed, or one (l) business day after delivery to the courier, if delivered by overnight courier service or after transmission, if sent by telex or telefacsimile transmission. (e) Severability. In case any provision of this Agreement shall be held to be invalid, illegal, or unenforceable, it shall, to the extent practicable, be modified so as to make it valid, legal, and enforceable and to retain, as nearly as practicable, the intent of the parties, and the validity, legality, and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 12 13 (f) Titles and Subtitles; Sections. The titles and subtitles of this Agreement are intended for reference and shall not by themselves determine the construction or interpretation of this Agreement. References to Sections herein are to Sections of this Agreement unless otherwise specified. (g) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (h) Entire Agreement. This Agreement and the other document delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed themselves or by their respective representatives thereunto duly authorized as of the day and year first above written. CORRECTIONS CORPORATION OF AMERICA, a Delaware corporation By: -------------------------------- Its: ------------------------------- SODEXHO S.A. By: -------------------------------- Its: ------------------------------- Address: Sodexho S.A. 3 avenue Newton 78180 Montigny-le-Bretonneux FRANCE Attention: Bernard Carton 13 EX-4.Y 6 TRUST INDENTURE DATED AUGUST 1,1996 1 EXHIBIT 4(y) - -------------------------------------------------------------------------------- ------------------------------------------------- Corrections Corporation of America to ------------------------------------------------- Liberty Bank and Trust Company of Tulsa, National Association --------------- TRUST INDENTURE --------------- Dated as of August 1, 1996 Securing $24,700,000 Corrections Corporation of America Detention Center Revenue Bonds Series 1996 - -------------------------------------------------------------------------------- 2 TRUST INDENTURE THIS TRUST INDENTURE, dated as of August 1, 1996 (the "Indenture"), between Corrections Corporation of America (the "Issuer"), a Delaware corporation, and Liberty Bank and Trust Company of Tulsa, National Association, a national banking association having offices in Tulsa, Oklahoma (in its capacity as trustee to be hereinafter referred to as the "Trustee"); WITNESSETH: WHEREAS, the Issuer intends to (i) issue and sell its Detention Center Revenue Bonds, Series 1996 in the aggregate principal amount of $24,700,000 (the "Bond" or "Bonds"), to provide for the acquisition, construction, equipping and financing of a 512-bed detention facility in Taylor, Williamson County, Texas (as hereinafter defined as the "Project"); and (ii) secure the repayment of the Bonds by (A) the assignment contained herein from the Issuer to the Trustee pursuant to which the Issuer assigns to the Trustee for the benefit of the Registered Owners (as hereinafter defined) its rights to "Revenues" (as defined herein), (B) the execution and delivery of a Mortgage (as defined herein) and (C) the delivery to the Trustee of an irrevocable direct-pay letter of credit dated the date of issuance of the Bonds in the amount of $25,156,781 issued by First Union National Bank of North Carolina (in such capacity, the "Bank"); and WHEREAS, the Trustee has accepted the trusts created by this Indenture and in evidence thereof has joined in the execution hereof; and WHEREAS, the Issuer has determined that the Bonds to be issued hereunder shall be substantially in the following form, with such variations, omissions and insertions as are required or permitted by this Indenture: 3 [Form of Bond] CUSIP 220256AA9 --------------- THE PRINCIPAL OF, REDEMPTION PREMIUM, IF ANY, AND INTEREST ON THIS BOND ARE LIMITED OBLIGATIONS OF THE ISSUER PAYABLE SOLELY FROM THE SOURCES AND SPECIAL FUNDS PLEDGED FOR THEIR BENEFIT PURSUANT TO THE INDENTURE. THE BONDS DO NOT CONSTITUTE A DEBT OR GENERAL OBLIGATION OF THE ISSUER. THE ISSUER IS ONLY OBLIGATED TO MAKE BOND PAYMENTS TO THE EXTENT IT RECEIVES REVENUES FROM THE OPERATION OF THE PROJECT. THIS BOND MAY BE TENDERED FOR PURCHASE AS DESCRIBED HEREIN. DELIVERY OF AN OPTIONAL TENDER NOTICE WITH RESPECT TO THIS BOND CONSTITUTES AN IRREVOCABLE OFFER TO SELL THIS BOND ON THE DATE SPECIFIED THEREIN AND IS BINDING ON SUBSEQUENT REGISTERED OWNERS OF THIS BOND. THIS BOND ALSO IS SUBJECT TO MANDATORY TENDER AND PURCHASE (WITHOUT THE RIGHT TO RETAIN) AS DESCRIBED HEREIN. IN THE EVENT THE REGISTERED OWNER FAILS TO DELIVER THIS BOND TO THE TENDER AGENT ON THE SPECIFIED PURCHASE DATE, THE OWNER HEREOF SHALL THEREAFTER BE ENTITLED ONLY TO PAYMENT OF THE PURCHASE PRICE AND NOT TO THE BENEFITS OF THE INDENTURE. Corrections Corporation of America Detention Center Revenue Bonds Series 1996 No. R-________ Registered Owner: _______________________ Principal Amount: _______________________ Maturity Date: December 1, 2015 Initial Interest Rate: A variable rate of interest determined by the Remarketing Agents on the date of issuance. Interest Payment Dates: The first Business Day of each month, commencing September 3, 1996, through the Maturity Date. Original Delivery Date: August 1, 1996 2 4 Corrections Corporation of America (hereinafter called the "Issuer"), a Delaware corporation, for value received, hereby promises to pay (but only from the sources and in the manner hereinafter mentioned) to the Registered Owner, or registered assigns, the Principal Amount on the Maturity Date and to pay (but only from the sources and in the manner hereinafter mentioned) interest thereon from the Interest Payment Date next preceding the Date of Authentication indicated hereon, unless it is authenticated on an Interest Payment Date, in which event it shall bear interest from such date, payable on each Interest Payment Date, until payment of said principal sum has been made or provided for, at the rate or rates per annum provided for below. Principal and interest and premium, if any, shall be paid in any coin or currency of the United States of America which, at the time of payment, is legal tender for the payment of public and private debts. Interest shall be paid on each Interest Payment Date by check mailed to the person in whose name this Bond is registered at the close of business on the Regular Record Date (as hereinafter defined) next preceding such Interest Payment Date; provided, however, that interest shall also be payable, at the registered owner's expense, by wire transfer to the account at a member bank of the Federal Reserve System of any registered owner of Bonds in the aggregate principal amount of $1,000,000 or more at the written request (identifying such account by number) of the registered owner received by the Trustee (as hereinafter defined) at least five (5) days before the Regular Record Date or Special Record Date (as defined in the Indenture). In the event the Interest Payment Date is not a Business Day, interest shall be paid on the next succeeding Business Day as if paid on the Interest Payment Date. While the Bonds bear interest at the Variable Rate (as hereinafter defined), the Regular Record Date will be the close of business on the Business Day immediately preceding each Interest Payment Date. While the Bonds bear interest at the Fixed Rate (as hereinafter defined), the Regular Record Date will be the 15th calendar day of the month preceding each Interest Payment Date, whether or not a Business Day. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the registered owner on such Regular Record Date, and may be paid to the person in whose name this Bond is registered at the close of business on a Special Record Date (as defined in the Indenture) for the payment of such defaulted interest to be fixed by the Trustee, or may be paid at any time in any other lawful manner, all as more fully provided in the Indenture. Principal and redemption price shall be paid upon surrender of this Bond at the corporate trust office of Liberty Bank and Trust Company of Tulsa, National Association, as Trustee, in the City of Tulsa, Oklahoma. Payment of the purchase price of Bonds purchased as described herein shall be paid, upon surrender of such Bonds, at the office of First Union National Bank of Virginia (in such capacity, the "Tender Agent") in the City of Richmond, Virginia. 3 5 This Bond is issued under and pursuant to the laws of the State of Texas (the "State"), and under and pursuant to a resolution duly adopted by the Issuer. This Bond and the interest thereon shall not be deemed to constitute or to create in any manner a debt or general obligation of the Issuer, but shall be limited obligations of the Issuer payable solely from the revenues and other funds pledged therefor. This Bond is one of the Bonds of a duly authorized issue of revenue bonds of the Issuer in the aggregate original principal amount of 24,700,000 and is known as "Detention Center Revenue Bonds, Series 1996" (the "Bonds"). The Bonds have been issued in order to provide funds for the acquisition, construction, equipping and financing of a 512-bed detention center located in Taylor, Williamson County, Texas (the "Project"). This Bond is issued under and pursuant to a Trust Indenture dated as of August 1, 1996 (said Trust Indenture, together with all such supplements and amendments thereto as therein permitted, being herein called the "Indenture"), by and between the Issuer and Liberty Bank and Trust Company of Tulsa, National Association (said banking institution and any successor trustee or co-trustee under the Indenture being herein called the "Trustee"). An executed counterpart of the Indenture is on file at the corporate trust office of the Trustee in Tulsa, Oklahoma. Reference is hereby made to the Indenture for the provisions, among others, with respect to the custody and application of the proceeds of the Bonds, the collection and disposition of revenues, a description of the funds charged with and pledged to the payment of the principal of and interest on and any other amounts payable under the Bonds, the nature and extent of the security, the terms and conditions under which the Bonds are or may be issued, the rights, duties and obligations of the Issuer and of the Trustee and the rights of the Registered Owners of the Bonds, and, by the acceptance of this Bond, the Registered Owner hereof assents to all of the provisions of the Indenture. The Indenture obligates the Issuer to maintain a Credit Facility (as hereinafter defined) during the period of time the Bonds bear interest at the Variable Rate (the "Variable Rate Period"). Credit Facility. The Issuer has entered into a Letter of Credit and Reimbursement Agreement dated as of August 1, 1996 (the "Reimbursement Agreement") with First Union National Bank of North Carolina (in such capacity, the "Bank"). Pursuant to the Reimbursement Agreement, the Issuer has caused a Letter of Credit issued by the Bank (the "Letter of Credit"), to be delivered to the Trustee. The Trustee shall be entitled under the Letter of Credit to draw up to an amount of $25,156,781 of which (a) $24,700,000 4 6 shall support the payment of principal or that portion of the purchase price corresponding to principal of the Bonds and (b) $456,781 shall support the payment of up to 45 days' interest or that portion of the purchase price corresponding to interest on the Bonds at an assumed rate of 15% per annum. Subject to the provisions of the Indenture, the Issuer is required during the Variable Rate Period to maintain with the Trustee the Letter of Credit or an alternate credit facility with terms and provisions substantially the same as those of the Letter of Credit (an "Alternate Credit Facility"). During the Variable Rate Period, unless the Letter of Credit or the then current Alternate Credit Facility is replaced prior to its expiration in accordance with the terms of the Indenture, this Bond will become subject to mandatory redemption as provided in the Indenture upon expiration of the Credit Facility. Source of Funds. The principal of, premium, if any, and interest on the Bonds are payable solely from "Revenues" (as defined in the Indenture) and from any other moneys held by the Trustee under the Indenture for such purpose, including, with respect to principal and interest only, moneys drawn by the Trustee under the Letter of Credit or such other credit facility or facilities, if any, as may then be held by the Trustee under the Indenture for the benefit of the Registered Owners (the Letter of Credit or any Alternate Credit Facility is hereafter referred to as the "Credit Facility" and the Bank as the issuer of the Letter of Credit and any institution issuing an Alternate Credit Facility are herein called the "Credit Facility Issuer"). Except as otherwise specified in the Indenture, this Bond is entitled to the benefits of the Indenture equally and ratably both as to principal (and redemption and purchase price) and interest with all other Bonds issued under the Indenture. Interest Rates Initial Interest Rate . This Bond shall bear interest from the Date of Authentication to and including August 7, 1996 at the Initial Interest Rate. Variable Rate. After August 7, 1996 and prior to the Conversion Date (hereinafter defined), the Bonds shall bear interest at a rate per annum equal to a variable rate established as hereinafter provided (the "Variable Rate"). The Variable Rate shall be equal to the rate of interest certified in writing to the Trustee by First Union National Bank of North Carolina (acting through its Capital Markets Group) and Stephens Inc. (herein, with their respective successors in such capacity, the "Remarketing Agents") on and as of each Wednesday (or the next succeeding Business Day (as defined in the Indenture) if such Wednesday is not a Business Day) (the "Determination Date") as the minimum rate of interest per annum necessary, in the judgment of the Remarketing Agents taking into account market conditions prevailing on the 5 7 Determination Date, to enable the Remarketing Agents to arrange for the sale of all of the Bonds on and as of each Thursday following the Determination Date (or the next succeeding Business Day (as defined in the Indenture) following the Determination Date if the Determination Date is not on a Wednesday) in the secondary market at a price equal to the principal amount thereof (plus accrued interest to the date of settlement) and shall be effective on the first day of the next Calculation Period (as hereinafter defined). In the event the Remarketing Agents fail to certify such rate for any Calculation Period or if for any reason the Variable Rate is held to be invalid or unenforceable by a court of competent jurisdiction for any period, such rate for each Calculation Period thereafter shall be equal to the LIBOR rate for a period equal to 30 days (as reported as of 10:00 a.m. on the Determination Date on the display designated as "Page 5" of the Telerate Service (or such other display as may replace Page 5 on the Telerate Service)), as determined by the Trustee. For purposes hereof, "Calculation Period" shall mean the period from and including the day following the Determination Date of each week (even if not a Business Day) to and including the following Determination Date. Notwithstanding anything to the contrary contained herein or in the Indenture, the Variable Rate shall in no event be a rate in excess of the lesser of (i) 15% per annum and (ii) the maximum rate permitted by law. Interest prior to the Conversion Date shall be computed on the basis of a 365 or 366 day year, as applicable (except in the case of a LIBOR rate, in which event interest will be computed on the basis of a 360 day year), for the number of days actually elapsed, and shall be payable on each Interest Payment Date. Fixed Rate. (a) The interest rate on this Bond shall be converted to the Fixed Rate at the option of the Issuer pursuant to the Indenture to convert the rate of interest on all Bonds then outstanding from the Variable Rate to a Fixed Rate (the "Fixed Rate Election"), on any Interest Payment Date by giving written notice, accompanied by the items described in Section 202(e) of the Indenture, to the Trustee, the Credit Facility Issuer, the Tender Agent and the Remarketing Agents, which notice shall specify the Placement Agents which have agreed to use their best efforts to arrange for the sale of any Bonds to be tendered or deemed tendered for purchase on the Conversion Date (the "Placement Agents"). At least 25 days prior to the Conversion Date, the Placement Agents shall determine a Preliminary Fixed Rate which, in the sole judgment of the Placement Agents based on market conditions prevailing on the date such rate is determined, is the minimum fixed annual rate of interest necessary to enable the Placement Agents to arrange for the sale of all of the Bonds in the secondary market at a price equal to the principal amount thereof if the Bonds were tendered for purchase on the Conversion Date. The Placement Agents shall promptly notify the Trustee and the Issuer of the Preliminary Fixed Rate. 6 8 (b) As soon after determination of the Preliminary Fixed Rate as practicable (but in no event more than three Business Days thereafter) a notice shall be mailed by the Trustee to each registered owner stating, among other things, (i) the Preliminary Fixed Rate, (ii) that depending on market conditions, the Fixed Rate may be higher but in no event shall be lower than the Preliminary Fixed Rate, (iii) the Conversion Date, (iv) that after the tenth day preceding the Conversion Date, the owner shall not be entitled to tender this Bond for purchase as described below under the caption "Optional Tender During Variable Rate Period," (v) if applicable, that payment of this Bond will not be supported by a Credit Facility after the Conversion Date and (vi) that this Bond shall be deemed tendered for purchase on the Conversion Date. (c) Upon the Conversion Date stated in such notice, the Fixed Rate to be borne by the Bonds from the Conversion Date until the maturity or prior redemption of the Bonds (the "Tendered Bonds") shall be determined as follows: (i) if the Placement Agents shall have arranged for the sale of any or all of the Tendered Bonds at a price equal to the principal amount thereof, the Fixed Rate shall be equal to the interest rate at which all such Bonds were sold by the Placement Agents, provided that all such Bonds shall be sold at a rate greater than or equal to the Preliminary Fixed Rate; and (ii) if the Placement Agents shall have arranged for the sale of none of the Tendered Bonds, the Fixed Rate shall be equal to the Preliminary Fixed Rate. (d) If, for any reason, the Fixed Rate is held to be invalid or unenforceable by a court of competent jurisdiction, the Fixed Rate will be the lesser of (i) 200 basis points over the yield on the then current 30 year U.S. Treasury securities and (ii) the Maximum Rate (as defined in the Indenture.) Notwithstanding anything to the contrary contained herein or in the Indenture, the Fixed Rate and the Preliminary Fixed Rate shall in no event be a rate of interest in excess of the maximum rate permitted by law. (e) The Fixed Rate shall be computed on the basis of a 360 day year of twelve equal months of 30 days each, and shall be payable on each Interest Payment Date after the Conversion Date until the principal of, and premium, if any, and interest on the Bonds shall have been paid in full. Interest Rate Determination Binding. The determination of the interest rate on the Bonds in accordance with the terms of the Indenture shall be conclusive and binding upon the Registered Owners, the Issuer, the Trustee, the Remarketing Agents, the Placement Agents, the Tender Agent and the Credit Facility Issuer. 7 9 REDEMPTION OR PURCHASE OF BONDS Optional Redemption. (a) While the Bonds bear interest at the Variable Rate, the Bonds shall be subject to redemption at the option of the Issuer, with the consent of the Bank (so long as the original Credit Facility supports the Bonds) on any Interest Payment Date, in whole or in part, at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date. (b) The Bonds shall be subject to redemption at the option of the Issuer, at any time in whole or in part at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date in the event of damage, destruction or condemnation of the Project, all as more fully described in Section 701(b) of the Indenture. Mandatory Redemption. (a) During the Variable Rate Period, the Bonds shall be subject to mandatory redemption in whole on the Interest Payment Date occurring closest to but not less than 10 days prior to the date of expiration of the then current Credit Facility unless an Alternate Credit Facility has been provided in accordance with the Indenture, at a redemption price equal to 100% of the principal amount thereof plus accrued interest to the redemption date. (b) The Bonds are subject to mandatory redemption in whole or in part with funds transferred to the Bond Fund (as defined in the Indenture) from the Project Fund (as defined in the Indenture) at a redemption price equal to 100% of the principal amount thereof, without premium, plus accrued interest thereon to the redemption date. In the event the amount transferred from the Project Fund is less than $100,000 or a lesser amount which would result in any Registered Owner holding Bonds in denominations other than authorized denominations, the Trustee may hold such amounts in the Bond Fund and apply it to the next succeeding payment of principal or interest due on the Bonds. If the Letter of Credit has not been extended or an Alternate Credit Facility has not been obtained to replace the Letter of Credit effective on its expiration date of June 15, 1997, the Bonds will be redeemed on the June 1, 1997 Interest Payment Date. Any Bonds not tendered on such date shall be deemed tendered and shall cease to evidence indebtedness of the Issuer represented by this Bond and will cease to bear interest on such Interest Payment Date. Notice of Redemption and Selection of Bonds. Any notice of redemption, identifying the Bonds or portions thereof to be redeemed, shall be given by the Trustee not more than 60 days and not less than 30 days prior to the redemption date, by mailing a copy of the redemption notice by first class mail to the registered 8 10 owner of each Bond to be redeemed in whole or in part at the address shown on the Bond Register maintained by the Bond Registrar (as defined in the Indenture). Notice of optional redemption may be conditioned upon the deposit of moneys with the Trustee before the date fixed for redemption and such notice shall be of no effect unless such moneys are so deposited. All Bonds so called for redemption, including Bonds purchased by the Issuer as provided in the Indenture but not yet surrendered for payment of the purchase price, will cease to bear interest on the specified redemption date provided funds for their redemption price and any accrued interest payable on the specified redemption date are on deposit at the principal place of payment at that time. If less than all the Bonds are to be redeemed, the particular Bonds to be called for redemption shall be selected in the following order of priority: first, Bonds pledged to the Credit Facility Issuer, second Bonds owned by the Issuer, and third, Bonds selected by lot as further provided in the Indenture. Mandatory Purchase Upon Conversion to Fixed Rate. The Bonds shall be subject to mandatory purchase in whole on the Conversion Date at a purchase price equal to 100% of the principal amount thereof plus accrued interest, if any, to the date of purchase. Any Bonds not tendered on the Conversion Date shall be deemed tendered and will cease to bear interest on the Conversion Date. THE REGISTERED OWNER OF THIS BOND, BY ACCEPTANCE HEREOF, AGREES TO THE MANDATORY PURCHASE OF THIS BOND (WITHOUT RIGHT TO RETAIN) AS PROVIDED IN THE INDENTURE, AND AGREES THAT THIS BOND SHALL BE PURCHASED ON THE DATE SPECIFIED UPON DEPOSIT WITH THE TRUSTEE OF AN AMOUNT SUFFICIENT TO PAY THE PURCHASE PRICE HEREOF. THE REGISTERED OWNER OF THIS BOND ALSO UNDERSTANDS AND AGREES THAT IN THE EVENT THE REGISTERED OWNER FAILS TO DELIVER THIS BOND, PROPERLY ENDORSED FOR TRANSFER, TO THE TRUSTEE ON THE DATE SPECIFIED, INTEREST SHALL CEASE TO ACCRUE HEREON AND THE REGISTERED OWNER HEREOF SHALL THEREAFTER BE ENTITLED ONLY TO PAYMENT OF THE PURCHASE PRICE AND NOT TO THE BENEFITS OF THE INDENTURE. Optional Tender During Variable Rate Period. While the Bonds bear interest at a Variable Rate, any Bond or portion thereof in an authorized denomination shall be purchased on the demand of the Registered Owner thereof on any Business Day at a purchase price equal to 100% of the principal amount thereof, plus accrued interest, if any, to the date of purchase upon delivery to the Tender Agent of an Optional Tender Notice in the form attached hereto as Exhibit A (the "Optional Tender Notice") specifying the date on which such Bond shall be purchased, which date shall be a Business Day not prior to the seventh day after the date of delivery of the Optional Tender Notice nor after the tenth day preceding the Conversion Date. Unless the Bonds are held pursuant to a book-entry system as described below, to receive payment of the purchase price, the owner will be required to deliver such Bond to the Tender Agent, accompanied by an executed form of assignment 9 11 and any other instruments of transfer satisfactory to the Tender Agent, not less than five days prior to the purchase date specified in such notice as provided in the Indenture. No purchase of Bonds at the option of the Registered Owner thereof or on the Conversion Date shall be deemed to be a payment or redemption of the Bonds or any portion thereof. Notwithstanding the foregoing, no Registered Owner shall have a right to tender its Bond(s) for purchase as described in this paragraph following acceleration of the payment of the Bonds pursuant to the terms of the Indenture. THE REGISTERED OWNER OF THIS BOND, BY ACCEPTANCE HEREOF, AGREES THAT DELIVERY OF THE WRITTEN NOTICE DESCRIBED IN THIS PARAGRAPH BY THE OWNER CONSTITUTES AN IRREVOCABLE OFFER TO SELL THIS BOND ON THE DATE SPECIFIED, AND THAT THIS BOND SHALL BE PURCHASED ON SUCH DATE UPON DEPOSIT WITH THE TENDER AGENT OF AN AMOUNT SUFFICIENT TO PAY THE PURCHASE PRICE HEREOF. THE REGISTERED OWNER OF THIS BOND UNDERSTANDS AND AGREES THAT IN THE EVENT THE OWNER FAILS TO DELIVER THIS BOND, PROPERLY ENDORSED FOR TRANSFER, TO THE TENDER AGENT ON THE DATE SPECIFIED IN THE NOTICE, THIS BOND SHALL BE HELD BY THE OWNER AS AGENT FOR THE ISSUER, INTEREST SHALL CEASE TO ACCRUE HEREON AND THE OWNER HEREOF SHALL THEREAFTER BE ENTITLED ONLY TO PAYMENT OF THE PURCHASE PRICE AND NOT TO THE BENEFIT OF THE INDENTURE AND THE ISSUER SHALL, TO THE EXTENT PERMITTED BY LAW, EXECUTE AND THE TRUSTEE SHALL AUTHENTICATE AND DELIVER A SUBSTITUTE BOND IN LIEU OF THE UNDELIVERED BOND. Tender Agent . The Issuer has appointed First Union National Bank of Virginia as Tender Agent. The Tender Agent may be changed at any time by the Issuer, with the consent of the Credit Facility Issuer and the Trustee. Authorized Denominations. Subject to the provisions of the Indenture, the Bonds are issuable as registered Bonds in the denomination of $100,000 or any integral multiple of $5,000 in excess thereof; provided that if less than $100,000 principal amount of Bonds is outstanding, one Bond shall be issued in such smaller denomination. Subject to the limitations provided in the Indenture and upon payment of any tax or governmental charge, if any, Bonds may be exchanged for a like aggregate principal amount of Bonds of other authorized denominations. Except as provided in this paragraph, in no event shall Bonds be redeemed or selected for redemption if such redemption will result in any Registered Owner owning Bonds in principal amounts other than authorized denominations. Transfer. This Bond is transferable by the Registered Owner hereof or his duly authorized attorney at the corporate trust office of Liberty Bank and Trust Company of Tulsa, National Association, as Bond Registrar, in Tulsa, Oklahoma, in compliance with the terms and conditions set forth in the Indenture and upon surrender of this Bond, accompanied by a duly executed instrument of transfer in form satisfactory to the Bond Registrar, subject to such reasonable regulations as the Issuer, the Bond Registrar or 10 12 the Trustee may prescribe, and upon payment of any tax or other governmental charge incident to such transfer, PROVIDED, THAT IF MONEYS FOR THE PURCHASE OF THIS BOND HAVE BEEN PROVIDED PURSUANT TO A DRAW UNDER THE CREDIT FACILITY, THIS BOND IS NOT TRANSFERABLE TO ANYONE OTHER THAN THE ISSUER OR ITS ASSIGNEE OR PLEDGEE. Upon any such transfer, a new Bond or Bonds registered in the name of the transferee or transferees in denominations authorized by the Indenture and in the same aggregate principal amount as the principal amount of this Bond will be issued to the transferee. Except as set forth in this Bond and as otherwise provided in the Indenture, the person in whose name this Bond is registered shall be deemed the owner hereof for all purposes, and neither the Issuer, the Bond Registrar nor the Trustee shall be affected by any notice to the contrary. The Issuer may make appropriate arrangements for the Bonds (or any portion thereof) to be issued or held by means of a book-entry system administered by The Depository Trust Company ("DTC") with no physical distribution of Bonds made to the public (other than those Bonds, if any, not held under such book-entry system). References in the remainder of this paragraph and in the next five succeeding paragraphs to a Bond or the Bonds shall be construed to mean the Bond or Bonds held under the book-entry system. In such event, one Bond for each maturity shall be issued to DTC, and immobilized in its custody. A book-entry system shall be employed, evidencing ownership of the Bonds in Authorized Denominations, with transfers of beneficial ownership effected on the records of DTC and the DTC Participants pursuant to rules and procedures established by DTC. Each DTC Participant shall be credited in the records of DTC with the amount of such DTC Participant's interest in the Bonds. Beneficial ownership interests in the Bonds may be purchased by or through DTC Participants. The holders of these beneficial ownership interests are hereinafter referred to as the "Beneficial Owners." The Beneficial Owners shall not receive Bonds representing their beneficial ownership interests. The ownership interests of each Beneficial Owner shall be recorded through the records of the DTC Participant from which such Beneficial Owner purchased its Bonds. Transfers of ownership interests in the Bonds shall be accomplished by book entries made by DTC and, in turn, by DTC Participants acting on behalf of Beneficial Owners. SO LONG AS CEDE & CO., AS NOMINEE FOR DTC, IS THE REGISTERED OWNER OF THE BONDS, THE TRUSTEE SHALL TREAT CEDE & CO. AS THE ONLY HOLDER OF THE BONDS FOR ALL PURPOSES UNDER THE INDENTURE, INCLUDING RECEIPT OF ALL PRINCIPAL OF, PREMIUM, IF ANY, AND INTEREST ON THE BONDS, RECEIPT OF NOTICES, VOTING AND REQUESTING OR DIRECTING THE TRUSTEE TO TAKE OR NOT TO TAKE, OR CONSENTING TO, CERTAIN ACTIONS UNDER THE INDENTURE. Payments of principal, premium, interest and purchase price with respect to the Bonds, so long as DTC is the only owner of the Bonds, shall be paid by the Trustee directly to DTC or its nominee, 11 13 Cede & Co. as provided in the Letter of Representation from the Issuer, the Remarketing Agents and the Trustee (in its capacities as such and as Tender Agent and paying agent) to DTC (the "Letter of Representation"). DTC shall remit such payments to DTC Participants, and such payments thereafter shall be paid by DTC Participants to the Beneficial Owners. The Issuer and the Trustee shall not be responsible or liable for payment by DTC or DTC Participants, for sending transaction statements or for maintaining, supervising or reviewing records maintained by DTC or DTC Participants. In the event that (a) DTC determines not to continue to act as securities depository for the Bonds or (b) the Issuer or the Trustee determines that the continuation of the book-entry system of evidence and transfer of ownership of the Bonds would adversely affect their interests or the interests of the Beneficial Owners of the Bonds, the Issuer shall discontinue the book-entry system with DTC. If the Issuer fails to identify another qualified securities depository to replace DTC, the Trustee shall authenticate and deliver replacement Bonds in the form of fully registered Bonds to each Beneficial Owner. ** THE ISSUER, THE REMARKETING AGENTS, THE TENDER AGENT AND THE TRUSTEE SHALL NOT HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO ANY DTC PARTICIPANT OR ANY BENEFICIAL OWNER WITH RESPECT TO (a) THE BONDS; (b) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT; (c) THE PAYMENT BY DTC OR ANY DTC PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL OF AND INTEREST ON THE BONDS; (d) THE DELIVERY OR TIMELINESS OF DELIVERY BY DTC OR ANY DTC PARTICIPANT OF ANY NOTICE DUE TO ANY BENEFICIAL OWNER THAT IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE INDENTURE TO BE GIVEN TO BENEFICIAL OWNERS; (e) THE SELECTION OF BENEFICIAL OWNERS TO RECEIVE PAYMENTS IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (f) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC, OR ITS NOMINEE, CEDE & CO., AS REGISTERED OWNER. In the event that a book-entry system of evidence and transfer of ownership of the Bonds is discontinued pursuant to the provisions of the indenture, the Bonds shall be delivered solely as fully registered Bonds without coupons in the Authorized Denominations, shall be lettered "R" and numbered separately from 1 upward, and shall be payable, executed, authenticated, registered, exchanged and canceled pursuant to the provisions hereof and of the Indenture. The Registered Owner of this Bond shall have no right to enforce the provisions of the Indenture or to institute action to enforce the covenants therein, or to take any action with respect to any Event of Default under the Indenture, or to institute, appear in or defend any suit or other proceeding with respect thereto, except as provided in the Indenture. 12 14 In certain events, on the conditions, in the manner and with the effect set forth in the Indenture, the principal of this Bond may become or may be declared due and payable before the stated maturity hereof, together with the interest accrued hereon. Modifications or alterations of the Indenture and any supplement or amendment thereto may be made only to the extent and in the circumstances permitted by the Indenture and may be made in certain cases without the consent of the owners of the Bonds. Anything herein or in the Indenture to the contrary notwithstanding, the obligations of the Issuer hereunder shall be subject to the limitation that payment of interest to the Registered Owner of this Bond shall not be required to the extent that receipt of any such payment by the owner of this Bond would be contrary to the provisions of law applicable to such Bond which limits the maximum rate of interest which may be charged or collected by such owner. This Bond shall be governed by and construed in accordance with the laws of the State. All acts, conditions and things required to happen, exist and be performed precedent to and in the issuance of this Bond and the execution of the Indenture have happened, exist and have been performed as so required. IN WITNESS THEREOF, Corrections Corporation of America has caused this Bond to be executed with the manual or facsimile signature of the Chairman and Chief Executive Officer of Corrections Corporation of America, its official seal to be impressed or imprinted hereon and attested by the manual or facsimile signature of the Secretary of Corrections Corporation of America, all as of August 1, 1996. CORRECTIONS CORPORATION OF AMERICA By: ------------------------------------ Doctor R. Crants Chairman and Chief Executive Officer [SEAL] ATTEST: - ----------------------------------- Darrell K. Massengale Secretary 13 15 CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds of the series designated therein and issued under the provisions of the within-mentioned Indenture. LIBERTY BANK AND TRUST COMPANY OF TULSA, NATIONAL ASSOCIATION, as Trustee By: ------------------------------------------ Authorized Signatory Date of Authentication: ------------------ 14 16 (Form of Abbreviations) The following abbreviations, when used in the description on the face of the within Bond, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with the right of survivorship and not as tenants in common UTMA - Uniform Transfers to Minors Act Custodian for ----------------- ---------------------- (Cust) (Minor) under Uniform Transfers to Minors Act of ---------------------- (State) Additional abbreviations may also be used though not in the above list. 15 17 [Form of Assignment] For value received, the undersigned hereby sells, assigns and transfers unto the within Bond and all rights thereunder, and hereby irrevocably constitutes and appoints _____________________, attorney to transfer the said Bond on the bond register, with full power of substitution in the premises. Dated: ---------------------------------- Signature of Assignor Social Security Number or Tax Identification Number of Transferee: ---------------------------------- Signature(s) must be guaranteed by an institution which is a participant in the Securities Transfer Agents Medallion Program ("STAMP") or similar program: ---------------------------------- NOTICE: The assignor's signature to this Assignment must correspond with the name as it appears on the face of the within Bond in every particular without alteration or any change whatever. 16 18 EXHIBIT A FORM OF REGISTERED OWNER'S OPTIONAL TENDER NOTICE Date _______________ First Union Bank of Virginia, as Tender Agent for the Bonds issued under the Trust Indenture dated as of August 1, 1996 (the "Indenture") between Liberty Bank and Trust Company of Tulsa, National Association as Trustee and Corrections Corporation of America Attention: Corporate Trust Department (Bond Administration) Re: Corrections Corporation of America Detention Center Revenue Bonds, Series 1996 numbered R-____________, CUSIP 220256AA9 in the principal amount of $_____________ (the "Bonds"). (1) The undersigned hereby certifies that it is the lawful registered owner of the Bonds described above on the date hereof and that such Bonds are free and clear of any liens or encumbrances. (2) Pursuant to the provisions of the Indenture, the undersigned hereby irrevocably request(s) the purchase of the Bonds described above. (3) The date on which the Bonds shall be purchased shall be ___________________________, 19___. [Note: This date must be a Business Day (as defined in the Indenture) at least seven (7) days after receipt of this notice to the Tender Agent and at least ten days prior to the Conversion Date, as such terms are defined in the Indenture]. (4) The person or persons to whom or to whose order the proceeds of the purchase of the Bonds are to be paid is and the address or addresses of such payee or payees is _____________________________________________________. Payment shall be by: certified bank check ----- wire transfer ----- wiring instructions: ------------------------- ------------------------- ------------------------- (5) The undersigned hereby irrevocably authorizes and instructs the Trustee or the Bond Registrar (as defined in the Bonds) to effect the transfer of such Bonds (or any Bond(s) exchanged therefor), upon payment of the purchase price therefor, 17 19 to the purchaser(s) thereof, whether or not it delivers such Bonds as agreed pursuant to paragraph (7) hereof. (6) The undersigned hereby acknowledges that, even if it fails to deliver such Bonds, the Bonds shall nevertheless be purchased pursuant to the Indenture, and that, in any event, on and after the proposed purchase date set forth in paragraph 3 hereof, the Bonds will cease to be outstanding for all purposes under the Indenture, to evidence the indebtedness of the Issuer with respect thereto and to bear interest. (7) The undersigned hereby undertakes to deliver the Bonds to you, as Tender Agent, at 901 E. Cary Street, 2nd Floor, Richmond, Virginia 23219, Attention: Corporate Trust Department-CCA/Taylor 1996 Tender, Telecopy No. (804) 788-9661, at least five days prior to the proposed purchase date set forth in paragraph 3 above duly endorsed in blank for transfer. Name of Registered Owner: --------------------------- (Type or Print) Signature: ------------------------------------------ Signature(s) must be guaranteed by an institution which is a participant in the Securities Transfer Agents Medallion Program ("STAMP") or similar program: ------------------------------------------- Name of Institution: ------------------------ Date: --------------------------------------- 18 20 and; NOW, THEREFORE, in consideration of the premises, of the acceptance by the Trustee of the trusts hereby created, and of the purchase and acceptance of the Bonds by the Registered Owners, and also for and in consideration of the sum of One Dollar to the Issuer in hand paid by the Trustee at or before the execution and delivery of this Indenture, the receipt of which is hereby acknowledged, and for the purpose of fixing and declaring the terms and conditions upon which the Bonds are to be issued, delivered, secured and accepted by the Registered Owners and any and all other persons who shall from time to time be or become owners thereof, and in order to secure the payment of the Bonds at any time issued and outstanding hereunder and the interest thereon according to their tenor, purport and effect, and in order to secure the performance and observance of all the covenants, agreements and conditions therein and herein contained; THE ISSUER DOES HEREBY PLEDGE AND ASSIGN, and grant a security interest unto the Trustee and its successors and assigns for the benefit of the owners of the Bonds all right, title and interest of the Issuer presently owned or hereafter acquired in and to the following (collectively, the "Trust Estate"): (a) All money or securities at any time on deposit in, in transit to or credited to any account or Fund created hereunder (except the Bond Purchase Fund), including without limitation the Project Fund and the Bond Fund (each as hereinafter defined), including capitalized interest on deposit in the Bond Fund; (b) The Revenues (as hereinafter defined); and (c) The Mortgage (as hereinafter defined); and it is so mutually agreed and covenanted by and between the parties hereto for the equal and proportionate benefit and security of the Registered Owners without preference, priority or distinction as to lien or otherwise, except as hereinafter provided, of any one Bond over any other Bond, by reason of priority in the issue, sale or negotiation thereof or otherwise, for the benefit of the Registered Owners and as security for the fulfillment of the obligations of the Issuer hereunder; TO HAVE AND TO HOLD the same forever, subject, however, to the exceptions, reservations and matters therein and herein recited but IN TRUST, nevertheless, for the benefit and security of the owners from time to time of the Bonds delivered hereunder and issued by the Issuer and outstanding; PROVIDED, HOWEVER, that if, after the right, title and interest of the Trustee in and to the Trust Estate pledged and assigned to it under this Indenture shall have ceased, terminated 19 21 and become void in accordance with Article XIV hereof, the principal of and interest on the Bonds and any other obligations arising hereunder shall have been paid to the Registered Owners, then this Indenture and all covenants, agreements and other obligations of the Issuer hereunder shall cease, terminate and be void, and thereupon the Trustee shall cancel and discharge this Indenture and execute and deliver to the Issuer such instruments in writing as shall be required to evidence the discharge hereof; otherwise, this Indenture shall be and remain in full force and effect; and PROVIDED, FURTHER, that the Trustee neither undertakes nor assumes any obligations of the Issuer as set forth in this Indenture. THIS INDENTURE FURTHER WITNESSETH, and it is expressly declared, that the Bonds issued and secured hereunder are to be issued and delivered and the Trust Estate and other revenues and funds herein pledged and assigned are to be dealt with and disposed of under, upon and subject to the terms, conditions, stipulations, covenants, agreements, trusts, uses and purposes as hereinafter expressed, and the Issuer has agreed and covenants, and does hereby agree and covenant, with the Trustee and with the Registered Owners of said Bonds, as follows, that is to say: 20 22 ARTICLE I Definitions Section 1011. Definitions. All words and terms defined in the Lease Agreement shall have the same meanings in this Indenture, unless otherwise specifically defined herein. In addition, the following words and terms as used in this Indenture shall have the following meanings unless some other meaning is plainly intended: "Affiliate" means, with respect to any Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purpose of this definition, "Control" when used with respect to a Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Alternate Credit Facility" means an irrevocable direct-pay letter of credit, insurance policy, surety bond or similar credit enhancement or support facility, including any extensions thereof, issued for the benefit of the Trustee, the terms of which Alternate Credit Facility shall in all respects material to the Registered Owners be the same (except for the expiration date set forth in such Alternate Credit Facility) as the Letter of Credit, all as set forth in Section 603 hereof, and except changes pursuant to this Indenture with respect to interest or premium coverage in connection with a concurrent interest rate reset or conversion. "Authenticating Agent" means the Trustee and any agent so designated in and appointed pursuant to Section 208 hereof. "Available Moneys" means (a) with respect to any payment date occurring during any period that the Bonds are entitled to the benefit of a Credit Facility, (i) moneys which have been paid to the Trustee by the Issuer (including moneys transferred from the Project Fund pursuant to Section 401 hereof) and which have been on deposit with the Trustee for at least 366 days during and prior to which no Event of Bankruptcy shall have occurred, and the proceeds from the investment of such moneys once such moneys have been held by the Trustee for at least 366 days, and (ii) moneys on deposit with the Trustee representing proceeds from the remarketing by the Remarketing Agents of Bonds to persons other than the Issuer or any Affiliate as described in Article III hereof, which, in each case, were at all times since their deposit with the Trustee held in a separate and segregated account or accounts or sub-account or sub-accounts in which no moneys were at any time held and (iii) moneys drawn under a Credit Facility which in each case were at all times since their deposit with the Trustee held in a separate and segregated account or accounts or sub-account or sub- 21 23 accounts in which no moneys (other than those drawn under a Credit Facility) were at any time held and (b) with respect to any payment date not occurring during a period that the Bonds are entitled to the benefit of a Credit Facility, any moneys furnished to the Trustee and the proceeds from the investment thereof. The Trustee may conclusively rely on the fact that no Event of Bankruptcy has occurred unless notified in writing to the contrary by the Issuer, the Bank or the owners of not less than 25% in aggregate principal amount of Bonds Outstanding. "Bank" means First Union National Bank of North Carolina, as the issuer of the Letter of Credit. "Bank Account" means the account of that name established in the Bond Purchase Fund pursuant to Section 302 hereof. "Beneficial Owner" shall have the meaning set forth in Section 206 hereof. "Board" means the Board of Directors of the Issuer. "Bond" or "Bonds" means any bond or bonds authenticated and delivered under this Indenture. "Bond Fund" means the trust fund so designated which is established pursuant to Section 502(a) hereof. "Bond Payments" means payments of interest or interest and principal to be made with respect to the Bonds on each Interest Payment Date. "Bond Purchase Fund" means the trust fund so designated which is established pursuant to Section 302 hereof. "Bond Registrar" means the Bond Registrar as designated in Section 204 hereof. "Business Day" means a day upon which banks in the State and the State of North Carolina and Oklahoma are open for the transaction of business of the nature required pursuant to the Indenture. "Calculation Period" means the period from and including the day following the Determination Date of each week (even if not a Business Day) to and including the earlier of the Conversion Date or the following Determination Date; provided that if during the Variable Rate Period the Determination Date is a Regular Record Date, such Calculation Period will extend until the Business Day following such Determination Date, and the subsequent Calculation Period shall commence on the day following the end of such prior Calculation Period. 22 24 "Cede & Co." means Cede & Co., the nominee of DTC or any successor nominee of DTC with respect to the Bonds. "Conversion Date" means that Business Day elected by the Issuer in accordance with Section 202(e) hereof as the effective date of conversion of the interest rate on the Bonds from the Variable Rate to the Fixed Rate, which date shall be an Interest Payment Date. "Costs of the Project" means (i) all fees, costs and expenses incurred by the Issuer in relation to the acquisition, construction, equipping and financing of the Project, including without limitation, design, planning, engineering and legal costs; acquisition costs of the Land, other interests in land, right-of-way and easements; construction costs; costs of machinery, equipment and other capital assets incident and related to the operation, maintenance and administration of the Project; and financing costs, placement agents', structuring and other fees; and fees and expenses for legal, financial and other professional services, (ii) the costs and expenses relating to the restoration or replacement of all or part of the Project and (iii) the fees and expenses owing to the Trustee under the Indenture. "Counsel" means an attorney or firm of attorneys that may, but need not, be counsel to the Issuer or counsel to the Credit Facility Issuer. "Credit Facility" means the Letter of Credit or any Alternate Credit Facility and including any extensions thereof delivered to the Trustee pursuant to Article VI hereof. "Credit Facility Issuer" means the Bank with respect to the Letter of Credit and the institution issuing any Alternate Credit Facility. "DTC" means the Depository Trust Company, a limited purpose company organized under the laws of the State of New York, and its successors and assigns. "DTC Participant" or "DTC Participants" means securities brokers and dealers, banks, trust companies and clearing corporations that have access to the DTC system. "Defaulted Interest" has the meaning provided in Section 209 hereof. "Determination Date" means the Wednesday of each week or if Wednesday is not a Business Day then the next succeeding Business Day. "Event of Bankruptcy" means a petition by or against the Issuer under any bankruptcy act or under any similar act which may 23 25 be enacted which shall have been filed (other than bankruptcy proceedings instituted by the Issuer against third parties) unless such petition shall have been dismissed and such dismissal shall be final and not subject to appeal. "Event of Default" means any of the events specified in Section 901 hereof to be an Event of Default. "Fixed Rate" means the fixed rate of interest established pursuant to Section 202(e) hereof. "Fixed Rate Period" means the period during which the Fixed Rate is in effect. "Government Obligations" means (i) direct obligations of the United States of America, (ii) obligations unconditionally guaranteed by the United States of America, and (iii) securities or receipts evidencing ownership interests in obligations or specified portions (such as principal or interest) of obligations described in clause (i) or (ii) above the full and timely payment of which securities, receipts or obligations is unconditionally guaranteed by the United States of America. "Indenture" means this Trust Indenture as amended or supplemented at the time in question. "Initial Interest Rate" means a variable rate of interest determined by the Remarketing Agents on the date of issuance of the Bonds. "Initial Rate Period" means the period from and including the date of initial authentication and delivery of the Bonds to and including August 7, 1996. "Interest Payment Date" means the first Business Day of each month commencing September 2, 1996, through the Maturity Date of the Bonds and any date specified as a Conversion Date in accordance with Section 202(e) hereof. "Investment Obligations" means: (a) Government Obligations maturing within one year from the date of acquisition thereof; (b) obligations of any state or political subdivision of the United States or any agency or instrumentality thereof if (i) such obligations are secured by cash, Government Obligations or a combination thereof (A) which have been deposited into a segregated escrow account for and irrevocably pledged to the payment, when due, of the principal or redemption price of and interest on such obligations and (B) which are sufficient, without reinvestment, to provide for the payment, when due, of the principal or redemption 24 26 price of and interest on such obligations; or (ii) such obligations are insured as to timely payment of principal or redemption price and interest by an insurance company or commercial bank with capital, surplus and undivided profits in excess of $10,000,000 and are rated by Moody's or by S&P in the highest rating category assigned by such rating service to obligations of the same type; (c) bonds, debentures, notes or other evidences of indebtedness issued by any of the following agencies or such other like governmental or government sponsored agencies which may be hereafter created: Bank for Cooperatives; Federal Intermediate Credit Banks; Federal Financing Bank; Federal Home Loan Bank System; Export-Import Bank of the United States; Farmers Home Administration; Small Business Administration; Inter-American Development Bank; International Bank for Reconstruction and Development; Federal Land Banks; Government National Mortgage Association; or Tennessee Valley Authority; (d) direct and general obligations of any state of the United States, to the payment of the principal of and interest on which the full faith and credit of such state is pledged, if at the time of their purchase such obligations are rated in any of the two highest rating categories by S&P and Moody's'; (e) negotiable and non-negotiable certificates of deposit which are issued by banks (including the Trustee or an Affiliate thereof, trust companies or savings and loan associations maturing within one year from the date of acquisition thereof, provided that the aggregate principal amount of all such certificates issued to or for the benefit of the Issuer by any such institution shall not at any time exceed 10% of the combined capital and surplus of such institution; (f) repurchase agreements for Government Obligations which (i) are entered into with banks, trust companies or dealers in government bonds which report to, trade with and are recognized as primary dealers by a Federal Reserve Bank, and (ii) such Government Obligations shall have a fair market value on the date of the repurchase agreement equal to at least 100% of the amount of the related repurchase obligations, and (iii) such Government Obligations are transferred to the Trustee or a third party agent of the Trustee by physical delivery or by an entry made on the records of the issuer of such Government Obligations; (g) obligations of any state or political subdivision thereof or any agency or instrumentality of such a state or political subdivision, the payment of principal or redemption price of and interest on which is secured by an unconditional, irrevocable letter of credit issued by a bank, trust company, savings and loan association or other financial institution, provided that at the time of its purchase both such obligation and the long term unsecured, uncollateralized debt of such financial institutions are 25 27 rated in either of the two highest rating categories by S&P and Moody's; (h) shares of an open-end, diversified investment company which is registered under the Investment Company Act of 1940, as amended, and which (i) invests its assets exclusively in Government Obligations having a final maturity date of less than one year from their date of purchase or invests its assets in repurchase agreements described in (f) above; (ii) seeks to maintain a constant net asset value per share; and (iii) has aggregate net assets of not less than $10,000,000 on the date of purchase of such shares; provided that, at the time of purchase, such shares are rated in either of the two highest rating categories by S&P and Moody's; (i) commercial paper rated by Moody's within its NCO/Moody's ratings of prime 1, or by S&P within its ratings of A-1, or by Fitch Investors Service within its ratings of F-1; (j) obligations described in Section 103(a) of the Code, the interest on which is excludable from the gross income of the owner thereof for federal income tax purposes under Section 103(a) of the Code, including any stock in a "regulated investment company" within the meaning of Section 851(a) of the Code, which corporation during any quarter of its taxable year during which the Trustee has invested therein any moneys in the Project Fund or the Bond Fund (i) meets the requirements of Section 852(a) of the Code for the taxable year; (ii) has authorized and outstanding only one class of stock; and (iii) to the extent practicable invests all its assets in obligations described in Section 103(a) of the Code and states in its prospectus made available to the Trustee at the time of such investment its intention that at least 98 percent (A) of its gross income will be derived from interest on or gains from the sale or other disposition of obligations described in Section 103(a) of the Code, or (B) of the weighted average value of its assets is represented by investments in obligations described in Section 103(a) of the Code; provided, however, that if the Trustee receives notice that, during any quarter during which the Trustee invested moneys in the Project Fund or Bond Fund therein, such regulated investment company failed to meet any of the foregoing requirements, such stock shall no longer be deemed to meet the requirements of clause (iii) of this paragraph j) and the Trustee shall deposit earnings on such investments in the Rebate Fund to the extent required by Section 504 hereof; (k) Uncollateralized investment agreements with any registered broker/dealer subject to the Securities Investors' Protection Corporation jurisdiction, any commercial bank or any other financial institution (including but not limited to insurance companies and their subsidiaries), if such broker/dealer, bank or financial institution is rated at least "A" or better by Moody's Investors Service, and "AA-" or better by Standard & Poor's 26 28 Corporation (the "Investment Agreement Rating Requirement"), or if the obligation of such bank, broker/dealer or financial institution is unconditionally guaranteed by a parent corporation meeting the Investment Agreement Rating Requirement, provided that, by the terms of the Agreement: (1) if the provider's rating falls below "A1" by Moody's Investors Service or "A+" by Standard & Poor's Corporation, the provider must, within ten days thereafter, collateralize the investment agreement such that: i) the securities are held free and clear of any lien by the Trustee or an independent third party acting solely as agent ("Agent") for the Trustee, and (A) such third party is a Federal Reserve Bank or a bank which is a member of the Federal Deposit Insurance Corporation and which has combined capital, surplus and undivided profits of not less than $50 million, and (B) the Trustee shall have received written confirmation from such third party that it holds such securities, free and clear of any lien, as Agent; and ii) a perfected first security interest under the Uniform Commercial Code, or book entry procedures prescribed at 31 C.F.R., 306.1 et seq. or 31 C.F.R. 350.0 et seq. in such securities is created for the benefit of the Trustee; and iii) the Trustee or the Agent will value the collateral securities no less frequently than weekly and will liquidate the collateral securities if any deficiency in the required collateral percentage is not restored within two business days of such valuation; and iv) the fair market value of the securities in relation to the amount of the repurchase obligation, including, principal and interest, is equal to at least 102% (103% if the securities are Agencies), and if the value of such securities held as collateral slips below such level, then additional cash and/or acceptable securities must be transferred to the Agent; (2) if the provider's rating falls below "BBB+" by Moody's Investor Service or "Baa-1" by Standard & Poor's Corporation, within ten days of receipt of written direction by the Issuer, the provider must repay the principal of, and accrued but unpaid interest on, the investment, with no penalty or premium to the Issuer; and (l) any money market fund or short term investment fund rated "Am" or "Am-G" by S&P. 27 29 "Issuer Representative" means the Chief Executive Officer or any other person designated in writing signed by the Chief Executive Officer to act on behalf of the Issuer in a certificate filed with the Trustee. Such designations shall remain effective until the Chief Executive Officer files an additional certificate with the Trustee. "Land" means the tract of land to be purchased or refinanced with a portion of the proceeds of the Bonds, to be owned by the Issuer and on which the Project Buildings are located, as further described in Exhibit B. "Letter of Credit" means the irrevocable direct pay letter of credit, dated August 1, 1996, in the amount of $25,156,781 issued by the Bank, including any extensions thereof. "Majority Registered Owners" means the Owners of a majority of the aggregate principal amount of the Bonds Outstanding. "Maturity Date" means December 1, 2015 unless the maturity of the Bonds shall be accelerated by the Trustee pursuant to Section 902 of this Indenture, in which case the Maturity Date of the Bonds shall be the date set forth in the notice of acceleration from the Trustee to the Issuer and the Credit Facility Issuer pursuant to Section 902 of this Indenture. "Maximum Rate" means 15% per annum; provided, however, that the Maximum Rate shall be no higher than the maximum nonusurious rate, if any, that at any time may be contracted for, taken, reserved, charged or received on the indebtedness hereunder under laws applicable to any creditor that are presently in effect or, to the extent allowed by law, under such applicable laws that may hereafter be in effect and that allow a higher maximum nonusurious interest rate than applicable laws as of the date of the issuance and delivery of the Bonds. "Moody's" means Moody's Investors Service, a Delaware corporation, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Remarketing Agents, with the consent of the Credit Facility Issuer. "Mortgage" means the Deed of Trust (with Security Agreement and Assignment of Rents and Leases) dated as of August 1, 1996 from the Issuer in favor of the Trustee. "Optional Tender Notice" means a notice from the Owner of a Bond to the Tender Agent in the form attached to the Bond as Exhibit A. 28 30 "Outstanding," in connection with Bonds means, as of the time in question, all Bonds authenticated and delivered under this Indenture, except: (i) Bonds theretofore cancelled or required to be cancelled under Section 213 hereof; (ii) Bonds which are deemed to have been paid in accordance with Article XIV hereof; (iii) Bonds in substitution for which other Bonds have been authenticated and delivered pursuant to Article II hereof; and (iv) Undelivered Bonds. In determining whether the Owners of a requisite aggregate principal amount of Bonds Outstanding have concurred in any request, demand, authorization, direction, notice, consent or waiver under the provisions hereof, Bonds which are held by or on behalf of the Issuer or an Affiliate of the Issuer (unless all of the Outstanding Bonds are then owned by the Issuer) shall be disregarded for the purpose of any such determination. The Trustee shall not be required to take notice of the beneficial ownership of Bonds of a Person or the Issuer (or whether the Bonds are registered in the name of an Affiliate of the Issuer for this purpose) unless such fact is certified to the Trustee in writing. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Permitted Encumbrances" means: (a) undetermined liens and charges incident to construction or maintenance, and liens and charges incident to construction or maintenance filed or recorded which are being contested in good faith and have not proceeded to judgment if the Issuer has set aside or caused to be set aside adequate reserves with respect thereto; (b) a lien securing payment of taxes, assessments and other governmental charges and assessments which are not delinquent; (c) a lien securing payment of taxes, assessments and other governmental charges and assessments which are delinquent, but the validity of which is being contested in good faith, if the Trustee has required the Issuer to set aside adequate reserves, or otherwise post a bond or other security satisfactory in amount to the Trustee and the Issuer 29 31 has complied with such requirement, unless, in the opinion of counsel to the Trustee, any portion of the Project or the interest of the Issuer therein may be in danger of being lost or forfeited; (d) minor defects and irregularities in the title to the Project as normally exist with respect to properties similar in character to the Project which do not, in the opinion of Counsel to the Issuer, in the aggregate materially impair the use of the Project for the purposes for which the Project is or may reasonably be expected to be held; (e) easements, exceptions or reservations for the purpose of pipelines, telephone lines, telegraph line, power lines and substations, roads, streets, alleys, highways, railroad purposes, drainage and sewerage purposes, dikes, canals, laterals, ditches, the removal of oil, gas, coal or other minerals and other like purposes, or for the joint or common use of real property, facilities and equipment, which do not materially impair the use of such property for the purposes for which the Project is or may reasonably be expected to be held; (f) present or future zoning laws and ordinances; (g) the lien and charge of this Indenture and the Mortgage; and (h) those matters described in the title policy issued by First American Title Insurance Company of Texas with respect to the Land. "Placement Agents" means First Union National Bank of North Carolina (acting through its Capital Markets Group) and Stephens Inc. and their respective successors or any other person designated by the Issuer meeting the requirements of Section 1203 hereof. "Pledge Agreement" means that certain Pledge Agreement, dated as of August 1, 1996, between the Bank and the Issuer. "Preliminary Fixed Rate" means the rate of interest per annum determined by the Placement Agents at least 25 days prior to the Conversion Date to be that rate which, in the sole judgment of the Placement Agents based on market conditions prevailing on the date such rate is determined, is the minimum fixed annual rate of interest necessary to enable the Placement Agents to arrange for the sale of all of the Bonds in the secondary market at a price equal to the principal amount thereof, for which the Placement Agents would be so required to arrange for the sale on the Conversion Date pursuant to Section 202(e) hereof. "Principal Office" of the Trustee or Bond Registrar means the office at which, at the time in question, is designated as its 30 32 corporate trust office from which its business hereunder is principally conducted. "Private Placement Memorandum" means the Preliminary Private Placement Memorandum dated July 19, 1996 and the Private Placement Memorandum dated August 1, 1996, each relating to the Bonds. "Project" means the Land together with the Project Buildings, which Land and Project Buildings are to be owned by the Issuer pursuant to this Indenture. "Project Buildings" means all improvements located on the Land and all equipment, machinery, personal property and other facilities and other buildings in connection therewith, including all enlargements, improvements, extensions, additions and accessions thereto. "Project Fund" means the trust fund so designated which is established pursuant to Section 401 hereof. "Project Revenue Account" means the account of that name established in the Bond Fund pursuant to Section 502 hereof. "Project Revenues" means revenues received by the Issuer from Transferring Entities pursuant to Transferring Entity Agreements. "Registered Owner" or "Registered Owners" or "Owner" means (a) in the event that the book-entry system of evidence of transfers of ownership in the Bonds is employed pursuant to Section 206, Cede & Co., as nominee for DTC, or its nominee, and (b) in all other cases, the person or persons in whose names any Bond or Bonds are registered on the books and records of the Bond Registrar pursuant to Section 204 of this Indenture. "Regular Record Date" means in respect of any Interest Payment Date during the Variable Rate Period, the close of business on the Business Day immediately preceding each such Interest Payment Date. While Bonds bear interest at the Fixed Rate, the Regular Record Date will be the 15th calendar day of the month preceding the Interest Payment Date, whether or not a Business Day. "Reimbursement Agreement" means the Letter of Credit and Reimbursement Agreement of even date herewith between the Issuer and the Bank, as the same may be amended from time to time and filed with the Trustee, and any agreement of the Issuer with a Credit Facility Issuer setting forth the obligations of the Issuer to such Credit Facility Issuer arising out of any payments under a Credit Facility and which provides that it shall be deemed to be a Reimbursement Agreement for the purpose of this Indenture. "Remarketing Account" means the account of that name established in the Bond Purchase Fund pursuant to Section 302 hereof. 31 33 "Remarketing Agents" means First Union National Bank of North Carolina acting through its Capital Markets Group and Stephens, Inc. and their respective successors as provided in Section 1201 hereof. "Remarketing Agreement" means the Remarketing Agreement dated as of August 1, 1996 between the Issuer and the Remarketing Agents, as amended, restated, modified or supplemented from time to time. "Requisite Registered Owners" shall mean the Registered Owners of more than two-thirds of the aggregate Outstanding principal amount of the Bonds. "Responsible Officer" when used with respect to the Trustee shall mean any trust officer or assistant trust officer and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "Revenues" means (a) all amounts payable and paid to the Trustee with respect to the principal or redemption price of, or interest on, the Bonds (i) by the Issuer from Project Revenues under this Indenture, (ii) by the Credit Facility Issuer under a Credit Facility, and (iii) by transfer from the Project Fund pursuant to Section 401 hereof, and (b) investment income with respect to any moneys held by the Trustee in the Bond Fund, and all recoveries of the security therefor. Revenues do not include payments with respect to the indemnification or reimbursement of certain expenses of the Trustee under Section 1003 hereof or any moneys required to be deposited in the Bond Purchase Fund. "S&P" means Standard & Poor's, a division of The McGraw-Hill Companies, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "S&P" shall be deemed to refer to any other nationally recognized securities rating agency designated by the Remarketing Agents, with the consent of the Credit Facility Issuer. "Special Record Date" means for purpose of payment of Defaulted Interest on the Bonds, the date fixed by the Trustee pursuant to Section 209 hereof. "State" means the State of Texas. "Tender Agent" means First Union National Bank of Virginia and its successors as provided in Section 1202 hereof. "Tendered Bonds" means those Bonds delivered or deemed delivered by the Registered Owners for purchase pursuant to an Optional Tender Notice or on the Conversion Date. 32 34 "Transferring Entity" means any governmental entity which may from time to time contract with the Issuer to transfer such entity's inmates for the incarceration of inmates at the Project. "Transferring Entity Agreement" means an agreement with respect to the incarceration of inmates in the Project. "Trustee" means Liberty Bank and Trust Company of Tulsa, National Association and its successors in the trust hereunder. "Undelivered Bonds" means (1) any Bond for which an Optional Tender Notice has been given pursuant to Section 203 hereof and which has not been delivered to the Tender Agent on the date specified for purchase and (ii) any Bond which has not been delivered to the Trustee for redemption or purchase when called for redemption or purchase on any optional or mandatory redemption or purchase date or the Conversion Date. "Variable Rate" means a variable interest rate per annum established from time to time after the Initial Rate Period as the rate of interest per annum determined by the Remarketing Agents on and as of each such Determination Date as the minimum rate of interest per annum necessary, in the judgment of the Remarketing Agents taking into account market conditions prevailing on the Determination Date, to enable the Remarketing Agents to arrange for the sale of all of the Bonds on the Determination Date in the secondary market at a price equal to the principal amount thereof (plus accrued interest to the date of settlement). In the event the Remarketing Agents fails to certify such rate for any Calculation Period or if for any reason the Variable Rate is held to be invalid or unenforceable by a court of competent jurisdiction for any period, the Variable Rate for each Calculation Period thereafter (if none is certified by the Remarketing Agents) shall be equal to the LIBOR rate for a period equal to 30 days (as reported as of 10:00 a.m. on the Determination Date on the display designated as "Page 5" of the Telerate Service (or such other display as may replace Page 5 on the Telerate Service)). Notwithstanding anything else contained herein, the Variable Rate shall not in any event exceed the lesser of (i) 15% per annum or (ii) the maximum rate permitted by law. "Variable Rate Period" means that period during which the Bonds bear interest at a Variable Rate. "Variable Rate Purchase Date" means while the Bonds bear interest at the Variable Rate, any Business Day (prior to or upon the effective date of the Fixed Interest Rate) on which the Bonds may be tendered for purchase at the option of the Registered Owner or Beneficial Owner thereof, in accordance with Section 203 hereof, which date shall be a date at least seven days after the date of delivery of the Optional Tender Notice. Section 1012. Rules of Construction. 33 35 (a) Words of the masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders. Unless the context shall otherwise indicate, the words "Bond", "Registered Owners", and "person" shall include the plural as well as the singular number; the word "person" shall include any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. (b) Words importing the redemption or calling for redemption of the Bonds shall not be deemed to refer to or connote payment of Bonds at their stated maturity. (c) The Table of Contents, captions and headings in this Indenture are for convenience only and in no way limit the scope or intent of any provision or section of this Indenture. (d) All references herein to particular articles or sections are references to articles or sections of this Indenture unless some other reference is indicated. (e) All references herein to the Code or any particular provision or section thereof shall be deemed to refer to any successor, or successor provisions or section, thereof, as the case may be. (f) All references herein to time shall be Eastern time. Every "request", "requisition", "order", "demand", "application", "notice", "statement", "certificate", "consent", "instruction", or similar action shall, unless the form thereof is specifically provided herein, be in writing, and in case of the Issuer signed by an Issuer Representative or in the case of a Credit Facility Issuer, signed by its president or by a vice president, secretary or treasurer, or other officers serving in similar capacities or specifically authorized to execute such writing on behalf of the Credit Facility Issuer. Whenever in this Indenture the Trustee or Responsible Officer of the Trustee is required or permitted to "know" of the existence of certain facts in connection with the exercise of the Trustee's duties hereunder, unless otherwise provided herein, such statements shall mean that no information has come to the attention of the Trustee or the Responsible Officer that gives such person current actual acknowledge of the existence of such facts, without a duty to investigate or determine the existence of such facts. 34 36 ARTICLE II The Bonds Section 1021. Amount, Terms, and Issuance of Bonds. The Bonds shall be limited to $24,700,000 in aggregate principal amount and shall contain substantially the terms recited in the form of Bond above and as set forth in this Indenture. No Bonds may be issued under this Indenture except in accordance with this Article II. No additional bonds shall be issued under this Indenture. The Issuer may cause a copy of the text of the opinion of Bond Counsel delivered in connection with the issuance of the Bonds to be printed on any of the Bonds. The Bonds may bear such endorsement or legend satisfactory to the Trustee as may be required to conform to usage or law with respect thereto, including the imposition of CUSIP or other identifying numbers. Upon satisfaction of the conditions set forth in Section 214 hereof, the Issuer shall issue the Bonds, and the Trustee shall, at the Issuer's request, authenticate the Bonds and deliver them as specified in the request. Section 1022. Designation, Denominations, Maturity, Dates and Interest Rates of the Bonds. (a) Designation, Denominations, Maturity, Dates. The Bonds shall be designated "Corrections Corporation of America Detention Center Revenue Bonds, Series 1996." The Bonds shall be issuable as fully registered Bonds in the denomination of $100,000 or any integral multiple of $5,000 in excess thereof, provided that if less than $100,000 principal amount of Bonds is outstanding only one Bond shall be issued in such smaller denomination. Except when only one Bond remains outstanding, no amount of Bonds may be tendered, retained or redeemed under the terms of this Indenture which would result in the ownership of Bonds in denominations other than approved hereunder. All Bonds shall bear the date of their authentication, shall bear interest from the most recent date to which interest has been paid or duly provided for or, if authenticated on an Interest Payment Date, from that date, or if no interest has been paid or duly provided for, from the original date of authentication, and shall mature, subject to prior redemption as provided in Article VII hereof, on December 1, 2015. (b) Interest Rates. The Bonds shall bear interest at the applicable rate provided below. On each Interest Payment Date, interest accrued through the day immediately preceding such Interest Payment Date shall be payable. While the Bonds bear interest at a Variable Rate, interest on the Bonds shall be computed on the basis of a year of 365 or 366 days, as applicable (except in the case of a LIBOR rate, in which event interest will be computed on the basis of a 360 day year), for the number of days 35 37 actually elapsed, and from and including the Conversion Date, and thereafter, interest on the Bonds shall be computed on the basis of a 360-day year of twelve equal months of 30 days each. (c) Initial Interest Rate. For the Initial Rate Period, the Bonds shall bear interest at the Initial Interest Rate. (d) Variable Rate. Following the Initial Rate Period and until the Conversion Date, the Bonds shall bear interest at the Variable Rate. During the Variable Rate Period, the Remarketing Agents shall determine the Variable Rate for the Bonds on each Determination Date. First Union National Bank of North Carolina (Capital Markets Group), acting for the Remarketing Agents, shall give telephonic notice on the Determination Date to the Trustee of the Variable Rate to be in effect for the next succeeding Calculation Period. The determination of the Variable Rate by the Remarketing Agents shall be conclusive and binding upon the Registered Owners, the Issuer, the Trustee, the Tender Agent and the Remarketing Agents. (e) Fixed Rate; Conversion to Fixed Rate. (1) At the election of the Issuer, the Bonds shall bear interest at the Fixed Rate from and after any Interest Payment Date following compliance by the Issuer with the provisions of this Section 202(e). The Fixed Rate shall be established after delivery by the Issuer to the Trustee, the Credit Facility Issuer, the Tender Agent and the Remarketing Agents of: (i) a notice to the effect that the interest rate on the Bonds shall become fixed on the Conversion Date specified in such notice, which notice shall designate the Placement Agents and state whether or not a Credit Facility will be in effect after the Conversion Date and, if so, the name of the Credit Facility Issuer, and (ii) an agreement between the Placement Agents and the Issuer concerning the placement of the Bonds at the Fixed Rate. Such notice must be delivered not less than 30 nor more than 60 days prior to the Conversion Date. (2) At least 25 days prior to the proposed Conversion Date, the Placement Agents shall determine the Preliminary Fixed Rate as of such date and shall notify the Trustee of the Preliminary Fixed Rate by telephone, telecopier, telex, telegram or other telecommunication device and shall confirm such notice in writing. (3) Upon receipt of notice of the Preliminary Fixed Rate, the Trustee shall, as soon as practicable (but in no event more than three Business Days thereafter), mail, in the name of the Issuer, a notice to the Owners of the Bonds, which notice shall be in the form attached hereto as Exhibit A. (4) All Bonds whether or not tendered shall be deemed to have been tendered to the Tender Agent on the Conversion Date. The 36 38 Registered Owner shall not be entitled to any payment (including any interest to accrue subsequent to the Conversion Date) other than the purchase price for such Bonds which shall be equal to the unpaid principal amount of and accrued interest payable on such Bonds, and any such Bonds shall no longer be entitled to the benefits of this Indenture, except for the purpose of payment of the purchase price therefor and interest payable on the Conversion Date. Payment of the purchase price of any such Bonds shall be made only upon the presentment and surrender of such Bonds to the Tender Agent. Upon request, the Trustee shall provide the Tender Agent with the address set forth on the Bond Register (as hereinafter defined) for such Registered Owner. (5) On the Conversion Date the Fixed Rate shall be established as follows: (i)if the Placement Agents shall have arranged for the sale of any or all Tendered Bonds at a price equal to the principal amount thereof, the Fixed Rate shall be equal to the interest rate or rates at which such Bonds were sold by the Placement Agents, provided that all Tendered Bonds shall be sold at par and at a rate greater than or equal to the Preliminary Fixed Rate; or (ii)if the Placement Agents shall have arranged for the sale of none of the Tendered Bonds, the Fixed Rate shall be equal to the Preliminary Fixed Rate. (6) If, for any reason, the Fixed Rate is held to be invalid or unenforceable by a court of competent jurisdiction, the Fixed Rate will be the lesser of (i) 200 basis points over the yield on the then current 30 year U.S. Treasury securities and (ii) the Maximum Rate. Notwithstanding anything to the contrary contained herein or in this Indenture, the Fixed Rate and the Preliminary Fixed Rate shall in no event be a rate of interest in excess of the maximum rate permitted by law. (7) The Fixed Rate shall be computed on the basis of a 360-day year of twelve equal months of 30 days each, and interest on the Bonds shall be payable on each Interest Payment Date after the Conversion Date until the principal of, and premium, if any, and interest on the Bonds shall have been paid in full. (8) Upon the determination of the Fixed Rate, the Trustee shall give notice of the same as soon as practicable (but in no event more than two Business Days thereafter) to the Registered Owners of Bonds. 37 39 (9) On or before the Conversion Date, all Bonds shall be presented to the Trustee for stamping or otherwise noting thereon of the legend: "The interest rate on this Bond has been fixed at ______% per annum in accordance with the provisions of this Bond and Section 202(e) of this Indenture." Section 1023. Optional Tender Provisions of the Bonds. (a) While the Bonds bear interest at the Variable Rate, any Bond or portion thereof in an authorized denomination shall be purchased on the demand of the Registered Owner thereof, on any Business Day at a purchase price equal to 100% of the principal amount thereof plus accrued interest to the purchase date, if the Registered Owner of such Bond delivers to the Tender Agent at its address filed with the Trustee an Optional Tender Notice at least seven (7) days prior to the purchase date specified in such Optional Tender Notice. (b) Any Optional Tender Notice delivered pursuant to the preceding paragraph shall automatically constitute: (i) an irrevocable offer to sell such Bond on the Variable Rate Purchase Date at a price equal to 100% of the principal amount of such Bond plus accrued interest to the Variable Rate Purchase Date; and (ii) an irrevocable authorization and instruction to the Bond Registrar to effect transfer of such Bond to the purchaser thereof on the Variable Rate Purchase Date. No purchase of Bonds pursuant to the provisions of this Section 203 shall be deemed a redemption thereof. (c) Unless the Bonds are being held pursuant to a book-entry system as provided in Section 206 hereof, any Registered Owner who delivers an Optional Tender Notice pursuant to this Section 203 shall deliver such Bond to the Tender Agent, at its address filed with the Trustee, not less than five days prior to the Variable Rate Purchase Date specified in the aforesaid Optional Tender Notice. All Bonds delivered to the Tender Agent pursuant to this Section 203 must be duly endorsed for transfer in blank in form satisfactory to the Trustee. (d) If a Registered Owner who gives the Optional Tender Notice shall fail to deliver the Bond or Bonds identified in the Optional Tender Notice to the Tender Agent at or prior to 10:00 a.m. on the Variable Rate Purchase Date, such Undelivered Bond shall be purchased and shall cease to accrue interest on such Variable Rate Purchase Date and the Registered Owner thereof shall thereafter be entitled only to payment of the purchase price therefor and to no other benefits of this Indenture, and the Issuer, to the extent permitted by law, shall execute and the Trustee or the Authenticating Agent shall authenticate and deliver a substitute Bond or Bonds in lieu of the Undelivered Bond and the 38 40 Bond Registrar shall register such Bond in the name of the purchaser or purchasers thereof pursuant to Section 205 hereof. The Tender Agent shall notify the Trustee and the Bond Registrar of any Undelivered Bonds. The Trustee shall (i) notify the Remarketing Agents of such Undelivered Bonds and (ii) place a stop transfer order against such Undelivered Bonds until the Undelivered Bonds are properly delivered to the Tender Agent. Upon notice of such delivery, the Bond Registrar shall make any necessary adjustment to the Bond Register. (e) Notwithstanding anything to the contrary contained herein, the rights of the Registered Owners to tender Bonds pursuant to this Section 203 shall cease immediately and without further notice from and including the date payment of the Bonds is accelerated following an Event of Default pursuant to Article IX hereof. Section 1024. Registered Bonds Required, Bond Registrar and Bond Register. All Bonds shall be issued in fully registered form. The Bonds shall be registered upon original issuance and upon subsequent transfer or exchange as provided in this Indenture. The Issuer shall designate one or more persons to act as "Bond Registrar" for the Bonds provided that the Bond Registrar appointed for the Bonds shall be either the Trustee or a person which would meet the requirements for qualification as a successor trustee imposed by Section 1011 hereof. The Issuer hereby appoints Liberty Bank and Trust Company of Tulsa, National Association as its Bond Registrar in respect of the Bonds. Any person other than the Trustee undertaking to act as Bond Registrar shall first execute a written agreement, in form satisfactory to the Trustee, to perform the duties of a Bond Registrar under this Indenture, which agreement shall be filed with the Trustee and the Tender Agent. The Bond Registrar shall act as registrar and transfer agent for the Bonds. There shall be kept at an office of the Bond Registrar a register (herein sometimes referred to as the "Bond Register") in which, subject to such reasonable regulations as the Issuer, the Trustee or the Bond Registrar may prescribe, there shall be provisions for the registration of the Bonds and for the registration of transfers of the Bonds. The Issuer shall cause the Bond Registrar to designate, by a written notification to the Trustee, a specific office location (which may be changed from time to time, upon similar notification) at which the Bond Register is kept. In the absence of a specific designation by the Bond Registrar, the corporate trust office of the Trustee in Tulsa, Oklahoma shall be deemed such office in respect of the Bonds for which the Trustee is acting as Bond Registrar. Section 1025. Transfer and Exchange. Subject to the provisions of Section 206 below, the following provisions shall be applicable to all transfers and exchanges of Bonds. Upon surrender 39 41 for transfer of any Bond at the office of the Bond Registrar, the Issuer shall execute and the Trustee or its Authenticating Agent shall authenticate and deliver in the name of the transferee or transferees, one or more new fully registered Bonds of authorized denomination in the aggregate principal amount which the Registered Owner is entitled to receive; provided that if monies for the purchase of such Bond have been provided pursuant to a draw under the Credit Facility, such Bond shall not be transferable to anyone other than the Issuer or its assignee or pledgees upon written instructions of the Issuer. Except for transfers in connection with the purchase of Bonds pursuant to Section 203 and 701(e) and the remarketing thereof pursuant to Article III, which shall be effected at the office of the Tender Agent, Bonds shall be surrendered for transfer at the corporate trust office of the Trustee in Tulsa, Oklahoma. Also, the Issuer shall execute and the Trustee or its Authenticating Agent shall authenticate and deliver Bonds in lieu of Undelivered Bonds. Bonds may be exchanged for other Bonds of any other authorized denomination, of a like aggregate principal amount, upon surrender of the Bonds to be exchanged at the corporate trust office of the Bond Registrar or Trustee in Tulsa, Oklahoma; provided, however, that in connection with the purchase of Bonds tendered for purchase pursuant to Sections 203 and 701(e) and the remarketing thereof pursuant to Article III, Bonds may be exchanged at the principal office of the Tender Agent or any office of any agent designated by the Trustee. Whenever any Bonds are so surrendered for exchange, the Issuer shall execute, and the Trustee or its Authenticating Agent shall authenticate and deliver, the Bonds which the Registered Owner making the exchange is entitled to receive. All Bonds presented for transfer, exchange, redemption or payment (if so required by the Issuer, the Bond Registrar or the Trustee), shall be accompanied by a written instrument or instruments of transfer or authorization for exchange, in form satisfactory to the Bond Registrar, which may include a signature guarantee, duly executed by the Registered Owner or by his attorney duly authorized in writing. No service charge shall be made to a Registered Owner for any exchange or transfer of Bonds, but the Issuer or the Bond Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto. Except in connection with the purchase of Bonds pursuant to Sections 203 and 701(e) hereof and the remarketing thereof pursuant to Article III, neither the Issuer nor any Bond Registrar on behalf of the Issuer shall be required to issue, transfer or exchange any Bond selected for redemption in whole or in part or to issue, transfer or exchange any of the Bonds during the period of ten days preceding the date a notice of redemption is sent. 40 42 New Bonds delivered upon transfer or exchange shall be valid obligations of the Issuer, evidencing the same debt as the Bonds surrendered, shall be secured by this Indenture and shall be entitled to all of the security and benefits hereof to the same extent as the Bonds surrendered. Section 1026. Book-Entry System. The Issuer may make appropriate arrangements for the Bonds (or any portion thereof) to be issued or held by means of a book-entry system administered by DTC with no physical distribution of Bonds made to the public (other than those Bonds, if any, not held under such book-entry system). References in this Section 206 to a Bond or the Bonds shall be construed to mean the Bond or the Bonds that are held under the book-entry system. In such event, one Bond of each maturity shall be issued to DTC and immobilized in its custody. A book-entry system shall be employed, evidencing ownership of the Bonds in Authorized Denominations, with transfers of beneficial ownership effected on the records of DTC and the DTC Participants pursuant to rules and procedures established by DTC. Each DTC Participant shall be credited in the records of DTC with the amount of such DTC Participant's interest in the Bonds. Beneficial ownership interests in the Bonds may be purchased by or through DTC Participants. The holders of these beneficial ownership interests are hereinafter referred to as the "Beneficial Owners." The Beneficial Owners shall not receive Bonds representing their beneficial ownership interests. The ownership interests of each Beneficial Owner shall be recorded through the records of the DTC Participant from which such Beneficial Owner purchased its Bonds. Transfers of ownership interests in the Bonds shall be accomplished by book entries made by DTC and, in turn, by DTC Participants acting on behalf of Beneficial Owners. SO LONG AS CEDE & CO., AS NOMINEE FOR DTC, IS THE REGISTERED OWNER OF THE BONDS, THE TRUSTEE SHALL TREAT CEDE & CO. AS THE ONLY HOLDER OF THE BONDS FOR ALL PURPOSES UNDER THIS INDENTURE, INCLUDING RECEIPT OF ALL PRINCIPAL OF, PREMIUM, IF ANY, AND INTEREST ON THE BONDS, RECEIPT OF NOTICES, VOTING AND REQUESTING OR DIRECTING THE TRUSTEE TO TAKE OR NOT TO TAKE, OR CONSENTING TO, CERTAIN ACTIONS UNDER THIS INDENTURE. Payments of principal, interest, premium, if any, and purchase price with respect to the Bonds, so long as DTC is the only owner of the Bonds, shall be paid by the Trustee directly to DTC or its nominee, Cede & Co. as provided in the Letter of Representation from the Issuer, the Remarketing Agents and the Trustee and as Tender Agent and Paying Agent to DTC (the "Letter of Representation") with respect to the Bonds. DTC shall remit such payments to DTC Participants, and such payments thereafter shall be paid by DTC Participants to the Beneficial Owners. The Issuer, the Tender Agent and the Trustee shall not be responsible or liable for payment by DTC or DTC Participants, for sending transaction 41 43 statements or for maintaining, supervising or reviewing records maintained by DTC or DTC Participants. In the event that DTC determines not to continue to act as securities depository for the Bonds, the Issuer shall, at the request of the Trustee, discontinue the book-entry system with DTC with respect to the Bonds. If the Issuer fails to identify another qualified securities depository to replace DTC, the Trustee shall authenticate and deliver replacement Bonds in the form of fully registered Bonds to each Beneficial Owner upon the receipt of instructions from the Issuer. THE ISSUER, THE REMARKETING AGENTS, THE TENDER AGENT AND THE TRUSTEE SHALL NOT HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO ANY DTC PARTICIPANT OR ANY BENEFICIAL OWNER WITH RESPECT TO (i) THE BONDS; (ii) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT; (iii) THE PAYMENT BY DTC OR ANY DTC PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL OF, PREMIUM, IF ANY, AND INTEREST ON THE BONDS; (iv) THE DELIVERY OR TIMELINESS OF DELIVERY BY DTC OR ANY DTC PARTICIPANT OF ANY NOTICE DUE TO ANY BENEFICIAL OWNER THAT IS REQUIRED OR PERMITTED UNDER THE TERMS OF THIS INDENTURE TO BE GIVEN TO BENEFICIAL OWNERS; (v) THE SELECTION OF BENEFICIAL OWNERS TO RECEIVE PAYMENTS IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (vi) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC, OR ITS NOMINEE, CEDE & CO., AS OWNER. In the event that a book-entry system of evidence and transfer of ownership of the Bonds is discontinued pursuant to the provisions of this Section, the Bonds shall, at the expense of the Issuer, be delivered solely as fully registered Bonds without coupons in the Authorized Denominations, shall be lettered "R" and numbered separately from 1 upward, and shall be payable, executed, authenticated, registered, exchanged and canceled pursuant to the provisions hereof. The Issuer shall not be limited to utilizing a book-entry system maintained by DTC but may enter into a custody agreement with any bank or trust company serving as custodian (which may be the Trustee serving in the capacity of custodian) to provide for a book-entry or similar method for the registration and registration of transfer of all or a portion of the Bonds. SO LONG AS A BOOK-ENTRY SYSTEM OF EVIDENCE OF TRANSFER OF OWNERSHIP OF ALL THE BONDS IS MAINTAINED IN ACCORDANCE HEREWITH, THE PROVISIONS OF THIS INDENTURE RELATING TO THE DELIVERY OF PHYSICAL BOND CERTIFICATES WITH RESPECT TO THE BONDS SHALL BE DEEMED INAPPLICABLE OR BE OTHERWISE SO CONSTRUED AS TO GIVE FULL EFFECT TO SUCH BOOK-ENTRY SYSTEM. Section 1027. Execution. The Bonds shall be executed by the manual or facsimile signature of the Chairman and Chief Executive Officer of the Issuer, and the seal of the Issuer shall be affixed, 42 44 imprinted, lithographed or reproduced thereon and shall be attested by the manual or facsimile signature of the Secretary of the Issuer. Bonds executed as above provided may be issued and shall, upon request of the Issuer, be authenticated by the Trustee or the Authenticating Agent, notwithstanding that any officer signing such Bonds or whose facsimile signature appears thereon shall have ceased to hold office at the time of issuance or authentication or shall not have held office at the date of the Bond. Section 1028. Authentication; Authenticating Agent. No Bond shall be valid for any purpose until the Trustee's Certificate of Authentication thereon shall have been duly executed as provided in this Indenture, and such authentication shall be conclusive proof that such Bond has been duly authenticated and delivered under this Indenture and that the Registered Owner thereof is entitled to the benefit of the trust hereby created, subject to the provisions of Section 202(e)(4), Section 203(d) and Article XIV hereof. If the Bond Registrar is other than the Trustee, the Trustee may appoint the Bond Registrar as an Authenticating Agent with the power to act on the Trustee's behalf and subject to its direction in the authentication and delivery of Bonds in connection with transfers and exchanges under Section 205 hereof, and the authentication and delivery of Bonds by an Authenticating Agent pursuant to this Section shall, for all purposes of this Indenture, be deemed to be the authentication and delivery "by the Trustee." The Trustee shall, however, itself authenticate all Bonds upon their initial issuance. The Authenticating Agent may authenticate Bonds in substitution for Undelivered Bonds as provided in Section 303(c) hereof. The Authenticating Agent shall be entitled to reasonable compensation from the Issuer for its services. Any corporation into which any Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, consolidation or conversion to which any Authenticating Agent shall be a party, or any corporation succeeding to the corporate trust business of any Authenticating Agent, shall be the successor of the Authenticating Agent hereunder, if such successor corporation is otherwise eligible as a Bond Registrar under Section 204, without the execution or filing of any further document on the part of the parties hereto or the Authenticating Agent or such successor corporation. Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee, the Issuer and the Remarketing Agents. The Trustee may at any time terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent and the Issuer. Upon receiving such a notice of resignation or upon such a termination, 43 45 or in case at any time any Authenticating Agent shall cease to be eligible under this Section, the Trustee shall promptly appoint a successor Authenticating Agent, shall give written notice of such appointment to the Issuer, and shall mail notice of such appointment to all Registered Owners of Bonds as the names and addresses of such Registered Owners appear on the Bond Register. Section 1029. Payment of Principal and Interest; Interest Rights Preserved. The principal and redemption price of any Bond shall be payable, upon surrender of such Bond, at the corporate trust office of the Trustee in Tulsa, Oklahoma. Interest on each Interest Payment Date shall be payable by check, mailed on the Interest Payment Date to the address of the person entitled thereto on the Regular Record Date or, if applicable, the Special Record Date, as such address shall appear in the Bond Register. Interest shall also be payable, at the Registered Owner's expense, by wire transfer to any Registered Owner of Bonds in the principal amount of $1,000,000 or more at the written request of the Registered Owner received by the Trustee at least five days prior to the Regular Record Date or Special Record Date. If the Interest Payment Date is not a Business Day, interest shall be mailed or sent by wire transfer on the next succeeding Business Day as if made on the Interest Payment Date. Interest on any Bond which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the person in whose name that Bond is registered at the close of business on the Regular Record Date for such interest. Any interest on any Bond which is payable, but is not punctually paid or provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Registered Owner of such Bonds on the relevant Regular Record Date solely by virtue of such Registered Owner having been such Registered Owner on the Regular Record Date, and such Defaulted Interest shall be paid, pursuant to Section 911 hereof, to the person in whose name the Bond is registered at the close of business on a Special Record Date to be fixed by the Trustee, such date to be not more than 15 nor less than 10 days prior to the date of proposed payment. The Trustee shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first class postage prepaid, to each Registered Owner, at its address as it appears in the Bond Register, not less than 10 days prior to such Special Record Date. Subject to the foregoing provisions of this Section 209, each Bond delivered under this Indenture upon transfer of or exchange for or in lieu of any other Bond shall carry the rights to interest accrued and unpaid, and to accrue, on such other Bond. 44 46 Section 210. Persons Deemed Owners. The Issuer, the Trustee, the Bond Registrar and the Authenticating Agent may deem and treat the person in whose name any Bond is registered as the absolute owner thereof (whether or not such Bond shall be overdue and notwithstanding any notation of ownership or other writing thereon made by anyone other than the Issuer, the Trustee, the Bond Registrar or the Authenticating Agent) for the purpose of receiving payment of or on account of the principal of (and premium, if any, on), and (subject to Section 209) interest on such Bond, and for all other purposes, and neither the Issuer, the Trustee, the Bond Registrar, nor the Authenticating Agent shall be affected by any notice to the contrary. All such payments so made to any such Registered Owner, or upon his order, shall be valid and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Bond. Section 211. Mutilated, Destroyed, Lost, Stolen or Undelivered Bonds. If any Bond shall become mutilated, the Issuer shall execute, and the Trustee or its Authenticating Agent shall thereupon authenticate and deliver, a new Bond of like tenor and denomination in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of such mutilated Bond for cancellation, and the Issuer and the Trustee may require reasonable indemnity therefor. If any Bond shall be reported lost, stolen or destroyed, evidence as to the loss, theft or destruction thereof shall be submitted to the Issuer and the Trustee; and if such evidence shall be satisfactory to both and indemnity satisfactory to both shall be given, the Issuer shall execute, and thereupon the Trustee or its Authenticating Agent shall authenticate and deliver, a new Bond of like tenor and denomination. The cost of providing any substitute Bond under the provisions of this Section shall be borne by the Registered Owners for whose benefit such substitute Bond is provided. If any such mutilated, lost, stolen or destroyed Bond shall have matured or be about to mature, the Issuer may, with the consent of the Trustee, pay to the Registered Owner the principal amount of such Bond upon the maturity thereof and the compliance with the aforesaid conditions by such Registered Owner, without the issuance of a substitute Bond therefor. Every substitute Bond issued pursuant to this Section 211 shall constitute an additional contractual obligation of the Issuer, whether or not the Bond alleged to have been destroyed, lost or stolen shall be at any time enforceable by anyone, and shall be entitled to all of the benefits of this Indenture equally and proportionately with any and all other Bonds duly issued hereunder. All Bonds shall be held and owned upon the express condition that the foregoing provisions are, to the extent permitted by law, exclusive with respect to the replacement or payment of mutilated, 45 47 destroyed, lost, stolen or undelivered Bonds and shall preclude any and all other rights or remedies. Section 212. Temporary Bonds. Pending preparation of definitive Bonds, or by agreement with the purchasers of all Bonds, the Issuer may issue, and, upon request, the Trustee shall authenticate, in lieu of definitive Bonds one or more temporary printed or typewritten Bonds of substantially the tenor recited above in any denomination authorized under Section 202. Upon request of the Issuer, the Trustee shall authenticate definitive Bonds in exchange for and upon surrender of an equal principal amount of temporary Bonds. Until so exchanged, temporary Bonds shall have the same rights, remedies and security hereunder as definitive Bonds. Section 213. Cancellation of Surrendered Bonds. Bonds surrendered for payment, redemption, transfer or exchange and Bonds surrendered to the Trustee by the Issuer for cancellation shall be cancelled by the Trustee and a certificate evidencing such cancellation shall be furnished by the Trustee to the Issuer from time to time upon request. Bonds purchased pursuant to Sections 203 and 701(e) shall not be surrendered Bonds and, unless otherwise specifically provided in this Indenture, shall be Outstanding Bonds. Section 214. Conditions of Issuance. Prior to or simultaneously with the authentication and delivery of the Bonds by the Trustee, the Trustee shall have received written notice from the Bank that the conditions for the issuance of the Letter of Credit as set forth in Article VII of the Reimbursement Agreement have been satisfied and there shall be filed with the Trustee the following: (a) A copy, certified by the Secretary of the Issuer, of a resolution of the Board authorizing the issuance of the Bonds, awarding the Bonds and directing the authentication and delivery of the Bonds to or upon the order of certain purchaser(s) upon payment of the purchase price therein set forth. (b) The original executed Letter of Credit. (c) The original executed Reimbursement Agreement, the Tender Agency Agreement, the Remarketing Agreement, the Letter of Representation, the Mortgage and executed counterparts of this Indenture. (d) An opinion of Counsel for the Issuer to the effect that (i) the execution and delivery of this Indenture have been duly authorized by the Issuer, that this Indenture is in substantially the form so authorized and has been duly executed by the Issuer and that, assuming proper authorization and execution of this Indenture by the Trustee, this Indenture is the valid, binding and 46 48 enforceable agreement of the Issuer in accordance with its terms subject to the qualification that enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and the provisions on indemnification may be limited and limitations imposed by general principles of equity upon specific enforcement, injunctive relief or other equitable remedies and (ii) the issuance of the Bonds and the execution of this Indenture have been duly and validly authorized by the Issuer, that all conditions precedent to the delivery of the Bonds have been fulfilled and that the Bonds and this Indenture are valid and binding agreements of the Issuer in accordance with their terms. (e) An opinion of Counsel to the Issuer to the effect that the execution and delivery of the Reimbursement Agreement, the Remarketing Agreement and the Tender Agency Agreement have been duly authorized by the Issuer, that the Reimbursement Agreement, the Remarketing Agreement and the Tender Agency Agreement have been duly executed and delivered by the Issuer, and that the Reimbursement Agreement, the Remarketing Agreement, and the Tender Agency Agreement, assuming due authorization, execution and delivery thereof by the other parties thereto, if any, are valid, binding and enforceable against the Issuer in accordance with their terms, subject to the qualification that enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting enforcement of creditors' rights generally and the provisions on indemnification may be limited and limitations imposed by general principles of equity upon specific enforcement, injunctive relief or other equitable remedies. (f) A title insurance policy satisfactory to the Credit Facility Issuer. (g) Evidence satisfactory to the Credit Facility Issuer that the insurance policies required by Section 808 of this Indenture have been obtained and are in effect. When the documents mentioned in clauses (a) through (g) of this Section shall have been filed with the Trustee and when the Bonds shall have been executed as required by this Indenture, the Trustee shall, upon receipt of a letter of instructions to do so, authenticate the Bonds and deliver them to or upon the order of the purchaser(s), but only upon payment to the Trustee for the account for the Issuer of the purchase price of the Bonds. The Trustee shall be entitled to rely conclusively upon such resolution or resolutions, or documents approved thereby, as to the name of the purchasers and the amount of such purchase price. Simultaneously with the delivery of the Bonds, the Trustee shall apply the proceeds of the Bonds in accordance with Article IV of this Indenture. 47 49 ARTICLE III Purchase and Remarketing of Tendered Bonds Section 1031. Remarketing of Tendered Bonds. (a) Not later than the close of business on the date the Tender Agent receives an Optional Tender Notice, the Tender Agent shall notify the Remarketing Agents and the Issuer by telephone, telex or telecopier, confirmed in writing if requested, specifying the Variable Rate Purchase Date and the aggregate principal amount of Bonds to be purchased on the Variable Rate Purchase Date pursuant to such Optional Tender Notices. (b) Not later than the close of business on the 10th day prior to the Conversion Date, the Trustee shall notify the Placement Agents and the Issuer by telephone, telex or telecopier, confirmed in writing if requested, specifying the aggregate principal amount of Bonds deemed tendered for mandatory purchase on the Conversion Date. (c) Except as provided in paragraph (d) below and Section 305, upon receipt by the Remarketing Agents of notice from the Tender Agent pursuant to Section 301(a) hereof and by the Placement Agents of notice from the Trustee pursuant to Section 301(b) hereof, the Remarketing Agents or the Placement Agents, as the case may be, shall use their respective best efforts to arrange for the sale, at par plus accrued interest, if any, of such Bonds for settlement on the Variable Rate Purchase Date or Conversion Date, respectively. At or before 4:00 p.m. on the Business Day preceding the Variable Rate Purchase Date or Conversion Date, the Remarketing Agents or the Placement Agents, respectively, shall give notice by telephone, telecopier or telex, promptly confirmed in writing if requested, to the Trustee and the Tender Agent specifying the principal amount of such Bonds, if any, to be placed by it and to the Tender Agent and Bond Registrar the names, addresses and social security numbers or other tax identification numbers of the proposed purchasers thereof. (d) Notwithstanding the provisions of paragraph (c) above, any Bond purchased pursuant to the terms of this Indenture from the date notice of redemption or conversion is given shall not be remarketed except to a buyer who agrees at the time of such purchase to tender such Bond for redemption or purchase on the redemption or purchase date. (e) During the Variable Rate Period, the Remarketing Agents shall continue to use their best efforts to arrange for the sale, at the best price available, but not less than the principal amount thereof plus accrued interest, of any Bonds purchased with moneys advanced under the Credit Facility pursuant to Section 302(a)(2) hereof; provided that Bonds purchased with moneys advanced under 48 50 the Credit Facility shall not be resold unless the Credit Facility has been reinstated by the amount drawn thereunder to pay the purchase price for such Bonds or will be concurrently reinstated by such amount from the proceeds of such sale upon delivery to the Credit Facility Issuer of the proceeds of such sale and any reinstatement certificate required by such Credit Facility Issuer. Section 1032. Purchase of Bonds Delivered to Tender Agent. (a) There is hereby established with the Tender Agent a Bond Purchase Fund out of which the purchase price for Bonds tendered for purchase on a Variable Rate Purchase Date, the Conversion Date or on such other date on which Bonds are remarketed shall be paid. There are hereby established in the Bond Purchase Fund two separate and segregated accounts, to be designated the "Remarketing Account" and the "Bank Account." Funds received from purchasers of Tendered Bonds (other than the Credit Facility Issuer or the Issuer) shall be deposited by the Remarketing Agents or the Placement Agents, as the case may be, in the Remarketing Account. At or prior to 10:00 a.m. on each Variable Rate Purchase Date or the Conversion Date, the Remarketing Agents or the Placement Agents, as the case may be, shall deliver to the Tender Agent for deposit in the Remarketing Account of the Bond Purchase Fund immediately available funds, payable to the order of the Tender Agent, in an amount equal to the purchase price of the Bonds to be delivered to the Tender Agent that have been remarketed by the Remarketing Agents or placed by the Placement Agents as specified in the notice delivered pursuant to Section 301(c) hereof and shall verify that such Bonds were not remarketed to the Credit Facility Issuer or the Issuer. Funds, if any, drawn by the Trustee under the Credit Facility pursuant to Section 302(b) below in an amount equal to the aggregate purchase price of Bonds tendered for purchase less the amount available in the Remarketing Account shall, at the direction of the Trustee, be delivered by the Credit Facility Issuer to the Tender Agent for deposit in the Bank Account of the Bond Purchase Fund. On each Variable Rate Purchase Date and on the Conversion Date, the Tender Agent shall effect the purchase, but only from the funds listed below, from the Registered Owners of such Bonds as are tendered or deemed tendered at a purchase price equal to the principal amount thereof, plus accrued interest, if any, to the date of purchase and such payment shall be made in immediately available funds. Funds for the payment of such purchase price shall be derived from the following sources in the order of priority indicated: (1) proceeds of the remarketing of such Bonds pursuant to Section 301(c) hereof which constitute Available Moneys; (2) moneys furnished by the Trustee to the Tender Agent representing proceeds of a drawing by the Trustee under the Credit Facility; and 49 51 (3) any other moneys available for such purposes. (b) The Tender Agent shall advise the Trustee by telex or telecopier and shall advise the Credit Facility Issuer by telephone, in each case no later than 10:00 a.m., on each Variable Rate Purchase Date or the Conversion Date, as the case may be, of the amount of any drawing under the Credit Facility necessary to make full and timely payments hereunder. The Trustee shall promptly (and in no event later than 11:00 a.m.) take all action necessary to draw on the Credit Facility the specified amount and shall direct that all amounts from a drawing under the Credit Facility be delivered directly to the Tender Agent and held by the Tender Agent in the Bank Account pending application of such moneys as provided in this Article III. The Trustee shall provide to the Tender Agent the funds referred to in clause (2) of Section 302(a) prior to the time the Tender Agent is required to apply such funds to effect the purchase of Bonds and shall notify the Tender Agent promptly after receipt of notice from the Credit Facility Issuer reinstating the Credit Facility. The Remarketing Agents shall deliver funds from the sale of Bonds held by the Credit Facility Issuer as pledgee of the Issuer pursuant to Section 301(e) to the Tender Agent for deposit in the Remarketing Account, which funds shall be promptly paid by the Tender Agent on behalf of the Issuer to the Credit Facility Issuer as reimbursement under the Reimbursement Agreement. The Tender Agent shall notify the Trustee of any such reimbursement and the Trustee shall promptly deliver to the Credit Facility Issuer any reinstatement certificate required by the Credit Facility. Section 1033. Delivery of Purchased Bonds. (a) Bonds purchased shall be delivered as follows: (1) Bonds placed by the Remarketing Agents or the Placement Agents pursuant to Section 301 hereof shall be delivered by the Tender Agent to the Remarketing Agents or the Placement Agents, as the case may be, on behalf of the purchasers thereof. (2) Bonds purchased with moneys described in Section 302(a)(2) shall be delivered to the Credit Facility Issuer as pledgee of the Issuer pursuant to the terms of the Reimbursement Agreement and the Pledge Agreement or to the Credit Facility Issuer's designee. (b) Except as otherwise set forth herein, Bonds delivered as provided in this Section 303 shall be registered by the Bond Registrar in the manner directed by the recipient thereof. (c) In the event that any Bond to be delivered to the Tender Agent is not delivered by the Registered Owner thereof on or prior to the Variable Rate Purchase Date or the Conversion Date, as the 50 52 case may be, and there has been irrevocably deposited with the Tender Agent an amount sufficient to pay the purchase price thereof, which amount may be held by the Tender Agent in a non-interest bearing account, the Issuer shall execute and the Trustee or its Authenticating Agent shall authenticate and deliver a substitute Bond in lieu of the Undelivered Bond and the Bond Registrar shall register such Bond in the name of the purchaser thereof, and the Owner of such Undelivered Bond shall have no further rights under this Indenture, other than the right to receive the purchase price of such Undelivered Bond. (d) Notwithstanding the foregoing, Bonds purchased with funds identified in Section 302(a)(2) hereof shall be held by the Credit Facility Issuer or the Tender Agent and shall not be delivered to subsequent purchasers thereof or any other person until the Trustee has notified the Tender Agent that the Credit Facility has been reinstated to the extent of the purchase price of such Bonds. Section 1034. Delivery of Proceeds of Sale of Remarketed Bonds. The proceeds of the placement by the Remarketing Agents of any Bonds delivered to the Tender Agent or by the Placement Agents of Bonds tendered or deemed tendered on the Conversion Date shall be paid first, to the tendering Registered Owners of such Bonds; second, to the Credit Facility Issuer, to the extent of any amounts drawn under the Credit Facility in connection with the payment of the purchase price for such Bonds and not reimbursed to the Credit Facility Issuer as of the time of sale of such Bonds; and third, to the Issuer. Section 1035. No Remarketing After Certain Events. Anything in this Indenture to the contrary notwithstanding, there shall be no remarketing of Bonds pursuant to this Article III after the principal of the Bonds shall have been accelerated pursuant to Section 902 hereof. 51 53 ARTICLE IV Project Fund Section 1041. Creation of and Deposits to the Project Fund. (a) A special fund is hereby created and designated "Detention Center Revenue Bonds, Series 1996 Project Fund" (the "Project Fund") to the credit of which such deposits shall be made as are required by the provisions of this Indenture. Any moneys received by the Issuer or by the Trustee as trustee under this Indenture from any source for payment of the Costs of the Project, including all proceeds of the sale of the Bonds (other than $775,784.76 from the proceeds of the Bonds pursuant to Section 502(b)(i) and insurance and condemnation proceeds, as provided in Sections 809 and 810 hereof, shall be deposited to the credit of the Project Fund. (b) The moneys in the Project Fund shall be held by the Trustee in trust and, subject to the provisions of Section 405 and 902 of this Indenture, shall be applied to the payment of the Costs of the Project and, pending such application, shall be and are hereby made subject to a lien and charge in favor of the Registered Owners of the Bonds issued and outstanding under this Indenture and for the further security of such owners until paid out or transferred as herein provided. Section 1042. Payments from the Project Fund. (a) All of the Costs of the Project shall be paid from the Project Fund. All payments from the Project Fund shall be subject to the provisions and restrictions set forth in this Article, and the Issuer covenants that it will not cause to be paid from the Project Fund any sums except in accordance with such provisions and restrictions. Such payments shall be made by the Trustee upon receipt of a requisition and certificate, signed by the Issuer Representative (substantially in the form of the Requisition and Certificate attached hereto as Exhibit B and hereby deemed incorporated herein) stating to whom the payment described is to be made and the purpose, in reasonable detail, for which the obligation to make such payment was incurred and including, if such requisition and certificate comprises an item for payment for labor or to contractors, builders or materialmen, a paragraph in the form of the last paragraph of the attached form of requisition and certificate, appropriately completed. The Issuer shall furnish to the Trustee copies of invoices relating to and substantiating any request for payment from the Project Fund. 52 54 (b) The Trustee is authorized and directed to apply the moneys in the Project Fund in accordance herewith but only upon receipt of the requisitions required by this Section 402, duly executed by the person and in the manner provided for herein. Section 1043. Trustee May Rely on Requisitions. All requisitions in the form provided by Section 402 hereof and all other statements, orders, certifications and approvals received by the Trustee, as required by this Article as conditions of payment from the Project Fund, may be conclusively relied upon by the Trustee, and shall be retained by the Trustee, subject at all reasonable times to examination by the Issuer, any Registered Owner and the agents and representatives thereof. Section 1044. Completion of Project. Upon completion of the Project and payment of all Costs of the Project, as represented in a certificate of an Issuer Representative delivered to the Trustee, the Trustee shall transfer any balance remaining in the Project Fund to the Bond Fund. Section 1045. Transfers to the Bond Fund. In the event that the Trustee shall declare the Bonds to be due and payable pursuant to Section 902 hereof, the Trustee shall, without further authorization, forthwith transfer any balance remaining in the Project Fund to the Bond Fund. Section 1046. Trustee's Records. The Trustee shall maintain adequate records for a period of at least three (3) years after the Completion Date pertaining to all disbursements from the Project Fund after which the Trustee may deliver all original records in its possession to the Issuer. After the Completion Date, the Trustee shall deliver to the Issuer an aggregate statement of activity. 53 55 ARTICLE V Revenues and Application Thereof Section 1051. Revenues to Be Paid Over to Trustee. The Issuer has caused the Revenues to be paid directly to the Trustee. If, notwithstanding these arrangements, the Issuer receives any payments under the Transferring Entity Agreements or on account of a Credit Facility with respect to the principal or redemption price of or interest on the Bonds, the Issuer shall immediately pay over the same to the Trustee to be held as Revenues. Section 1052. The Bond Fund. (a) There is hereby established with the Trustee a special fund to be designated "Detention Center Revenue Bonds, Series 1996 Bond Fund" (the "Bond Fund"), the moneys in which, in accordance with Section 502(c), the Trustee shall apply to pay (i) the principal or redemption price of Bonds as they mature or become due, upon surrender thereof, and (ii) the interest on the Bonds as it becomes payable. There are hereby established with the Trustee within the Bond Fund two separate and segregated accounts, to be designated the "Project Revenue Account" and the "Credit Facility Account." (b) There shall be deposited into the accounts of the Bond Fund from time to time the following: (i) into the Project Revenue Account, (1) $775,784.76 from the proceeds of the Bonds to pay interest with respect to Bonds estimated to become due on the initial six (6) Interest Payment Dates following the date of issuance of the Bonds, and (2) all other moneys received by the Trustee under and pursuant to the provisions of this Indenture, when accompanied by written directions from the person depositing such moneys that such moneys are to be paid into such account of the Bond Fund. All amounts deposited in the Project Revenue Account shall be segregated and held, with the earnings thereon, separate and apart from other funds in the Bond Fund until such amounts become Available Moneys. At such time as funds deposited in the Project Revenue Account become Available Moneys, they may be commingled with other Available Moneys in the Project Revenue Account; and (ii) into the Credit Facility Account, all moneys drawn by the Trustee under the Credit Facility to pay the principal or redemption price (excluding any premium) of the Bonds and interest on the Bonds. (c) Except as provided in Section 911, 1003 and 1005 hereof, moneys in the Bond Fund shall be used solely for the payment of the principal or redemption price of the Bonds and interest on the 54 56 Bonds from the following sources but only in the following order of priority: (i) moneys held in the Project Revenue Account to the extent such amounts qualify as Available Moneys; (ii) moneys drawn under the Credit Facility and held in the Credit Facility Account, provided that in no event shall moneys held in the Credit Facility Account be used to pay any amounts due on Bonds which are held by or for the Issuer, including without limitation, Bonds pledged to the Credit Facility Issuer, or to pay any portion of the redemption premiums required pursuant to Section 701(a)(ii); and (iii) any other moneys furnished to the Trustee for deposit in the Bond Fund. (d) Not later than 10:00 a.m. on the second Business Day preceding the date on which principal or redemption price of or interest on the Bonds is due and payable (the "Payment Date"), the Trustee shall have notified the Issuer and the Credit Facility Issuer of the amounts of principal and interest due on the Bonds on the Payment Date. Not later than 11:00 a.m. on each Payment Date, the Trustee shall present a draft or drafts under the Credit Facility in the amounts due and payable on the Bonds to the extent there are not Available Moneys on deposit in the Project Revenue Account. Such funds shall be wired by the Credit Facility Issuer to be deposited in the Credit Facility Account and payments due under the Bonds shall be made by the Trustee in accordance with Section 209 and Section 502(c) hereof. Following such payment to the Registered Owners, the Trustee shall, on behalf of the Issuer, promptly pay moneys on deposit in the Project Revenue Account in an amount equal to the amount of such drawing or drawings to the Credit Facility Issuer as reimbursement to the Credit Facility Issuer under the terms of the Reimbursement Agreement. So long as a Credit Facility is in effect and has not been wrongfully dishonored, no amounts are owed by the Issuer to the Credit Facility Issuer under the Reimbursement Agreement, any amounts remaining in the Project Revenue Account on the Business Day next following an Interest Payment Date shall be paid to the Issuer upon request with the consent of the Credit Facility Issuer. Section 1053. Revenues to Be Held for All Registered Owners; Certain Exceptions. Revenues shall, until applied as provided in this Indenture, be held by the Trustee in trust for the benefit of the Registered Owners of all Outstanding Bonds, except that any portion of the Revenues representing the principal or redemption price of any Bonds, and interest on any Bonds previously matured or called for redemption in accordance with Article VII of this Indenture, shall be held for the benefit of the Registered Owners of such Bonds only. 55 57 ARTICLE VI Depositaries of Moneys, Security for Deposits and Investment of Funds Section 1061. Security for Deposits. All moneys deposited with the Trustee under the provisions of this Indenture shall be held in trust and applied only in accordance with the provisions of this Indenture and shall not be subject to lien (other than the lien created hereby) or attachment by any creditor of the Trustee or the Issuer. Section 1062. Investment of Moneys. At the written request and direction of the Issuer Representative, moneys held for the credit of the Project Fund and the Bond Fund (including any amount therein) shall be invested and reinvested by the Trustee in Investment Obligations which shall mature not later than the respective dates when the moneys held for the credit of said Funds will be required for the purposes intended, provided that moneys held in the Credit Facility Account of the Bond Fund shall be invested and reinvested by the Trustee only in Government Obligations which shall mature not later than the date on which such moneys will be required to be paid; provided further that such investment shall only be made at the written direction of the Issuer Representative. The Trustee shall be entitled to rely on instructions from the Issuer Representative. The Trustee shall be fully protected in relying solely upon the directions of the Issuer Representative in making investments of funds held hereunder. To insure that cash on hand is invested, in the absence of written instructions from the Issuer, the Trustee may invest monies in any of the Funds not so invested in Investment Obligations under subsection (l) of the definition of that term. The Trustee is specifically authorized to use its automatic investment system for this service and charge its normal fees therefor, which may be collected from income earned on such investments. Obligations so purchased as an investment of moneys in any such Fund or account shall be deemed at all times to be a part of such Fund or account, and the interest accruing thereon and any profit realized from such investment shall be credited to such Fund or account, and any loss resulting from such investment shall be charged to such Fund or account. The Trustee shall sell at market price or present for redemption any obligation so purchased whenever it shall be necessary so to do in order to provide cash to meet any payment or transfer from any such Fund and account. Neither the Trustee nor the Issuer shall be liable or responsible for any loss or penalty resulting from any such investment or the sale of any such investment made pursuant to the terms of this Section. 56 58 For the purpose of the Trustee's determination of the amount on deposit to the credit of any such Fund or account, obligations in which moneys in such Fund and account have been invested shall be valued at the lower of cost or market. The Trustee may make any and all investments permitted by this Section through its own bond or investment department, unless otherwise directed in writing by the Issuer Representative. Section 1063. The Credit Facility. (a) Initial Letter of Credit. The Letter of Credit shall be a direct pay letter of credit and shall provide for direct payments to or upon the order of the Trustee as hereinafter set forth and shall be the irrevocable obligation of the Bank to pay to or upon the order of the Trustee, upon request and in accordance with the terms thereof, an amount of up to $25,156,781 of which (a) $24,700,000 shall support the payment of principal on the Bonds when due and that portion of the purchase price corresponding to principal of Tendered Bonds not remarketed on any Variable Rate Purchase Date or sold on the Conversion Date, and (b) $456,781 shall support the payment of up to 45 days' interest at an assumed rate of 15% per annum on the Bonds when due and that portion of the purchase price corresponding to interest on Tendered Bonds not remarketed on any Variable Rate Purchase Date or sold on the Conversion Date. Unless extended, the Letter of Credit shall terminate automatically on the earliest of (i) the date on which a drawing under the Letter of Credit has been honored upon the maturity or acceleration of the Bonds or redemption of all the Bonds, (ii) June 15, 1997, (iii) the date that the Credit Facility Issuer receives a certificate from the Issuer stating that the Bonds have been converted to a Fixed Rate, (iv) the date on which the Bank receives notice from the Trustee that an Alternate Credit Facility is substituted for the Letter of Credit and is in effect or (v) the honoring by the Bank of the Final Draft (as defined in the Letter of Credit) presented thereunder. The Bank's obligation under the Letter of Credit may be reduced to the extent of any drawing thereunder, subject to reinstatement as provided therein. The Letter of Credit shall provide that, with respect to a drawing by the Trustee solely to pay interest on the Bonds on any Interest Payment Date, if the Trustee shall not have received from the Bank within ten days from the date of such drawing a notice by telecopier, by telex or in writing that the Bank has not been reimbursed, the Trustee's right to draw under the Letter of Credit with respect to the payment of interest shall be reinstated on or before the 11th calendar day following such drawing in an amount equal to such drawing. With respect to any other drawing by the Trustee, the amount available under the Letter of Credit for payment of the principal, purchase 57 59 price or redemption price of the Bonds and interest on the Bonds shall be reinstated in an amount equal to any such drawing but only to the extent that the Bank is reimbursed in accordance with the terms of the Reimbursement Agreement for the amounts so drawn. The Letter of Credit shall provide that if, in accordance with the terms of this Indenture, the Bonds shall become or be declared immediately due and payable pursuant to any provision of this Indenture, the Trustee shall be entitled to draw on the Letter of Credit to the extent that the amounts are available thereunder to pay the aggregate principal amount of the Bonds then Outstanding plus an amount of interest not to exceed 45 days. (b) Expiration. Unless all of the conditions of Section 603(c) have been met at least 45 days (or such shorter period as shall be acceptable to the Trustee) before the Interest Payment Date occurring closest to but not less than 15 days prior to the expiration of the then-current Credit Facility, the Trustee shall call the Bonds for redemption in accordance with Section 701(c)(i). If at any time there shall cease to be any Bonds Outstanding hereunder, the Trustee shall promptly surrender the then current Credit Facility to the Credit Facility Issuer for cancellation. The Trustee shall comply with the procedures set forth in the Credit Facility relating to the termination thereof. (c) Alternate Credit Facilities. While the Bonds bear interest at the Variable Rate, the Issuer may, at its option, provide for the delivery to the Trustee of an Alternate Credit Facility or an amendment to the current Credit Facility extending the expiration thereof to a date that is not earlier than one year from the date of the expiration date of the current Credit Facility. The maximum amount available to be drawn under the Alternate Credit Facility on the substitution date shall equal the maximum amount available to be drawn under the Credit Facility then in effect immediately prior to such substitution. The Issuer may exercise this option by delivering to the Trustee a notice stating (i) that the Issuer intends to provide for the delivery of an Alternate Credit Facility or an extension of the then current Credit Facility; (ii) the proposed effective date of the amendment; and (iii) in the case of the placement of the Credit Facility, the identity of the issuer of the proposed Alternate Credit Facility. Such notice shall be given to the Trustee at least thirty days prior to the proposed substitution or amendment date, as the case may be. The Trustee shall not accept the Alternate Credit Facility or amendment unless the Issuer shall have furnished to the Trustee (i) an opinion of Counsel stating that the delivery of such Alternate Credit Facility to the Trustee is authorized under this Indenture and complies with the terms hereof and that such Alternate Credit Facility, or in the case of an amendment, the amendment is enforceable against the Credit Facility Issuer thereof in accordance with its terms, and (ii) if the Bonds are rated by Moody's and/or S&P, written evidence from Moody's, if the Bonds are 58 60 rated by Moody's, and from S&P, if the Bonds are rated by S&P, in each case to the effect that such rating agency has reviewed the proposed Alternate Credit Facility or amendment and that the substitution of the proposed Alternate Credit Facility or amendment for the then current Credit Facility or amendment, as the case may be, will not, by itself, result in (A) a permanent withdrawal of its rating of the Bonds or (B) a reduction of the then current rating of the Bonds, or if the Bonds are not rated by Moody's and/or S&P, written evidence that the commercial paper of the bank or institution issuing the proposed Alternate Credit Facility is rated P-1 or higher by Moody's or A-1 or higher by S&P. The Trustee shall then accept such Alternate Credit Facility and surrender the previously held Credit Facility to the previous Credit Facility Issuer for cancellation promptly on or before the 15th day after the Alternate Credit Facility becomes effective, but not later than the 15th day following the last Interest Payment Date covered by the Credit Facility to be cancelled. (d) Notices of Substitution or Replacement of Credit Facility. (i) The Trustee shall, at least 20 days prior to the proposed replacement date of a Credit Facility with an Alternate Credit Facility, give notice thereof by mail to Registered Owners of the Bonds. (ii) The Trustee shall promptly give notice of any replacement of the Credit Facility to the Issuer, the Tender Agent and the Remarketing Agents. 59 61 ARTICLE VII Redemption or Purchase of Bonds Section 1071. Redemption or Purchase Dates and Prices. The Bonds shall be subject to redemption, and, in certain instances, to purchase, prior to maturity in the amounts, at the times and in the manner provided in this Article VII. Payments of the redemption price or the purchase price of any Bond shall be made only upon the surrender to the Trustee or its agent, as directed, of any Bond so redeemed or purchased. (a) Optional Redemption During Variable Rate Period. While the Bonds bear interest at the Variable Rate, the Bonds shall be subject to redemption, at the option and upon the written direction of the Issuer, with the consent (which may not be unreasonably withheld) of the Credit Facility Issuer (so long as the initial Credit Facility is in place) on any Interest Payment Date and on the Conversion Date in whole or in part, at a redemption price equal to 100% of the principal amount thereof, without premium. (b) Extraordinary Optional Redemption Due to Casualty or Eminent Domain. The Bonds may be redeemed in whole or in part by the Issuer at any time, at a redemption price equal to 100% of the principal amount of the Bonds plus accrued interest to the redemption date, without premium, under any of the following conditions, the existence of which shall be certified to the Trustee by the Issuer Representative: (i) The Project shall have been damaged or destroyed to such extent that the amount of net proceeds of insurance exceeds $500,000 and the Issuer elects not to rebuild the Project or fail to so elect within 30 days of receipt by the Trustee of such net proceeds, or (ii) Title to, or the temporary use of, all of the Project or any substantial portion thereof shall have been taken by eminent domain (or by settlement proceedings in lieu thereof) and the amount of net proceeds from such taking exceeds $500,000 and the Issuer elects not to replace the property so taken or fails so to elect within 30 days of receipt by the Trustee of such net proceeds. Any funds received pursuant to the events described above shall be paid directly to the Trustee and deposited in the Project Fund. Such redemption shall occur on any Business Day not more than 15 days following the expiration of such 30-day period referred to in this Section 701(b). 60 62 (c) Mandatory Redemption or Purchase. (i) Failure to Provide Alternate Credit Facility. The Bonds shall be subject to mandatory redemption in whole during the Variable Rate Period at 100% of the principal amount thereof, without premium, plus accrued interest, if any, thereon to the date of redemption, on the Interest Payment Date occurring closest to but not less than 10 days prior to the date of expiration of the then current Credit Facility, unless an Alternate Credit Facility has been provided in accordance with Article VI hereof. Therefore, with respect to the current letter of credit, if by May 1, 1997 (or such later date as may be acceptable to the Trustee), the Letter of Credit has not been extended or an Alternate Credit Facility has not been obtained to replace the Letter of Credit effective on its expiration date of June 15, 1997, as provided herein, the Bonds will be redeemed on the June 1, 1997 Interest Payment Date. Any Bonds not tendered on such date pursuant to mandatory redemption shall be deemed tendered and shall cease to evidence the indebtedness of the Issuer thereunder represented by the Bonds and will cease to bear interest on such Interest Payment Date. (ii) Mandatory Redemption After Completion Date. The Bonds shall be subject to mandatory redemption in whole or in part with funds transferred to the Bond Fund from the Project Fund at a redemption price equal to 100% of the principal amount thereof, without premium, plus accrued interest thereon to the redemption date. In the event the amount transferred from the Project Fund is less than $100,000 or a lesser amount which would result in any Registered Owner holding Bonds in denominations other than authorized denominations, the Trustee may hold such amount in the Bond Fund and apply it to the next succeeding payment of principal or interest due on the Bonds. (d) Mandatory Purchase on Conversion Date. The Bonds shall be subject to mandatory purchase at 100% of the principal amount thereof, without premium, plus accrued interest, if any, thereon to the date of purchase, on the Conversion Date. Any Bonds not tendered on the Conversion Date shall be deemed tendered and will cease to bear interest on the Conversion Date. Section 1072. Issuer Direction of Optional Redemption. The Issuer shall direct the Trustee in writing to call Bonds for optional redemption. Such direction from the Issuer to the Trustee shall be given at least 45 days prior to the redemption date or such shorter period as shall be acceptable to the Trustee. So long as a Credit Facility is then held by the Trustee,the Trustee shall only call Bonds for optional redemption if it has Available Moneys in the Project Revenue Account of the Bond Fund or has been notified by the Credit Facility Issuer that it will receive moneys 61 63 pursuant to the Credit Facility, in the aggregate, sufficient to pay the, redemption price of the Bonds to be called for redemption, plus accrued interest thereon. No optional redemptions shall be effected at the option of the Issuer during the Variable Rate Period under this Article VII without the prior written consent of the Credit Facility Issuer. Section 1073. Selection of Bonds to be Called for Redemption. Except as otherwise provided herein or in the Bonds, if less than all the Bonds are to be redeemed, the particular Bonds to be called for redemption shall be selected by the Trustee in the following order of priority: first, Bonds pledged to the Bank pursuant to the Pledge Agreement, second, Bonds owned by the Issuer and third, Bonds selected by lot from among the Registered Owners of less than $1,000,000 in aggregate principal amount; provided that if there are no such Registered Owners, or if after selection from among such Registered Owners such selection has resulted in redemption of less than a sufficient amount of Bonds or in Bonds outstanding in unauthorized denominations, then the remaining amount of Bonds to be redeemed shall be selected from among the Registered Owners of $1,000,000 or more in aggregate principal amount of Bonds. In no event shall the Trustee select Bonds for redemption if such redemption will result in any Registered Owner owning Bonds in principal amounts other than in authorized denominations under Section 202(a) hereof. If a redemption cannot be effected to result in such authorized denominations, the Trustee shall select Bonds for redemption by lot and the denomination of the remaining Bonds outstanding shall be deemed authorized under Section 202(a) hereof. Section 1074. Notice of Redemption or Purchase. (a) When required to redeem or purchase Bonds under any provision of this Article VII, or when directed to do so by the Issuer, the Trustee shall cause notice of the redemption or purchase to be given not more than 60 days and not less than 30 days prior to the redemption or purchase date by mailing a copy of all notices of redemption or purchase by first class mail, postage prepaid, to all Registered Owners of Bonds to be redeemed or purchased at their addresses shown on the Bond Register. Failure to mail any such notice or any defect in the mailing thereof in respect of any Bond shall not affect the validity of the redemption or purchase of any other Bond. Notices of redemptions or purchases shall also be mailed to the Remarketing Agents and the Credit Facility Issuer, if any. Any such notice shall be given in the name of the Issuer, shall identify the Bonds to be redeemed or purchased (and, in the case of partial redemption or purchase of any Bonds, the respective principal amounts thereof to be redeemed or purchased), shall specify the redemption or purchase date, and shall state that on the redemption or purchase date the redemption or purchase price of the Bonds called for redemption or purchase will be payable at the principal corporate trust office of the 62 64 Trustee, or in the case of mandatory redemptions or purchases pursuant to Section 701(c)(i) or 701(d), as the case may be, at the office of the Tender Agent, if any, and that from that date interest will cease to accrue. The Trustee may use "CUSIP" numbers in notices of redemption or purchase as a convenience to Registered Owners, provided that any such notice shall state that no representation is made as to the correctness of such numbers either as printed on the Bonds or as contained in any notice of redemption or purchase and that reliance may be placed only on the identification numbers containing the prefix established under this Indenture. (b) With respect to any notice of redemption of Bonds in accordance with Section 701(c)(i), such notice shall also specify the date of the expiration of the term of the Credit Facility. (c) After the Conversion Date, if at the time of mailing of notice of any optional redemption, there shall not have been deposited with the Trustee moneys sufficient to redeem all the Bonds called for redemption, such notice may state that it is conditional on the deposit of Available Moneys with the Trustee not later than the redemption date, and such notice shall be of no effect unless such moneys are so deposited. (d) Upon redemption of less than all of the Bonds, the Trustee shall furnish to the Credit Facility Issuer a notice in the form specified by the Credit Facility Issuer to reduce the coverage provided by the Credit Facility and upon redemption of all of the Bonds, the Trustee will surrender the Credit Facility to the Credit Facility Issuer for cancellation. Section 1075. Bonds Redeemed or Purchased in Part. Any Bond which is to be redeemed or purchased only in part shall be surrendered at a place stated in the notice provided for in Section 704 (with due endorsement by, or a written instrument of transfer in form satisfactory to the Trustee duly executed by, the Registered Owner thereof or his attorney duly authorized in writing) and the Issuer shall execute and the Trustee or its Authenticating Agent shall authenticate and deliver to the Registered Owner of such Bond without service charge, a new Bond or Bonds, of any authorized denomination as requested by such Registered Owner in aggregate principal amount equal to and in exchange for the unredeemed and unpurchased portion of the principal of the Bond so surrendered. 63 65 ARTICLE VIII Representations; Particular Covenants and Provisions Section 1081. Covenant to Pay Bonds; Bonds Limited Obligations of the Issuer. The Issuer covenants that it will promptly pay the principal of and interest on and other amounts payable under the Bonds at the places, on the dates and in the manner provided herein and in the Bonds according to the true intent and meaning thereof; provided, however, that such principal and interest and other amounts are payable solely from payments received from Transferring Entities under Transferring Entity Agreements and other Revenues. THE PRINCIPAL OF, REDEMPTION PREMIUM, IF ANY, AND INTEREST ON THIS BOND ARE LIMITED OBLIGATIONS OF THE ISSUER PAYABLE SOLELY FROM THE SOURCES AND SPECIAL FUNDS PLEDGED FOR THEIR BENEFIT PURSUANT TO THIS INDENTURE. THE BONDS DO NOT CONSTITUTE A DEBT OR GENERAL OBLIGATION OF THE ISSUER. THE ISSUER IS ONLY OBLIGATED TO MAKE BOND PAYMENTS TO THE EXTENT IT RECEIVES REVENUES FROM THE OPERATION OF THE PROJECT. Section 1082. Covenants to Perform Obligations under this Indenture. The Issuer covenants that it will faithfully perform at all times any and all covenants, undertakings, stipulations and provisions contained in this Indenture, in the Bonds executed and delivered hereunder and in all proceedings of the Issuer pertaining thereto. The Issuer covenants that it is duly authorized under laws of the State, to issue the Bonds authorized hereby and to enter into this Indenture, to pledge the Revenues in the manner and to the extent herein set forth; and that all action on its part for the issuance of the Bonds issued hereunder and the execution and delivery of this Indenture has been duly and effectively taken; and that the Bonds in the hands of the Registered Owners thereof are and will be the valid and binding obligations of the Issuer according to the tenor and import thereof. Section 1083. Covenant to Perform Obligations under the Transferring Entity Agreements. (a) Subject to the provisions of Section 804 of this Article, the Issuer covenants and agrees that it will punctually fulfill its obligations under this Indenture and the Transferring Entity Agreements; that it will not execute or agree to any change, amendment or modification of or supplement to this Indenture except by a supplement or an amendment duly executed by the Issuer with the approval of the Trustee and upon the further terms and conditions set forth in Article XIII of this Indenture; and that it will promptly notify the Trustee in writing of any actual or alleged Event of Default under this Indenture. 64 66 (b) The Issuer agrees that the Project will be devoted exclusively to the purposes of holding, housing and incarcerating persons who have been arrested, and are being, or are to be, lawfully confined, for the violation or alleged violation of the laws of the State, any state of the United States, or the laws of the United States. Section 1084. [Intentionally Omitted] Section 1085. Representations of Issuer. The Issuer makes the following representations to the Trustee: (a) The Issuer is a corporation, duly created, validly existing and in good standing under the laws of the State of Delaware; (b) The Issuer has the requisite power to enter into this Indenture and to perform its obligations hereunder and by proper corporate action, the Issuer has duly authorized the execution, delivery and performance of this Indenture; (c) The Issuer is not in violation of any provision of any laws in any manner material to its ability to perform its obligations under this Indenture; and (d) Neither the execution and delivery of this Indenture nor the consummation of the transactions contemplated hereby, nor the fulfillment of or compliance with the terms and conditions of this Indenture, conflict with or result in a breach of the terms, conditions or provisions of any restriction or any agreement or instrument to which the Issuer is now a party or by which it is bound, or constitutes a default under any of the foregoing, or results in the creation or imposition of any lien, charge or encumbrance whatsoever upon any of the property or assets of Issuer under the terms of any such instrument or agreement, except for any liens, charges and encumbrances that may be established by this Indenture. Section 1086. Inspection of Bond Register. At reasonable times and upon reasonable regulations established by the Bond Registrar, the Issuer or any Registered Owner may inspect the Bond Register, at its own expense. Section 1087. Construction and Maintenance of Project, Payment of Ad Valorem Taxes. (a) Construction of Project. The Issuer shall complete the acquisition, construction, installation and equipping of the Project substantially in accordance with the Plans and Specifications prepared by Dana Larson Roubal and Associates/DLR Group, Omaha, Nebraska. If the monies in the Project Fund are not 65 67 sufficient to pay the total cost of the Project, the Issuer shall complete the Project and pay that portion of the Costs of the Project in excess of the monies available therefor in the Project Fund, at its expense. If the Issuer is required to expend its own funds pursuant to this Section 807(a), the Issuer shall not be entitled to any reimbursement for or diminution in or postponement or abatement of Bond Payments required hereunder. (b) Maintenance and Repair. During the term of this Indenture, the Issuer agrees that it shall (i) keep the Project in as reasonably safe condition as its operations shall permit; (ii) keep the Project, all other improvements forming a part of the Project and the equipment located at the Project in good repair and in good operating condition making from time to time, all necessary and proper repairs thereto and renewals and replacements thereof, including external and structural repairs, renewals, and replacements; and (iii) use the equipment located at the Project in the regular course of its business only, within the normal capacity of the equipment, without abuse, and in a manner contemplated by the manufacturer thereof, and cause the equipment to be maintained in accordance with the manufacturer's then currently published standard maintenance contract and recommendations. (c) Ad Valorem Taxes. The Issuer shall pay, when due, all ad valorem taxes, if any, on the Project. Section 1088. Insurance. (a) The Issuer shall obtain and maintain a policy of insurance including, but not limited to, insurance upon a repair and replacement cost value basis in an amount equal to 100% of such value as determined by a recognized and qualified appraiser selected by the Issuer, against the loss or damage by fire, lightning and other casualties, with a uniform standard extended coverage endorsement limited only as may be provided in the standard form of extended coverage endorsement. Such insurance may be in the form of a blanket insurance policy or policies. In any case, the Trustee and its officers, directors and employees shall be named as primary or additional insured parties. (b) Any insurance required by this Section may be provided by the Issuer through a self-insurance program if such program meets the following standards: (i) The self-insurance program has been approved by a nationally recognized independent actuary, insurance company or broker that has actuarial personnel experienced in the area of insurance which the party is self-insuring ("Insurance Consultant"); 66 68 (ii) The self-insurance program includes an actuarially sound claims reserve fund out of which each self-insured claim shall be paid; the adequacy of such fund shall be evaluated not less frequently than every two years by an Insurance Consultant retained by the Issuer; and any deficiencies in any self-insured claims fund will be remedied in accordance with the recommendation of the Insurance Consultant; (iii) The self-insured claims fund shall be held in a separate trust fund by an independent trustee; and (iv) In the event the self-insurance program shall be discontinued, the actuarial soundness of its claims fund, as determined by an Insurance Consultant, is continuously maintained. If such standards are not met and continuously maintained, the party shall cause all such insurance required by this Section to be procured and maintained with financially sound and generally recognized responsible insurance companies which have an A.M. Best & Co. rating of at least "A". All property damage and public liability insurance policies with respect to the Project shall name the Corporation and the Trustee and their respective agents as additional insureds under such policy or policies, as their interests may appear, and shall require the insurer to give 30 days' prior written notice of the cancellation thereof to the Trustee. (c) If any insurance required to be carried pursuant to the provisions of this Section shall be canceled or terminated, the party receiving the notification of such cancellation shall notify all other beneficiaries named in the applicable policy in writing within 30 days of such cancellation or termination. (d) All insurance proceeds resulting from the damage or destruction from any cause whatsoever of all or part of the Project shall be paid to the Trustee and applied as hereinafter provided in this Article. All other insurance proceeds shall be applied toward the extinguishment or satisfaction of the liability with respect to which such insurance proceeds are paid. Section 1089. Damage to Project. (a) In the event of any damage to or loss of the Project or any part thereof, there shall be no abatement or reduction in the Bond Payments. Promptly after the occurrence of any damage or loss of the Project, the Issuer shall notify the Trustee as to the nature and extent of such damage or loss and, as soon as practicable thereafter, notify the Trustee whether it is practicable and desirable to rebuild, repair or restore such damage or loss. If the Project shall have been damaged or destroyed to such extent that the amount of net proceeds of insurance exceeds 67 69 $500,000 and the Issuer elects not to rebuild the Project or fail to so elect within 30 days of receipt by the Trustee of such net proceeds, such proceeds shall be paid into the Project Fund and used to redeem the Bonds. In the event such insurance proceeds are not sufficient to pay in full the costs of such repair, rebuilding or restoration, and the issuer shall determine to repair, rebuild or restore the damaged Project, the Issuer shall pay from any other funds properly available to it that portion of the costs thereof in excess of such proceeds. (b) If the proceeds of the insurance, together with other available funds, are greater than or equal to the outstanding principal balance and interest accrued on the Bonds and if the Issuer determines not to rebuild, repair or restore the damaged Project, it shall exercise its option to redeem Bonds pursuant to Section 701 of this Indenture, and the Trustee shall apply the insurance proceeds to the extent necessary to cause such redemption. Section 810. Condemnation of Project. (a) In the event that title to or the temporary use of the Project or any part thereof shall be taken in condemnation or by the exercise of the power of eminent domain (or in settlement proceedings in lieu thereof) by any governmental body or by any Person acting under governmental authority, there shall be no abatement or reduction in the Bond Payments. The Issuer agrees to use its best efforts to obtain an award from such condemnation or taking by eminent domain (or in settlement proceedings in lieu thereof) that is in an amount at least equal to the outstanding principal amount of and accrued interest on the Bonds relating to the Project. Promptly after such condemnation or exercise of the power of eminent domain, the Issuer shall notify the Trustee whether it elects to restore or replace the Project. If title to, or temporary use of, all of the Project or any substantial portion thereof shall have been taken by eminent domain (or in such settlement proceedings in lieu thereof)and the amount of the net proceeds from such taking exceeds $500,000 and the Issuer elects not to replace the property so taken or fail to elect within 30 days of receipt by the Trustee of such net proceeds, such proceeds shall be paid into the Project Fund and used to redeem the Bonds. In the event such award is not sufficient to pay in full the costs of such restoration or replacement, and the Issuer determines to restore or replace the Project, the Issuer shall pay from any other funds properly available to it that portion of the costs thereof in excess of such proceeds. (b) If the proceeds of the condemnation award or awards or settlement proceedings, together with other available funds, are greater than the unpaid principal of and accrued interest on the Bonds and if the Issuer determines not to restore or replace the Project, it shall exercise its option to redeem Bonds pursuant to 68 70 Section 701 of this Indenture, and the Trustee shall apply the condemnation award or settlement proceedings to the extent necessary to cause such redemption. (c) The Trustee shall cooperate fully with the Issuer in the handling and conduct of any prospective or pending condemnation proceedings with respect to the Project or any part thereof. In no event will the Trustee voluntarily settle or consent to the settlement of any prospective or pending condemnation proceedings with respect to the Project or any part thereof without the prior written consent of the Issuer. Section 811. Liens and Assessments. (a) The Issuer shall (i) not create or suffer to be created any lien (including any judgment lien) or charge, other than a Permitted Encumbrance, upon the Project or any part thereof or upon the payments in respect thereof pursuant to this Indenture; (ii) pay or cause to be discharged or make adequate provision to satisfy and discharge within 60 days after the same shall come into force, any lien or charge upon the Project or any part thereof or any payments hereunder and all lawful claims or demands for labor, materials, supplies or other charges which, if unpaid, might be or become a lien upon the Project or any part thereof or any payments hereunder, except Permitted Encumbrances; and (iii) pay all utility and other charges, including "service charges," incurred or imposed for the operation, maintenance, use, occupancy, upkeep and improvement of the Project. (b) The Issuer may, in its discretion but without the duty to do so, in good faith (i) claim or defend any tax exemption for the Land and the Project to which it believes it is entitled to claim or defend, or (ii) contest any such taxes, assessments, liens and other charges and, in the event of any contest, may permit the taxes, assessments, liens or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom unless the Trustee shall notify the Issuer that, in the Opinion of Counsel, by non-payment of any such items the security afforded pursuant to the terms of this Indenture will be materially endangered, in which event such taxes, assessments, liens or charges shall be paid forthwith or such other action shall be taken in order to remove such danger. The Trustee will cooperate fully with the Issuer in any such claim, defense or contest. Section 812. Installment of Additional Property. The Issuer may from time to time, in its sole discretion and at its own expense, install or cause to be installed machinery, equipment and other personal property in the Project and which may be attached or affixed to the Project. All such machinery, equipment and other personal property shall become part of the Project. 69 71 Section 813. Remodeling of the Project. The Issuer may remodel the Project or make substitutions, additions, modifications and improvements to the Project from time to time, with the prior consent of the Trustee (which consent may not be unreasonably withheld), the costs of which shall be paid by or on behalf of the Issuer and the same shall become part of the Project. Section 814. Covenants of Title. The Issuer represents and covenants that it is lawfully seized and possessed of the Land upon which the Project is located and that it will forever defend said title against the claims of all persons whomsoever and, in the event of the breach of any covenant or warranty of title set forth herein, shall seek and pursue to recovery any amounts which are or may be due in connection with any policy of title insurance insuring title to the Land upon which the Project is located, which recovery shall be for the benefit of the Issuer. Section 815. Compliance with Orders, Ordinances, Etc. (a) The Issuer agrees that it will, throughout the term of this Indenture, promptly comply with all statutes, codes, laws, acts, ordinances, orders, rules, regulations, permits, licenses and authorizations of all federal, state, city, municipal and other governments, departments, commissions, boards, companies or associations insuring the premises, officials and officers, foreseen or unforeseen, ordinary or extraordinary, which are or at any time hereafter may be applicable to the Project or any part thereof, or to any use, manner of use or condition of the Project or any part thereof. (b) Notwithstanding the provisions of subsection (a) of this Section, the Issuer may in good faith contest the validity or the applicability of any requirement of the nature referred to in such subsection (a). In such event, the Issuer may fail to comply with the requirements so contested during the period of such contest and any appeal therefrom, provided that, during the period of such contest or appeal, enforcement of such item or any penalty is effectively stayed so that no part of the Project is materially subject to loss or forfeiture. Section 816. Books and Records. The Issuer agrees to provide a copy of its audited financial statements to the Trustee and the Placement Agent within 90 days after the end of each fiscal year of the Issuer and shall provide to the Trustee reasonable access to the books of records and accounts relating to the Project and such other information regarding the Project as may be reasonably requested. Section 817. Assignment, Sale or Disposition of Interest in Project. The Issuer shall not sell, assign, sublease, or otherwise dispose of its interest in the Project to any other Person without the prior written consent of the Credit Facility Issuer and the 70 72 Trustee, and any such attempted sale, assignment, sublease, or disposition shall be null and void. Section 818. Granting Other Rights to Third Parties. Any easement or right granted to any third party in or with respect to the use of the Project shall be specifically subordinated to the rights of the Trustee and shall be terminated in the event of a termination of this Indenture. Section 819. [Intentionally Omitted]. Section 820. Payment of Principal and Interest. The Issuer covenants and agrees that it will duly and punctually pay or cause to be paid, but only from the sources provided herein, the principal or purchase price of, and interest on, each of the Bonds at the place or places, at respective times and in the manner provided herein and in the Bonds. The Issuer will, except as provided otherwise herein, at least one Business Day prior to each due date of the principal or purchase price of or interest on the Bonds, deposit from the sources provided for herein, with the Trustee or other paying agent a sum which is an immediately available fund on the due date sufficient to pay such principal or interest. Section 821. Compliance Certificate as to Default. The Issuer will, so long as the Bonds are outstanding, deliver to the Trustee, promptly upon becoming aware of any default or defaults in the performance of any covenant, agreement or condition contained in this Indenture (including notice of any event which with the giving of notice, lapse of time or both would become an Event of Default under Section 9.01) a certificate executed by a Issuer Representative specifying such default or defaults. Section 822. Maintenance of Corporate Existence. The Issuer shall remain qualified to do business or transact its business and conduct its offices in the State, shall maintain its good standing under the laws of the State, shall maintain its corporate existence and shall not dissolve or otherwise dispose of all or substantially all of its assets. 71 73 ARTICLE IX Default and Remedies Section 901. Defaults. Each of the following events is hereby declared an "Event of Default": (a) Payment of interest on any of the Bonds shall not be made when the same shall become due; or (b) Payment of the principal or redemption price of any of the Bonds shall not be made when the same shall become due, whether at maturity or upon call for redemption or otherwise; or (c) The Trustee receives written notice from the Credit Facility Issuer that an "Event of Default" under the Reimbursement Agreement has occurred and has not been waived or cured; or (d) The Trustee receives, on or before the close of business on the tenth day following a drawing under a Credit Facility to pay interest on the Bonds, notice by telecopier, by telex or in writing from the Credit Facility Issuer that the Credit Facility has not been reinstated for the amount so drawn; or (e) Payment of the purchase price of any Bond tendered pursuant to Section 203 or Section 701(e) is not made when payment is due; or (f) The Issuer shall default in the due and punctual performance of any of the covenants, conditions, agreements and provisions contained in the Bonds or in this Indenture on the part of the Issuer to be performed other than as referred to in the preceding paragraphs of this Section; provided, however, that no default specified in clause (f) of this Section 901 shall constitute such an Event of Default until written notice specifying such default and requiring the same to be remedied shall have been given to the Issuer by the Trustee, at the written direction of the Registered Owners of not less than 25% in aggregate principal amount of Bonds then Outstanding, and the Issuer shall have had 30 days after receipt of such notice to correct said default and shall not have corrected said default within the applicable period. Section 902. Acceleration and Annulment Thereof. Subject to the requirement that the Credit Facility Issuer's consent to any acceleration must be obtained in the case of an Event of Default described in subsections (c) or (f) of Section 901 hereof, upon the occurrence of an Event of Default, the Trustee may, and upon (i) the written request of the Registered Owners of not less than 25% in aggregate principal amount of Bonds then Outstanding, (ii) the written request of the Credit Facility Issuer, or (iii) the 72 74 occurrence of an Event of Default described in subsection (a), (b), (d) or (e) of Section 901 hereof, the Trustee shall, by notice to the Issuer, declare the entire unpaid principal of and interest on the Bonds due and payable; and upon such declaration, the said principal, together with interest accrued thereon, shall become payable immediately at the place of payment provided therein, anything in this Indenture or in the Bonds to the contrary notwithstanding. Upon the occurrence of any acceleration hereunder, the Trustee, to the extent it has not already done so, shall immediately draw upon the Credit Facility to the extent permitted by the terms thereof. Interest on the Bonds shall cease to accrue upon receipt by the Trustee of funds drawn under the Credit Facility. Immediately after any acceleration because of the occurrence of an Event of Default under Sections 901(a), (b), (d) or (e), the Trustee shall notify in writing the Issuer and the Credit Facility Issuer of the occurrence of such acceleration. Within five days of the occurrence of any acceleration hereunder, the Trustee shall notify by first class mail, postage prepaid, the Registered Owners of all Bonds then Outstanding of the occurrence of such acceleration. If, after the principal of the Bonds has become due and payable, all arrears of interest upon the Bonds are paid by the Issuer, and the Issuer also performs all other things in respect to which it may have been in default hereunder and pays the reasonable charges of the Trustee and the Registered Owners, including reasonable attorneys' fees, then, and in every such case, the Credit Facility Issuer or the Majority Registered Owners, by written notice to the Issuer and to the Trustee, may annul such acceleration and its consequences, and such annulment shall be binding upon the Trustee and upon all Registered Owners of Bonds,issued hereunder; provided, however, that the Trustee shall not annul any acceleration without the consent of the Credit Facility Issuer unless such acceleration has resulted from the failure of the Credit Facility Issuer to honor a proper draw for payment under the Credit Facility. Notwithstanding the foregoing, the Trustee shall not annul any acceleration which has resulted from an Event of Default which has resulted in a drawing under the Credit Facility unless the Trustee has received written notice that the Credit Facility has been reinstated in accordance with its terms to an amount equal to the principal amount of the Bonds then Outstanding plus 45 days' interest accrued thereon. The Trustee shall forward a copy of any notice from Registered Owners received by it pursuant to this paragraph to the Issuer. Promptly upon such annulment, the Trustee shall cancel, by notice to the Issuer, any demand for payment made by the Trustee pursuant to this Section 902. 73 75 Section 1093. Other Remedies. If any Event of Default occurs and is continuing, the Trustee, before or after the principal of the Bonds becomes immediately due and payable, may enforce each and every right granted to it hereunder and any supplements or amendments thereto. In exercising such rights and the rights given the Trustee under this Article IX, the Trustee shall take such action as, in the judgment of the Trustee applying the standards described in Section 1001 hereof, would best serve the interests of the Registered Owners. It is the intention of the parties hereto that the Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights or powers. Section 1094. Legal Proceedings by Trustee. If any Event of Default has occurred and is continuing, the Trustee in its discretion may, and upon the written request of the Credit Facility Issuer or the Registered Owners of not less than 25% in aggregate principal amount of all Bonds then Outstanding and receipt of indemnity to its satisfaction shall, in its own name: (i) By mandamus, or other suit, action or proceeding at law or in equity, enforce all rights of the Registered Owners hereunder; (ii) Bring suit upon the Bonds and the Credit Facility (but only to the extent the Credit Facility Issuer shall have wrongfully dishonored drawings made in substantial conformity with the terms thereof); and (iii) By action or suit in equity enjoin any acts or things which may be unlawful or in violation of the rights of the Registered Owners. Section 1095. Discontinuance of Proceedings by Trustee. If any proceeding commenced by the Trustee on account of any default is discontinued or is determined adversely to the Trustee, the Credit Facility Issuer, the Issuer, the Trustee and the Registered Owners shall be restored to their former positions and rights hereunder as though no proceedings had been commenced. Section 1096. Credit Facility Issuer or Registered Owners May Direct Proceedings. Anything to the contrary in this Indenture notwithstanding, either the Credit Facility Issuer, if a Credit Facility is in effect, or the Majority Registered Owners shall have the right, after furnishing indemnity satisfactory to the Trustee, to direct the method and place of conducting all remedial proceedings by the Trustee hereunder, provided that such direction shall not be in conflict with any rule of law or with this Indenture or unduly prejudice the rights of minority Registered Owners. 74 76 Section 1097. Limitations on Actions by Registered Owners. No Registered Owner shall have any right to bring suit on the Credit Facility. No Registered Owner shall have any right to pursue any other remedy hereunder unless: (a) the Trustee shall have been given written notice of an Event of Default; (b) the Registered Owners of not less than 25% in aggregate principal amount of all Bonds then Outstanding shall have requested the Trustee, in writing, to exercise the powers hereinabove granted or to pursue such remedy in its or their name or names; (c) the Trustee shall have been offered indemnity satisfactory to it against costs, expenses and liabilities, except that no offer of indemnification shall be required for a declaration of acceleration under Section 902 or for a drawing under the Credit Facility; and (d) the Trustee shall have failed to comply with such request within a reasonable time. Notwithstanding the foregoing provisions of this Section 907 or any other provision of this Indenture, the obligation of the Issuer shall be absolute and unconditional to pay hereunder, but solely from the Revenues and other funds pledged under this Indenture, the principal or redemption price of, and interest on, the Bonds to the respective Registered Owners thereof on the respective due dates thereof, and nothing herein shall affect or impair the right of action, which is absolute and unconditional, of such Registered Owners to enforce such payment. Section 1098. Trustee May Enforce Rights Without Possession of Bonds. All rights under this Indenture and the Bonds may be enforced by the Trustee without the possession of any Bonds or the production thereof at the trial or other proceedings relative thereto, and any proceeding instituted by the Trustee shall be brought in its name for the ratable benefit of the Registered Owners of the Bonds. Section 1099. Remedies Not Exclusive. No remedy herein conferred is intended to be exclusive of any other remedy or remedies, and each remedy is in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Section 910. Delays and Omissions Not to Impair Rights. No delay or omission in respect of exercising any right or power accruing upon any default shall impair such right or power or be a waiver of such default, and every remedy given by this Article IX may be exercised from time to time and as often as may be deemed expedient. 75 77 Section 911. Application of Moneys in Event of Default. Any moneys received by the Trustee under this Article IX shall be applied in the following order; provided that any moneys received by the Trustee from a drawing under the Credit Facility shall be applied to the extent permitted by the terms thereof only as provided in clause (iii) below with respect to the principal of, and interest accrued on, Bonds other than Bonds held by or for the Issuer: (i) To the payment of the reasonable costs of the Trustee and any unpaid compensation due to it hereunder, including counsel fees, any disbursements of the Trustee with interest thereon at the Trustee's prime rate per annum and its reasonable compensation; and (ii) To the payment of principal or redemption price (as the case may be) and interest on the Bonds, and in case such moneys shall be insufficient to pay the same in full, then to the payment of principal or redemption price and interest ratably, without preference or priority of one over another or of any installment of interest over any other installment of interest. The surplus, if any, shall be paid to the Issuer or the person lawfully entitled to receive the same as a court of competent jurisdiction may direct; provided that, if the Trustee has received payments under the Credit Facility following the Event of Default, the surplus shall be paid to the Credit Facility Issuer to the extent of such payments. Section 912. Trustee May File Claim in Bankruptcy. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other similar judicial proceeding relative to the Issuer or any other obligor upon the Bonds or to property of the Issuer or such other obligor or the creditors of any of them, the Trustee (irrespective of whether the principal of the Bonds shall then be due and payable as therein expressed or by declaration or otherwise) shall be entitled and empowered, by intervention in such proceeding or otherwise: (i) to file and prove a claim for the whole amount of principal and interest owing and unpaid in respect of the Bonds and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Registered Owners allowed in such judicial proceeding; and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; 76 78 and any receiver, assignee, trustee, liquidator or sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by the Registered Owners to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Registered Owners, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 911 hereof. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept, or adopt on behalf of the Registered Owners, any plan of reorganization, arrangement, adjustment or composition affecting the Bonds or the rights of any Registered Owner thereof, or to authorize the Trustee to vote in respect of the claim of the Registered Owners in any such proceeding. All moneys received by the Trustee pursuant to any right given or action taken under this Indenture shall, after payment of the costs and expenses of the proceedings resulting in the collection of such moneys and the fees and expenses of the Trustee, be deposited in the Bond Fund and applied to the payment of the principal of, redemption premium, if any, and interest then due and unpaid on the Bonds in accordance with the provisions of this Indenture. Section 913. [Intentionally Omitted] Section 914. Foreclosure of Mortgage. If an Event of Default shall have occurred and be continuing during any period in which Liberty Bank and Trust Company of Tulsa, National Association, shall be Trustee and such Trustee shall have received a direction from the Requisite Registered Owners to foreclose the Mortgage, such Trustee shall not be required to proceed with foreclosure if such Trustee determines, in the exercise of its sole and unlimited discretion, that it desires a Phase I/II Environmental Report and such Trustee is indemnified for the cost of such Phase I/II Environmental Report and any other report recommended therein. Further, if such Trustee determines, in the exercise of its sole and unlimited discretion, that it does not desire to become the owner, in its capacity as trustee, of the property subject to the Mortgage, such Trustee shall not be required to proceed with foreclosure and shall give notice of such determination to the Registered Owners. If the Requisite Registered Owners of the outstanding Bonds nonetheless desire to proceed with foreclosure and so notify such Trustee, such Trustee may resign and such resignation shall become effective upon acceptance of appointment by a Successor Trustee under Section 1013 of this Indenture. If the Successor Trustee requests any indemnification for any loss, cost or expense arising out of foreclosure, any such 77 79 indemnification shall be the sole responsibility of the Requisite Registered Owners. 78 80 ARTICLE X Concerning the Trustee Section 1101. Acceptance of Trusts. The Trustee hereby represents and warrants to the Issuer (for the benefit of the Registered Owners as well as the Issuer) that it is a national banking association and that it is duly authorized under such laws and the laws of Texas to accept and execute trusts of the character herein set out. The Trustee accepts and agrees to execute the trusts imposed upon it by this Indenture, but only upon the terms and conditions set forth in this Article and subject to the provisions of this Indenture including the following express terms and conditions, to all of which the parties hereto and the Registered Owners agree, except: (1) prior to the occurrence and continuance of an Event of Default, the Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon directions of the Issuer Representative and upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to requirements of this Indenture but need not verify the accuracy of the contents thereof. In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. No provision of this Indenture shall be construed to relieve the Trustee from liability for its own grossly negligent action, its own grossly negligent failure to act, or its own willful malfeasance, except that: (1) this subsection shall not be construed to limit the effect of the preceding provisions of this Section 1001; (2) the Trustee shall not be liable for any error of judgment made in good faith by a responsible officer or officers of the 79 81 Trustee unless it shall be proved that the Trustee was grossly negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Majority Registered Owners relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture. Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee, including without limitation Sections 1003 and 1004 hereof, shall be subject to the provisions of this Section 1001. Section 1102. Trustee to Give Notice. (a) If any Event of Default occurs and is continuing hereunder and if the Trustee has received written notice thereof or is deemed to have notice pursuant to Section 1002(b), the Trustee shall give to all Registered Owners, the Issuer, the Remarketing Agents and to the Credit Facility Issuer written notice of such default within 30 days after receipt of such information. For the purpose of this Section 1002 only, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default under Section 901 hereof. (b) The Trustee shall not be required to take notice or be deemed to have notice of any Event of Default hereunder except for a default referred to in Section 901(a) or (b), unless the Trustee shall have received written notice of such Event of Default by the Issuer, the Credit Facility Issuer or by the Registered Owners of 25% in aggregate principal amount of the Bonds then Outstanding. Section 1103. Trustee Entitled to Indemnity. (a) The Issuer shall indemnify the Trustee, its officers, directors and employees against any loss, liability or expense incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, except as set forth in subsection (b). The Trustee shall notify the Issuer promptly of any claim for which it may seek indemnity. Except where the Issuer is the claimant, the Issuer shall defend the claim, and the Trustee shall cooperate in the defense. The Trustee may have separate counsel, and the Issuer shall pay the reasonable fees and expenses of such counsel. The Trustee shall not be required to give any bond or surety in respect to the execution of its rights and obligations hereunder. (b) THE ISSUER SHALL NOT BE OBLIGATED TO REIMBURSE ANY EXPENSE OR TO INDEMNIFY AGAINST ANY LOSS OR LIABILITY INCURRED BY THE TRUSTEE THROUGH ITS GROSS NEGLIGENCE OR BAD FAITH. 80 82 (c) To secure the Issuer's payment obligations in this Section, the Trustee shall have a lien prior to the lien created by this Indenture for the benefit of the Owners of the Bonds on all money or property held or collected by the Trustee other than money derived from a draw on the Credit Facility. This lien shall survive the satisfaction and discharge of this Indenture. (d) When the Trustee incurs expenses or renders services after an Event of Default, the expenses and compensation for the services are intended to constitute expenses of administration under any applicable bankruptcy law. (e) The Trustee may, nevertheless, begin suit, or appear in and defend suit, or do anything else in its judgment proper to be done by it as such Trustee, without indemnity, and in such case the Issuer shall reimburse the Trustee from funds available therefor for all costs and expenses, outlays and counsel fees and other reasonable disbursements properly incurred in connection therewith; provided, however, that the Trustee shall (i) make all payments hereunder of principal and redemption price of and interest on the Bonds and of the purchase price of Bonds tendered at the option of the Registered Owners thereof or purchased by the Issuer in lieu of redemption, (ii) accelerate the Bonds when required to do so hereunder other than at the direction of the Registered Owners, and (iii) draw on the Credit Facility when required to do so hereunder, each without the necessity of the Registered Owners providing security or indemnity to the Trustee. If the Issuer shall fail to make reimbursement, the Trustee may reimburse itself from any moneys in its possession under the provisions of this Indenture (other than money derived from a draw on the Credit Facility) and shall be entitled with respect thereto to a preference over the Bonds. (f) Subject to the standards described in Section 1001 hereof, prior to taking action under this Indenture except for a declaration of acceleration under Section 902 or a drawing under the Credit Facility or the payment of principal and interest on the Bonds, the Trustee may require that satisfactory indemnity be furnished to it for reimbursement of all expenses to which it may be put and to protect it against all liability by reasons of any action so taken, except liability resulting from its gross negligence or willful malfeasance. None of the provisos contained in this Indenture is intended to require the Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties or other exercise of its rights or powers hereunder. (g) All money received by the Trustee or any paying agent for the Bonds shall, until used, applied or invested as herein provided, be held in trust for the purposes for which it was received, but need not be segregated from other funds, except to the extent required herein or by law. Neither the Trustee nor any 81 83 such paying agent shall be under any liability for interest on any money received hereunder. (h) The immunities and protections from liability granted to the Trustee herein shall apply to all actions taken or admitted to be taken by the Trustee in performing as Trustee under this Indenture, the Deed of Trust and any other document related hereto. (i) The Trustee shall have no responsibility with respect to any information, statement or recital in any private offering memorandum or any other disclosure material prepared or distributed with respect to the Bonds. (j) Notwithstanding anything else where contained in this Indenture required to, demand, in respect to the authentication of any Bonds, the withdrawal of any cash or any action whatsoever with the purview hereof, any showings, certificates, opinions, appraisals or other information, or corporate action or evidence thereof, in addition to that required by the terms hereof and as a condition of such action by the Trustee which the Trustee deems desirable for the purpose of establishing the right of the Issuer to the authentication of any Bonds, the withdrawal of any cash or the taking of any other action by the Trustee. (k) The right of the Trustee to do things enumerated herein shall not be construed as a duty. (l) The Trustee may execute any of the trust or powers hereof and perform any of its duties by or through attorneys, agents, or receivers that shall not be answerable for the conduct of the same if appointed with due care. Section 1104. Trustee Not Responsible for Insurance, Taxes, Execution of Indenture, Acts of the Issuer or Application of Moneys Applied in Accordance with this Indenture. The Trustee shall not be under any obligation to effect or maintain insurance or to renew any policies of insurance or to inquire as to the sufficiency of any policies of insurance carried by the Issuer, or to report, or make or file claims or proof of loss for, any loss or damage insured against or which may occur, or to keep itself informed or advised as to the payment of any taxes or assessments, or to require any such payment to be made. The Trustee shall have no responsibility in respect of the validity, sufficiency, due execution or acknowledgment of this Indenture by the Issuer or the validity or sufficiency of the security provided thereunder or in respect of the validity of the Bonds or the due execution or issuance thereof. The Trustee shall not be under any obligation to see that any duties herein imposed upon any party other than itself, or any covenants herein contained on the part of any party other than itself to be performed, shall be done or performed, and the Trustee shall be under no liability for failure to see that any such duties or covenants are so done or performed. 82 84 The Trustee shall not be liable or responsible because of the failure of the Issuer or of any of its employees or agents to make any collections or deposits or to perform any act herein required of the Issuer or because of the loss of any moneys arising through the insolvency or the act or default or omission of any other depositary in which such moneys shall have been deposited under the provisions of this Indenture. The Trustee shall not be responsible for the application of any of the proceeds of the Bonds or any other moneys deposited with it and paid out, withdrawn or transferred hereunder if such application, payment, withdrawal or transfer shall be made in accordance with the provisions of this Indenture. The immunities and exemptions from liability of the Trustee hereunder shall extend to its parent, shareholders, affiliates, directors, officers, employees and agents. Section 1105. Compensation. Subject to the provisions of any contract relating to the compensation of the Trustee, the Issuer shall pay to the Trustee as administrative expenses its reasonable fees and charges. The Issuer and the Trustee contemplate entering into a Fee Agreement acceptable to both of them. In computing the Trustee's compensation, the parties shall not be limited by any law on the compensation of an express trust. If the Issuer shall fail to make any payment required by this Section 1005, the Trustee may, but shall be under no obligation to, make such payment from any moneys in its possession under the provisions of this Indenture and shall be entitled to a preference therefor over the Bonds hereunder; provided that no payments under this Section 1005 shall be made with moneys drawn under the Credit Facility. Section 1106. Trustee to Preserve Records. All records and files pertaining to the Project in the custody of the Trustee shall be open at all reasonable times to the inspection of the Issuer and the Bank and their agents and representatives. Section 1107. Trustee May be Registered Owners. The institution acting as Trustee under this Indenture, and its parent, shareholders, affiliates, directors, officers, employees or agents, may in good faith buy, sell, own, hold and deal in the Bonds issued under and secured by this Indenture, and may join in the capacity of a Registered Owner in any action which any Registered Owner may be entitled to take with like effect as if such institution were not the Trustee under this Indenture. Section 1108. Trustee Not Responsible for Recitals. The recitals, statements and representations contained herein and in the Bonds shall be taken and construed as made by and on the part of the Issuer and not by the Trustee, and the Trustee shall not be under any responsibility for the correctness of the same. 83 85 Section 1109. No Trustee Responsibility for Recording or Filing. The Trustee shall not be under any obligation to see to the recording or filing of this Indenture, any financing statements or any other instrument or otherwise to the giving to any person of notice of the provisions hereof or thereof. Section 1110. Trustee May Rely on Certificates. Subject to the provisions of Section 1001 hereof, the Trustee shall be protected and shall incur no liability in acting or proceeding, or in not acting or not proceeding, in good faith and in accordance with the terms of this Indenture, upon any resolution, order, notice, request, consent, waiver, certificate, statement, affidavit, requisition, bond or other paper or document which it shall in good faith believe to be genuine and to have been adopted or signed by the proper board or person or to have been prepared and furnished pursuant to any of the provisions of this Indenture, or upon the written opinion of any attorney, engineer, accountant or other expert believed by it to be qualified in relation to the subject matter, and the Trustee shall not be under any duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument. Section 1011. Qualification of the Trustee. There shall at all times be a trustee hereunder which shall be an association or a corporation organized and doing business under the laws of the United States of America or of any state, authorized under such laws and the applicable laws of the State to exercise corporate trust powers and act as Bond Registrar hereunder, having itself, or being a member of a banking holding company group having, a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by Federal or state authority. If such association or corporation is not a commercial bank or trust company, it shall also have a rating by Moody's (if the Bonds are then rated by Moody's) of BAA 3/P3 or higher, or by S&P (if the Bonds are then rated by S&P) of BBB/A3 or higher or shall otherwise be approved in writing by Moody's or S&P, as the case may be. If such association or corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 1011, the combined capital and surplus of such association or corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 1011, it shall resin immediately in the manner and with the effect specified in Section 1012 hereof. Section 1012. Resignation and Removal of Trustee. 84 86 (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 1013 hereof. (b) The Trustee may resign at any time by giving written notice thereof to the Issuer. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the retiring Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by an instrument or instruments in writing to the Trustee, with copies to the Issuer, signed by the Majority Registered Owners or by their attorneys, legal representatives or agents and delivered to the Trustee and the Issuer (such instruments to be effective only when received by the Trustee). (d) If at any time: (1) the Trustee shall cease to be eligible under Section 1011 hereof, and shall fail to resign after written request therefor by the Majority Registered Owners, or (2) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Issuer may remove the Trustee, or (ii) any Registered Owner may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Issuer shall promptly appoint a successor. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by act of the Majority Registered Owners delivered to the Issuer and the retiring Trustee, the successor Trustee so appointed shall forthwith upon its acceptance of such appointment become the successor Trustee and supersede the successor Trustee appointed by the Issuer. If no successor Trustee shall have been so appointed by the Issuer and approved by the Majority Registered Owners and accepted appointment in the manner hereinafter provided, any Registered Owner, if he has been a bona fide Registered Owner of a Bond for at least six months, may 85 87 petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Issuer shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee by mailing written notice of such event by first-class mail, postage prepaid, to each Registered Owner. Each notice shall include the name and address of the principal corporate trust office of the successor Trustee. Section 1013. Successor Trustee. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to its predecessor, and also to the Issuer, an instrument in writing accepting such appointment hereunder, and thereupon such successor Trustee, without any further act, shall become fully vested with all the rights, immunities, powers and trusts, and subject to all the duties and obligations, of its predecessors; but such predecessor shall, nevertheless, on the written request of its successor or of the Issuer and upon payment of the expenses, charges and other disbursements of such predecessor which are payable pursuant to the provisions of Section 1005 hereof, execute and deliver an instrument transferring to such successor Trustee all the rights, immunities, powers and trusts of such predecessor hereunder; and every predecessor Trustee shall deliver all property and moneys held by it hereunder to its successor, subject, nevertheless, to its preference, if any, provided for in Sections 1003 and 1005 hereof. Should any instrument in writing from the Issuer be required by any successor Trustee for more fully and certainly vesting in such Trustee the rights, immunities, powers and trusts hereby vested or intended to be vested in the predecessor Trustee, any such instrument in writing shall and will, on request, be executed, acknowledged and delivered by the Issuer. Notwithstanding any of the foregoing provisions of this Article, any bank or trust company having power to perform the duties and execute the trusts of this Indenture and otherwise qualified to act as Trustee hereunder with or into which the bank or trust company acting as Trustee, may be merged or consolidated, or to which the corporate trust business or assets and business of such bank or trust company as a whole may be sold, shall be deemed the successor of the Trustee. Section 1014. Co-Trustee. It is the purpose of this Indenture that there shall be no violation of any law of any jurisdiction denying or restricting the right of certain banking corporations or associations to transact business as trustee as contemplated herein in such jurisdiction. It is recognized that in case of litigation under this Indenture upon the occurrence of an Event of Default, it may be necessary that the Trustee appoint an additional individual or institution as a separate Trustee or Co-Trustee, which shall be satisfactory to the Issuer. The 86 88 following provisions of this Section 1014 are adapted to these ends. In the event of the incapacity or lack of authority of the Trustee, by reason of any present or future law of any jurisdiction, to exercise any of the rights, powers and trusts herein granted to the Trustee or to hold title to the Trust Estate or to take any other action which may be necessary or desirable in connection therewith, each and every remedy, power, right, claim, demand, cause of action, immunity, estate, title, interest and lien expressed or intended by this Indenture to be exercised by or vested in or conveyed to the Trustee with respect thereto shall be exercisable by and vest in such separate Trustee or Co-Trustee but only to the extent necessary to enable the separate Trustee or Co-Trustee to exercise such rights, powers and trusts, and every covenant and obligation necessary to the exercise thereof shall run to and be enforceable by such separate Trustee or Co-Trustee. Should any deed, conveyance or instrument in writing from the Issuer be required by the separate Trustee or Co-Trustee so appointed by the Trustee in order to more fully and certainly vest in and confirm to him or it such properties, rights, powers, trusts, duties and obligations, any and all such deeds, conveyances and instruments shall, on request, be executed, acknowledged and delivered by the Issuer. In case any separate Trustee or Co-Trustee or a successor to either, shall die, become incapable of acting, resign or be removed, all the estates, properties, rights, powers, trusts, duties and obligations of such separate Trustee or Co-Trustee, so far as permitted by law, shall vest in and be exercised by the Trustee until the appointment of a new Trustee or successor to such separate Trustee or Co-Trustee. 87 89 ARTICLE XI Execution of Instruments by Registered Owners and Proof of Ownership of Bonds Section 1111. Execution of Instruments by Registered Owners and Proof of Ownership of Bonds. Any request, direction, consent or other instrument in writing required or permitted by this Indenture to be signed or executed by a Registered Owner may be signed or executed by the Registered Owner or its attorneys or legal representatives. Proof of the execution of any such instrument and of the ownership of the Bonds shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee with regard to any action taken by it under such instrument if made in the following manner: The fact and date of the execution by any person of any such instrument may be proved by the verification of any officer in any jurisdiction who, by the laws thereof, has power to take affidavits within such jurisdiction, to the effect that such instrument was subscribed and sworn to before him, or by an affidavit of a witness to such execution, and where such execution is by an officer of a corporation or association or a member of a partnership on behalf of such corporation, association or partnership, such verification or affidavit shall also constitute sufficient proof of his authority. Nothing contained in this Section 1101 shall be construed as limiting the Trustee to such proof, it being intended that the Trustee may accept any other evidence of the matters herein stated which may be sufficient. Any request or consent of a Registered Owner shall bind every future Registered Owner of the Bonds to which such request or consent pertains or any Bonds issued in lieu thereof in respect of anything done by the Trustee pursuant to such request or consent. Notwithstanding any of the foregoing provisions of this Section 1101, the Trustee shall not be required to recognize any person as an owner of Bonds or to take any action at his request unless the Bonds shall be deposited with it. Section 1112. Preservation of Information. The Trustee shall preserve in the Bond Register, in as current a form as is reasonably practicable the name and address of each Registered Owner received by the Trustee in its capacity as Bond Registrar. 88 90 ARTICLE XII The Remarketing Agents; The Tender Agent; The Placement Agents Section 1121. The Remarketing Agents. (a) The Issuer hereby appoints First Union National Bank of North Carolina, with its corporate office in Charlotte, North Carolina, acting through its Capital Markets Group, and Stephens Inc., with its corporate office in Little Rock, Arkansas as Remarketing Agents under this Indenture. The Remarketing Agents and any successor Remarketing Agents, by written instrument delivered to the Issuer and the Trustee, shall accept the duties and obligations imposed on it under this Indenture and the Remarketing Agreement. (b) In addition to the other obligations imposed on the Remarketing Agents hereunder, the Remarketing Agents shall agree to keep such books and records in connection with its activities as Remarketing Agents hereunder as shall be consistent with prudent industry practice and make such books and records available for inspection by the Issuer, the Trustee and the Credit Facility Issuer at all reasonable times. (c) Each of the Remarketing Agents shall at all times be members of the National Association of Securities Dealers, Inc. and registered as a Municipal Securities Dealer under the Securities Exchange Act of 1934, as amended, or a national banking association or a bank or a trust company, in each case authorized by law to perform their respective obligations hereunder. (d) If at any time either of the Remarketing Agents is unable or unwilling to act as Remarketing Agents, such Remarketing Agent, upon 60 Business Days' prior written notice to the Issuer, the Trustee, the other Remarketing Agent and the Tender Agent, may resign. Either Remarketing Agent may be removed at any time by the Issuer with the consent of the Credit Facility Issuer, by written notice signed by the Issuer delivered to the Trustee, the Remarketing Agents and the Tender Agent. Upon resignation or removal of both Remarketing Agents, the Issuer shall appoint a substitute Remarketing Agent meeting the qualifications of Section 1201(c). (e) In the event that the Issuer shall fail to appoint a successor Remarketing Agent upon the resignation or removal of both Remarketing Agents or upon a dissolution, insolvency or bankruptcy, the Trustee may, but is not required to, appoint a Remarketing Agent or itself act as Remarketing Agent until the appointment of a successor Remarketing Agent in accordance with this Section 1201. 89 91 Section 1122. The Tender Agent. (a) The Issuer hereby appoints First Union National Bank of Virginia as Tender Agent under this Indenture, which agent has a corporate trust office in Richmond, Virginia. The Tender Agent and any successor Tender Agent, by written instrument delivered to the Issuer and the Trustee, shall accept the duties and obligations imposed on it under this Indenture. (b) If at any time the Tender Agent is unable or unwilling to act as Tender Agent, the Tender Agent, upon 60 days' prior written notice to the Issuer, the Trustee, and the Remarketing Agents, may resign; provided, however, that in no case shall such resignation become effective until the appointment of a successor Tender Agent. The Tender Agent may be removed at any time by the Issuer, by written notice signed by the Issuer delivered to the Trustee, the Remarketing Agents, the Credit Facility Issuer and the Tender Agent. Upon resignation or removal of the Tender Agent, the Issuer shall appoint a substitute Tender Agent; provided, however, that in no case shall such removal become effective until the appointment of a successor Tender Agent. (c) In the event the Issuer shall fail to appoint a successor Tender Agent upon the resignation or removal of the Tender Agent or upon its dissolution, insolvency or bankruptcy, the Trustee may at its discretion, but is not required to, act as Tender Agent until the appointment of a successor Tender. Agent in accordance with this Section 1202. Section 1123. The Placement Agents. Each of the Placement Agents shall be a member of the National Association of Securities Dealers, Inc. and registered as a Municipal Securities Dealer under the Securities Exchange Act of 1934, as amended, or a national banking association or a bank or trust company, in each case authorized by law to perform its obligations described in Section 202(e) hereof. The Placement Agents shall agree to establish the Preliminary Fixed Rate and to use their best efforts to arrange for the sale of Tendered Bonds on the Conversion Date, all as more particularly described in Section 202(e). Section 1124. Notices. The Trustee shall, within 30 days of the resignation or removal of either Remarketing Agent, either Placement Agent or the Tender Agent or the appointment of a successor Placement Agent or a successor Remarketing Agent or Tender Agent, give notice thereof by first-class mail, postage prepaid, to the Registered Owners of the Bonds. 90 92 ARTICLE XIII Amendments and Supplements Section 1131. Amendments and Supplements Without Registered Owners' Consent. This Indenture may be amended or supplemented by the Issuer and the Trustee at any time and from time to time, without the consent of the Registered Owners, but with the consent of the Credit Facility Issuer, if a Credit Facility is in effect, by a supplemental indenture authorized by a resolution of the Board filed with the Trustee, for one or more of the following purposes: (a) to add additional covenants of the Issuer or to surrender any right or power herein conferred upon the Issuer; (b) for any purpose not inconsistent with the terms of this Indenture or to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture which shall not adversely affect the interests of the Registered Owners of the Bonds; (c) to permit the Bonds to be converted during the Variable Rate Period to certificated securities; (d) to permit the appointment of a co-trustee under this Indenture; (e) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of this Indenture under the Trust Indenture Act of 1939, or under any similar federal statute hereafter enacted, and to add to this Indenture such other provisions as may be expressly permitted by the Trust Indenture Act of 1939; (f) except as otherwise provided in Section 1302 hereof, to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to obtain a rating of the Bonds from Moody's or S&P; and (g) to amend the administrative provisions hereof to accommodate the provisions of an Alternate Credit Facility. Prior to making any amendment, the Issuer shall provide the Trustee and the Credit Facility Issuer with a copy of the proposed amendment. Section 1302. Amendments With Registered Owners' and Credit Facility Issuer's Consent. This Indenture may be amended by the Issuer and the Trustee from time to time, except with respect to (i) the principal, redemption price, purchase price, or interest payable upon any Bonds, (ii) the Interest Payment Dates, the dates 91 93 of maturity or the redemption or purchase provisions of any Bonds, and (iii) this Article XIII, by a supplemental indenture consented to by the Credit Facility Issuer (if a Credit Facility is in effect) and approved by the Registered Owners of at least a majority in aggregate principal amount of the Bonds then Outstanding which would be affected by the act proposed to be taken. This Indenture may be amended with respect to the matters enumerated in clauses (i) through (iii) of the preceding sentence only with the unanimous consent of all Registered Owners and the Credit Facility Issuer (if a Credit Facility is in effect). Section 1303. Supplemental Indentures Affecting Rights of Credit Facility Issuer. Anything herein to the contrary notwithstanding, a supplemental indenture under this Article XIII which in the judgment of the Credit Facility Issuer (if a Credit Facility is in effect) adversely affects the rights of the Credit Facility Issuer hereunder shall not become effective unless or until the Credit Facility Issuer shall have consented to the execution and delivery thereof. Section 1134. [Intentionally Omitted] Section 1135. [Intentionally Omitted] Section 1136. Amendment of Credit Facility. The initial Credit Facility may be amended to such extent as shall be necessary to obtain a rating of the Bonds from Moody's or S&P provided that such amendment or supplement will not adversely affect the interests of the Registered Owners. The Credit Facility may be amended to extend the term thereof as provided herein. The Trustee shall notify the Registered Owners and the Issuer of any proposed amendment of the Credit Facility which would adversely affect the interests of the Registered Owners and shall consent thereto with the consent of the Issuer, which consent shall not be unreasonably withheld, and with the consent of at least a majority in aggregate principal amount of the Bonds then Outstanding which would be affected by the action proposed to be taken; provided, that the Trustee shall not, without the unanimous consent of the Registered Owners of all Bonds then Outstanding, consent to any amendment which would decrease the amount payable under the Credit Facility or reduce the term of the Credit Facility. Prior to making any amendment, the Issuer shall provide the Trustee and the Credit Facility Issuer with a copy of the proposed amendment. Section 1137. Trustee Authorized to Join in Amendments and Supplements; Reliance on Counsel. The Trustee is authorized to join with the Issuer in the execution and delivery of any supplemental indenture or amendment permitted by this Article XIII and in so doing shall be fully protected by an opinion of Counsel that such supplemental indenture or amendment is so permitted and has been duly authorized by the Issuer and that all things necessary to make it a valid and binding agreement have been done; 92 94 provided that certain amendments may, by agreement between the Trustee and the Credit Facility Issuer, require the prior consent of the Credit Facility Issuer. 93 95 ARTICLE XIV Defeasance; Other Payments Section 1141. Defeasance. (a) When the principal or redemption price (as the case may be) of, and interest on all Bonds issued hereunder have been paid, or provision has been made for payment of the same, together with the compensation of the Trustee and all other sums payable hereunder by the Issuer, the right, title and interest of the Trustee in and to the Trust Estate shall thereupon cease, and the Trustee, on written demand of the Issuer, shall release this Indenture and shall execute such documents to evidence such release as may be reasonably required by the Issuer and shall turn over to the Issuer or to such person, body or authority as may entitled to receive the same all balances then held by it hereunder; provided, that if any payments have been received by the Trustee from the Credit Facility in connection with such release, such balances shall be paid to the Credit Facility Issuer to the extent of such payments. If payment or provision therefor is made with respect to less than all of the Bonds, the particular Bonds (or portion thereof) for which provision for payment shall have been considered made shall be selected by lot by the Trustee and thereupon the Trustee shall take similar action for the release of this Indenture with respect to such Bonds. (b) Provision for the payment of Bonds shall be deemed to have been made when the Trustee holds in the Bond Fund, in trust and irrevocably sets aside exclusively for such payment, (i) moneys sufficient to make such payment provided that if a Credit Facility is then held by the Trustee, such moneys shall constitute Available Moneys or (ii) moneys and/or noncallable Government Obligations maturing as to principal and interest in such amounts and at such times as will provide sufficient moneys without reinvestment to make such payment (as verified to the Trustee by an investment banking firm or independent certified accounting firm); provided that such provision for payment may only be made after the Conversion Date, and provided further, that if a Credit Facility is then held by the Trustee, such moneys and/or Government Obligations shall have been on deposit with the Trustee in a separate and segregated account for a period of 366 days during and prior to which no Event of Bankruptcy has occurred or which Government Obligations were purchased with Available Moneys. No Bonds in respect of which a deposit under clause (b) above has been made shall be deemed paid within the meaning of this Article unless the Trustee is satisfied that the amounts deposited are sufficient to make all payments that might become due on the Bonds. Notwithstanding the foregoing, no delivery to the Trustee under this subsection (b) shall be deemed a payment of any Bonds which are to be redeemed prior to their stated maturity until such 94 96 Bonds shall have been irrevocably called or designated for redemption on a date thereafter on which such Bonds may be redeemed in accordance with the provisions of this Indenture or the Issuer shall have given the Trustee, in form satisfactory to the Trustee, irrevocable instructions to give notice of redemption. Neither the obligations nor moneys deposited with the Trustee pursuant to this Section shall be withdrawn or used for any purpose other than, and shall be segregated and held in trust for, the payment of the principal of, redemption price of, and interest on the Bonds with respect to which such deposit has been made. In the event that such moneys or obligations are to be applied to the payment of principal or redemption price of any Bonds more than 60 days following the deposit thereof with the Trustee, the Trustee shall mail a notice stating that such moneys or obligations have been deposited and identifying the Bonds for the payment of which such moneys or obligations are being held to all Registered Owners of such Bonds at their addresses shown on the Bond Register. (c) Anything in Article XIII to the contrary notwithstanding, if moneys or Government Obligations have been deposited or set aside with the Trustee pursuant to this Article for the payment of the principal or redemption price, of the Bonds and the interest thereon and the principal or redemption price, of such Bonds and the interest thereon shall not have in fact been actually paid in full, no amendment to the provisions of this Article shall be made without the consent of the Registered Owner of each of the Bonds affected thereby. Notwithstanding the foregoing, those provisions relating to the maturity of Bonds, interest payments and dates thereof, and the dates, premiums and notice requirements for optional and mandatory redemption and the Trustee's remedies with respect thereto, and provisions relating to exchange, transfer and registration of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, nonpresentment of Bonds, the holding of moneys in trust and repayments to the Issuer or the Credit Facility Issuer from the Bond Fund and the duties of the Trustee in connection with all of the foregoing and the fees, expenses and indemnities of the Trustee, shall remain in effect and shall be binding upon the Trustee, the Issuer and the Registered Owners, notwithstanding the release and discharge of the lien of this Indenture. Section 1142. Deposit of Funds for Payment of Bonds. If the principal or redemption price of any Bonds becoming due, either at maturity or by call for redemption or otherwise, together with all interest accruing thereon to the due date, has been paid or provisions therefor made in accordance with Section 1401 hereof, all interest on such Bonds shall cease to accrue on the due date and all liability of the Issuer with respect to such Bonds shall likewise cease, except as hereinafter provided. Thereafter the Registered Owners of such Bonds shall be restricted exclusively to 95 97 the funds so deposited for any claim of whatsoever nature with respect to such Bonds, and the Trustee shall hold such funds in trust for such Registered Owners. Section 1143. Effect of Purchase of Bonds. No purchase of Bonds pursuant to Section 303 shall be deemed to be a payment or redemption of such Bonds or any portion thereof and such purchase will not operate to extinguish or discharge the indebtedness evidenced by such Bonds. 96 98 ARTICLE XV Miscellaneous Provisions Section 1151. Covenants of Issuer to Bind its Successors. In the event of the dissolution of the Issuer, all of the covenants, stipulations, obligations and agreements contained in this Indenture by or on behalf of or for the benefit of the Issuer shall bind or inure to the benefit of the successor or successors of the Issuer from time to time and any officer, board, commission, authority, agency or instrumentality to whom or to which any power or duty affecting such covenants, stipulations, obligations and agreements shall be transferred by or in accordance with law, and the word "Issuer" as used in this Indenture shall include such successor or successors. Section 1152. Notices. Any notice, demand, direction, request or other instrument authorized or required by its Indenture to be given to or filed with the Issuer, the Trustee or the Credit Facility Issuer shall be in writing and shall be deemed given or filed for all purposes of this Indenture when delivered by hand delivery or mailed by first- class, postage prepaid, registered or certified mail, addressed as follows: If to the Issuer: Corrections Corporation of America 102 Woodmond Blvd., Suite 800 Nashville, TN 37205 Telecopy No. (615) 269-8635 If to the Trustee: Liberty Bank and Trust Company of Tulsa, National Association 15 East 5th Street Tulsa, OK 74103 Telecopy No. (918) 586-5099 (Attention: Corporate Trust Department), or if to any successor Trustee or Co-Trustee, addressed to it at its principal corporate trust office; If to the Credit Facility Issuer: First Union National Bank of North Carolina Two First Union Center Charlotte, North Carolina 28288 Telecopy No.: (704) 374-2768 (Attention: International Operations) 97 99 with a copy to: First Union National Bank of Tennessee 150 4th Avenue, 2nd Floor Nashville, Tennessee 37219 Telecopy No.: (615) 251-9461 (Attention: Tim Fouts, Vice President and if sent by telecopy, addressed as above, at the time and date appearing on the report of delivery. All documents received by the Trustee under the provisions of this Indenture, or photographic copies thereof, shall be retained in its possession until this Indenture shall be released in accordance with the provisions hereof, subject at all reasonable times to the inspection of the Issuer and the Registered Owners and the agents and representatives thereof. The Issuer, the Trustee, and the Credit Facility Issuer may, by notice given hereunder, designate any further or different addresses to which subsequent notices, certificates or other communications shall be sent. Section 1153. Trustee as Paying Agent and Bond Registrar. The Trustee is hereby designated and agrees to act as Paying Agent and Bond Registrar for and in respect of the Bonds and any amounts received under the Credit Facility or the Transferring Entity Agreements. Section 1154. Rights Under Indenture. Except as herein otherwise expressly provided, nothing in this Indenture expressed or implied is intended or shall be construed to confer upon any person, firm or corporation other than the parties hereto and the Registered Owners of the Bonds issued under and secured by this Indenture, any right, remedy or claim, legal or equitable, under or by reason of this Indenture or any provision hereof, this Indenture and all its provisions being intended to be and being for the sole and exclusive benefit of the parties hereto and the Registered Owners from time to time of the Bonds issued hereunder. Section 1155. Form of Certificates and Opinions. Except as otherwise provided in this Indenture, any request, notice, certificate or other instrument from the Issuer to the Trustee shall be deemed to have been signed by the proper party or parties if signed by the Issuer Representative, and the Trustee may accept and rely upon a certificate signed by the Issuer Representative as to any action taken by the Issuer. Section 1156. Severability. In case any one or more of the provisions of this Indenture or of the Bonds issued hereunder shall for any reason be held to be illegal or invalid, such illegality or invalidity shall not affect any other provision of this Indenture 98 100 or of the Bonds, but this Indenture and the Bonds shall be construed and enforced as if such illegal or invalid provision had not been contained therein. In case any covenant, stipulation, obligation or agreement of the Issuer contained in the Bonds or in this Indenture shall for any reason be held to be in violation of law then such covenant, stipulation, obligation or agreement shall be deemed to be the covenant, stipulation, obligation or agreement of the Issuer to the full extent permitted by law. Section 1157. Covenants of Issuer Not Covenants of Officials Individually. No covenant, stipulation, obligation or agreement contained herein shall be deemed to be a covenant, stipulation, obligation or agreement of any present or future director, officer, agent or employee of the Issuer or the Board in his individual capacity, and neither directors, nor officers of the Issuer shall be liable personally on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof. No director, officer, agent or employee of the Issuer shall incur any personal liability in acting or proceeding or in not acting or not proceeding in accordance with the terms of this Indenture. Section 1158. State Law Governs. This Indenture shall be governed by and construed in accordance with the laws of the State. Section 1159. Payments or Performance Due on Days Other Than Business Days. In any case where the date of maturity of interest on or principal of the Bonds or the date fixed for redemption of the Bonds or specified last date for the performance of any act or the exercising of any right shall be a day other than a Business Day, then such payment may be made or act performed or right exercised on the next succeeding Business Day with the same force and effect as if made, performed or exercised on the specified date, provided that interest shall accrue for the period of any such extension. Section 1510. Consent of Credit Facility Issuer. All provisions hereof and in the Deed of Trust regarding consents, directions, appointments or requests by the Credit Facility Issuer will be deemed not to require such consents, directions, appointments or requests by the Credit Facility Issuer and will be read as if the Credit Facility Issuer were not mentioned therein during any time in which (a) the Credit Facility Issuer is in default in its obligation to make payments under the Credit Facility in accordance with its terms or (b) the Credit Facility will at any time for any reason cease to be valid and binding upon the Credit Facility Issuer or will be declared to be null and void, or the validity or enforceability thereof is being protested by the Credit Facility Issuer or any governmental agency or authority, or if the Credit Facility Issuer is denying further liability or obligation under the Credit Facility, or (c) the bankruptcy or insolvency of the Credit Facility Issuer. 99 101 Section 1511. Execution in Counterparts. This Indenture may be executed in multiple counterparts, each of which shall be regarded for all purposes as an original, and such counterparts shall constitute but one and the same instrument, and no one counterpart of which need be executed by all parties. 100 102 IN WITNESS WHEREOF, the Corrections Corporation of America has caused this Indenture to be executed in its name and on its behalf by the Chairman and Chief Executive Officer of the Issuer and the seal of the Issuer to be impressed hereon and attested by the Secretary of the Issuer; and the Trustee has caused this Indenture to be executed in its name and on its behalf by an authorized representative, and its corporate seal to be impressed hereon and attested by a responsible officer, all as of the date and year first above written. Corrections Corporation of America, as Issuer (SEAL) By: ---------------------------------------- Title: Chairman and Chief Executive Officer ATTEST: - ------------------------------- Secretary Liberty Bank and Trust Company of Tulsa, National Association as Trustee (SEAL) By: ------------------------------------- Title: -------------------------------------- ATTEST: - ------------------------------- Secretary - SIGNATURE PAGE - 103 STATE OF TENNESSEE ) ) SS: COUNTY OF DAVIDSON ) I, the undersigned Notary Public, certify that Doctor R. Crants personally came before me this day and acknowledged that the foregoing instrument was signed in the name of Corrections Corporation of America by its Chairman and Chief Executive Officer, and attested by its Secretary. WITNESS my hand and official seal, this the ______ day of July, 1996. ----------------------------------- Notary Public My Commission expires: - ----------------------------- (Notary Seal) - NOTARY PAGE - 104 STATE OF OKLAHOMA ) ) SS: COUNTY OF ________ ) I, the undersigned Notary Public, certify that_________________________ ________________________________ personally came before me this day and acknowledged that he/she is the Vice President of Liberty Bank and Trust Company of Tulsa, National Association, and that by authority duly given and as the act of said banking association, the foregoing instrument was signed in its name by its ______________, sealed with its corporate seal, and attested by its Secretary. WITNESS my hand and official seal, this the ______ day of July, 1996. ------------------------------------ Notary Public - ------------------------------------ (Notary Seal) - NOTARY PAGE - 105 EXHIBIT A FORM OF NOTICE OF CONVERSION TO FIXED RATE Date: ___________________ To: [Registered Owners of Bonds] RE: $______________ Detention Center Revenue Bonds, Series 1996 Ladies and Gentlemen: (1) The interest rate on the above-captioned Bonds is being converted to the Fixed Rate (as defined in, and to be determined in, this Indenture) effective on ______________ ___, 19__ (the "Conversion Date" as defined in this Indenture). (2) After ________________ ___, 19___ (the tenth day preceding the Conversion Date), Registered Owners of Bonds shall not be entitled to deliver Bonds to First Union National Bank of Virginia, as Tender Agent, for purchase pursuant to Section 203 of this Indenture. (3) The Preliminary Fixed Rate (as defined in, and determined as described in, this Indenture) is __________ __%. (4) Depending on market conditions, the Fixed Rate may be higher but in no event shall be lower than the Preliminary Fixed Rate. (5) Payment of the Bonds [will] [will not] be supported by a Credit Facility (as defined in this Indenture) after the Conversion Date [, which Credit Facility will be issued by __________________ effective on the Conversion Date and expiring on ___________________, _____ unless otherwise terminated by the terms thereof]. (6) All Bonds shall be deemed to have been tendered for purchase (without the right to retain). In order to receive payment of the purchase price of any Bond, the Registered Owner of such Bond must deliver such Bond to the office of First Union National Bank of Virginia, as Tender Agent, at Richmond, Virginia before 10:00 a.m. on the Conversion Date. Liberty Bank and Trust Company of Tulsa, National Association, as Trustee By: -------------------------------------- Title: ------------------------------- 106 EXHIBIT B $____________________________ No. _________________ REQUISITION AND CERTIFICATE ________________, 19_____ Liberty Bank and Trust Company of Tulsa, National Association 15 East 5th Street Tulsa, OK 74103 Attention: Corporate Trust Department Re: Corrections Corporation of America $______________ Detention Center Revenue Bonds, Series 1996 Ladies and Gentlemen: On behalf of the Corrections Corporation of America (the "Issuer"), I hereby requisition, from the funds representing the proceeds of the sale of the Issuer's $_________________ Detention Center Revenue Bonds, Series 1996 and dated as of _______________, 1996 (the "Bonds"), which funds are held by you in the Detention Center Revenue Bonds, Series 1996 Project Fund in accordance with the Trust Indenture (the "Indenture") dated as of August 1, 1996, from the Issuer to you, the sum of $_________________ from the Project Fund to be used to pay to the payees the amounts designated on the schedule attached hereto. Capitalized terms not defined herein shall have the meaning set forth in this Indenture. I hereby certify that (a) the obligation to make such payment was incurred by the Issuer as a Cost of the Project, and has not been the basis for any prior requisition which has been paid; (b) the Issuer has not received written notice of any lien, right to lien or attachment upon, or claim affecting the right of such payee to receive payment of, any of the money payable under this requisition to any of the persons, firms or corporations named herein, or if any notice of any such lien, attachment or claim has been received, such lien, attachment or claim has been released or discharged or will be released or discharged upon payment of this requisition; (c) no Event of Default or event which after notice or lapse of time or both would constitute an Event of Default has occurred and not been waived; and (d) the amount requisitioned hereby is being expended in a manner consistent in all material respects with the terms of this Indenture. [The following paragraph is to be completed when any requisition and certificate includes any item for payment for labor, for indicated items of equipment or to contractors, builders or materialmen.] 107 I hereby certify that insofar as the amount covered by the above requisition includes payments to be made for labor or to contractors, builders or materialmen, including payment for equipment, materials or supplies, in connection with the Costs of the Project: (i) all obligations to make such payments have been properly incurred, (ii) any such labor was actually performed and any such equipment, materials or supplies were actually furnished or installed on or about the Project and are a proper charge against the Costs of the Project, and (iii) such equipment, materials or supplies either are not subject to any lien or security interest or, if the same are so subject, such lien or security interest will be released or discharged upon payment of this requisition. --------------------------------- Issuer Representative 108 SCHEDULE TO REQUISITION AND CERTIFICATE NO. ____________________ Payee Item - ----- ---- Amount ------ EX-10.156 7 GUARANTEE AGREEMENT DATED JULY 10, 1996 1 Exhibit 10.156 GUARANTY AGREEMENT DATED AS OF JULY 10, 1996 AMONG CORRECTIONS CORPORATION OF AMERICA, AS THE GUARANTOR, EDEN CORRECTIONAL FACILITIES CORPORATION, AS THE ISSUER AND LIBERTY BANK AND TRUST COMPANY OF TULSA, NATIONAL ASSOCIATION, AS THE TRUSTEE 2 TABLE OF CONTENTS
Page ---- PRELIMINARY STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I - DEFINITIONS; INTERPRETATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 SECTION 1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 1.3 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE II - AGREEMENTS OF THE ISSUER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 2.1 Effectiveness of Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 2.2 Guaranty Fee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 2.3 Payments to the Guarantor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 2.4 Subordinate Deed of Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 2.5 Guarantor as Owner of the Facility; Assumption of Bond Obligations . . . . . . . . . . . . . . 12 ARTICLE III - GUARANTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 3.1 Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 3.2 Guaranty Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 3.3 Action by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 3.4 Renewals, Amendments and Other Security; Partial Releases . . . . . . . . . . . . . . . . . . 16 SECTION 3.5 Payments Free and Clear of Taxes, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 3.6 Effect of Debtor Relief Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 3.7 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 3.8 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 3.9 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 3.10 Full Force and Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 3.11 Benefits of Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE IV - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 4.1 Organization, Qualification, Authorization, Etc. . . . . . . . . . . . . . . . . . . . . . . . 20 SECTION 4.2 Financial Statements, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 4.3 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 4.4 Changes, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 4.5 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 4.6 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 4.7 Franchises, Licenses, Agreements, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 4.8 Compliance with Applicable Law, Other Instruments, Etc. . . . . . . . . . . . . . . . . . . . 23 SECTION 4.9 Litigation, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-i- 3 SECTION 4.10 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 4.11 Governmental Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 4.12 Status Under Certain Federal Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 4.13 Operating Agreement; Government Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 4.14 Chief Executive Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 4.15 Review of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 4.16 Credit Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 4.17 Private Offering by Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE V - AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 5.1 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 5.2 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 5.3 Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 5.4 Indemnification for Breach of Representations or Covenants . . . . . . . . . . . . . . . . . . 27 SECTION 5.5 Performance of Operating Agreement, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 5.6 Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE VI - FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 6.1 Consolidated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 6.2 Consolidated Fixed Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 6.3 Total Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE VII - GUARANTOR EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 7.1 Guarantor Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 7.2 Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE VIII - BOND PURCHASE OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE IX - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 9.1 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 9.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 9.3 Amendment and Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 9.4 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 9.5 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 9.6 Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 9.7 Conflicts With Indemnity Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 9.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 9.9 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 9.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
-ii- 4 GUARANTY AGREEMENT THIS GUARANTY AGREEMENT is made and entered into as of July 10, 1996, by and among CORRECTIONS CORPORATION OF AMERICA, a corporation organized and existing under the laws of the State of Delaware (the "Guarantor"), EDEN CORRECTIONAL FACILITIES CORPORATION, a non-profit corporation organized and existing under the laws of the State of Texas (the "Issuer"), and LIBERTY BANK AND TRUST COMPANY OF TULSA, NATIONAL ASSOCIATION, as trustee under the hereinafter defined Indenture (in such capacity together with a successor trustee under the Indenture, the "Trustee"), a national banking association having its principal corporate trust office located at Tulsa, Oklahoma. PRELIMINARY STATEMENTS A. On October 24, 1995, the Issuer issued its Taxable Detention Facility Revenue Bonds, Series 1995 (Eden Correctional Center Project) (the "Bonds") in the original principal amount of $22,875,000 pursuant to an Indenture of Trust dated as of October 24, 1995 between the Issuer and the Trustee, as amended by the First Supplemental Indenture of Trust dated as of the date hereof between the Issuer and the Trustee and consented to by Stephens Inc., an Arkansas corporation ("Stephens"), the original purchaser of the Bonds (the Indenture of Trust, as modified and supplemented by the First Supplemental Indenture of Trust, the "Indenture") under and between the Issuer and the Trustee, the proceeds of which were used for the purpose of financing (i) the acquisition and equipping of a detention center located in Eden, Texas known as the Eden Corrections Center (the "Facility"), (ii) certain costs of issuance in connection with the Bonds, (iii) a debt service reserve fund, and (iv) capitalized interest on the Bonds; B. Stephens now desires to sell the Bonds to Teachers Insurance and Annuity Association of America ("TIAA"); C. The Guarantor is willing to enter into this Guaranty (i) in consideration of the execution by the Issuer of that certain Purchase Option Agreement dated as of the date hereof granting to the Guarantor an option to purchase the Facility upon the terms and conditions specified therein (the "Purchase Option Agreement"), that certain Indemnification Agreement relating to Administrative Costs dated as of the date hereof (the "Indemnity Agreement") and the Subordinate Deed of Trust, as defined herein, (ii) to induce TIAA to purchase the Bonds from Stephens, (iii) to enhance the marketability of the Bonds and (iv) to induce the purchase of the Bonds by all who shall at any time become owners of the Bonds; NOW, THEREFORE, in consideration of the premises, the Guarantor does hereby, subject to the terms hereof, covenant and agree with the Issuer and the Trustee as follows: 5 ARTICLE I DEFINITIONS; INTERPRETATIONS SECTION 1.1 Definitions. As used in this Guaranty the following terms shall have the following meanings: "AFFILIATE" means any Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, the Company. A Person shall be deemed to control a corporation or other entity if (a) such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation or other entity, whether through the ownership of voting securities, by contract or otherwise or (b) such Person owns, directly or indirectly, five percent (5%) or more of any class of Voting Stock of such Person. "AGREEMENT" has the meaning specified in the Indenture. "ASSUMPTION AGREEMENT" has the meaning specified in Section 2.5. "ASSUMPTION TRANSACTIONS" has the meaning specified in Section 9.2. "BANKRUPTCY CODE" means Title 11 of the United States Code, as amended. "BANKRUPTCY LAW" has the meaning specified in Section 7.1(g). "BENEFIT ARRANGEMENT" means an employee benefit plan within the meaning of section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and with respect to which the Company or a member of the ERISA Group has an obligation, whether or not current or contingent, to make contributions. "BOND OBLIGATIONS" has the meaning specified in the Indenture. "BONDS" has the meaning specified in the Preliminary Statements. "BOP" means the United States Bureau of Prisons. "BUSINESS DAY" means any day other than a Saturday, Sunday or other day on which commercial banking institutions in New York, New York; Tulsa, Oklahoma or; Nashville, Tennessee are authorized or required by law, regulation or executive order to be closed. "CAPITAL LEASE" means, as to any Person, any lease or rental of real or personal property which, under generally accepted accounting principles, is or will be required to be capitalized on the balance sheet of such Person, taken at the amount thereof accounted for as indebtedness (net of interest expense) in accordance with such principles. -2- 6 "CAPITAL LEASE OBLIGATION" means any rental obligation in respect of a Capital Lease taken at the amount thereof accounted for as indebtedness (net of interest expense) in accordance with generally accepted accounting principles. "CASH FLOW PROJECTIONS" means the cash flow projections of the Facility based upon varying percentages of occupancy prepared on or about May 21, 1996 by Professor Charles W. Thomas of the University of Florida. "CERCLA" means the Federal Comprehensive Environmental Response, Compensation and Liability Act. "CITY" means the City of Eden, Texas, a political subdivision within the State of Texas. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "CONSOLIDATED FIXED CHARGE COVERAGE" means, at the end of any fiscal quarter (a) twice the Consolidated Operating Cash Flow for such fiscal quarter and the immediately preceding fiscal quarter divided by (b) Consolidated Fixed Charges for the next succeeding four fiscal quarters. "CONSOLIDATED FIXED CHARGES" means, for any period, the sum of Consolidated Rentals and Consolidated Interest Expense for such period. In the event that Consolidated Fixed Charges are to be determined for any future period or periods and any component of Consolidated Rentals or Consolidated Interest Expense may fluctuate or is determined on the basis of a rate or criterion that may fluctuate during such period, Consolidated Rentals or Consolidated Interest Expense, as the case my be, shall be calculated assuming that such amount, rate or criterion in effect on the date such calculation is made shall be in effect throughout such period. "CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest, whether paid or accrued (including that attributable to Capital Lease Obligations), of the Guarantor and the Restricted Subsidiaries on a consolidated basis, including all commissions, discounts and other fees and charges owed with respect to letters of credit and banker's acceptance financing and net costs under interest rate exchange or cap agreement providing interest rate protection, all as determined in conformity with generally accepted accounting principles. "CONSOLIDATED NET INCOME" means, for any period, the net earnings (or losses) for the Guarantor and the Restricted Subsidiaries for such period taken as a single accounting period determined in conformity with generally accepted accounting principles consistently applied, but excluding: (i) any gain or loss that under generally accepted accounting principles consistently applied would be properly classified as an extraordinary item; -3- 7 (ii) any gain arising from a sale of a capital asset that is not made in the ordinary course of business of the Guarantor and the Restricted Subsidiaries; (iii) any gain arising from any write-up of assets; (iv) the proceeds of any life insurance policy; (v) earnings of any Person substantially all of the assets of which have been acquired in any manner (whether through merger or otherwise) to the extent that such earnings were realized prior to the date of such acquisition; and (vi) earnings of any Person to which substantially all the assets of the Guarantor shall have been sold or transferred, into which the Guarantor shall have been merged, or with which the Guarantor shall have been consolidated, to the extent that such earnings were realized prior to the date of such transfer, merger or consolidation. All losses (including any loss that, under generally accepted accounting principles consistently applied, would be properly classified as an extraordinary loss) shall be included in determining such net earnings (or losses). "CONSOLIDATED NET WORTH" means, as of the time of any determination thereof, total stockholders' equity, as reported on the balance sheet, less Redeemable Preferred Stock, all determined on a consolidated basis for the Guarantor and the Restricted Subsidiaries in accordance with generally accepted accounting principles, including the making of appropriate deductions for minority interests, if any, in the Restricted Subsidiaries. "CONSOLIDATED OPERATING CASH FLOW" means for any period, without duplication, the sum of (a) Consolidated Net Income plus (b) to the extent deducted in computing Consolidated Net Income, depreciation and amortization and other similar non-cash charges, accrued income tax expenses, Operating Lease payments, and interest expense of the Guarantor and the Restricted Subsidiaries for such period. "CONSOLIDATED RENTALS" means, for any period, all amounts payable by the Guarantor and any Restricted Subsidiary as lessees or sublessee relating to Operating Leases. "CONSOLIDATED TOTAL ASSETS" means, at any date of determination thereof, the consolidated total assets of the Guarantor and the Restricted Subsidiaries as reflected on the most recent annual consolidated balance sheet. "CONSOLIDATED TOTAL CAPITALIZATION" means, as of the time of any determination thereof, the sum of Consolidated Total Debt and Consolidated Net Worth. -4- 8 "CONSOLIDATED TOTAL DEBT" means, as of the time of any determination thereof, the consolidated Total Debt of the Guarantor and the Restricted Subsidiaries. "CURRENT DEBT" has the meaning specified in the definition of "Funded Debt." "DEBT" has the meaning specified in the definition of "Funded Debt." "ENVIRONMENTAL LAWS" means laws (including the common law), regulations or rules, and any applicable judicial or administrative interpretations thereof, as well as any applicable judicial or administrative orders, decrees or judgments, relating to pollution, environmental, health, safety, industrial hygiene or similar matters. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute thereto. "ERISA GROUP" means all corporations, trades or businesses (whether or not incorporated) and other persons or entities which, together with the Guarantor, are treated as a single employer under section 414(b), (c), (m) or (o) of the Code. "EVENT OF DEFAULT" has the meaning specified in the Indenture. "EXCHANGE ACT" means the Securities Exchange Act of 1934. "EXISTING GOVERNMENT CONTRACTS" means, collectively, (a) the Intergovernmental Agreement #010-9, as amended to date hereof, between the City and the BOP relating to the Facility and (b) Intergovernmental Service Agreement (IGSA-A/DLS 93-6079), as amended to the date hereof, between the City and the INS relating to the Facility. "FACILITY" has the meaning specified in the Preliminary Statements. "FINANCING DOCUMENTS" has the meaning specified in the Indenture. "FUNDED DEBT" means and includes without duplication (a) any obligation payable more than one year from the date of the creation thereof (including the current portion of Funded Debt), which under generally accepted accounting principles is shown on the balance sheet as a liability (including obligations under Capital Leases and excluding reserves for deferred income taxes and other reserves to the extent that such reserves do not constitute an obligation), (b) guarantees, endorsements (other than endorsements of negotiable instruments for collection in the ordinary course of business) and other contingent liabilities (whether direct or indirect) in connection with the obligations, stock or dividends of any Person, including obligations under contracts to supply funds to or in any other manner invest in any Person, (c) obligations under any contract to purchase, sell or lease (as lessee or lessor) property or to purchase or sell services, primarily for the purpose of enabling a Person to make payment of obligations or to assure the Holder of such -5- 9 obligations against loss including obligations under any contract for the purchase of materials, supplies or other property or service if such contract (or any related document) requires that payment for such materials, supplies, or other property or services shall be made regardless of whether or not delivery of such materials, supplies or other property or services is ever made or tendered, (d) obligations under any contract to pay or purchase obligations of a Person, or to advance or supply funds for the payment or purchase of such obligations, and (e) any agreement to assure a creditor of a Person against loss. "Current Debt" means any obligation for borrowed money (including notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money) payable on demand or within a period of one year from the date of the creation thereof, provided that any obligation shall be treated as Funded Debt, regardless of its terms, if such obligation is renewable pursuant to the terms thereof or of a revolving credit or similar agreement effective for more than one year after the date of creation of such obligation, or may be payable out of the proceeds of a similar obligation pursuant to the terms of such obligation or of any such agreement. Any obligation secured by a Lien on, or payable out of the proceeds of production from, property of the Guarantor or any Subsidiary shall be deemed to be Funded Debt or Current Debt, as the case may be, of the Guarantor or such Subsidiary even though such obligation shall not be assumed by the Guarantor or such Subsidiary. "Debt" means Funded Debt and/or Current Debt, as the case may be. "GOVERNMENT CONTRACTS" means, collectively, (a) the Existing Government Contracts, (b) all future agreements entered into by the City and the BOP or INS, (c) any agreement entered into by any Transferring Entity to house prisoners at the Facility and (d) all amendments to any of the agreements described in clauses (a), (b) or (c). "GOVERNMENTAL AUTHORITY" means (a) the government of any federal, state, municipal or other political subdivision in which property of the Guarantor or any Subsidiary, or any part thereof, is located and (b) any other government exercising jurisdiction over the Guarantor or any Restricted Subsidiary, in each case, including all agencies and instrumentalities of such government. "GOVERNMENTAL REQUIREMENTS" means laws, ordinances, statutes, codes, rules, regulations, orders, decrees and judgments of any Governmental Authority. "GUARANTEED OBLIGATIONS" has the meaning specified in Section 3.1. "GUARANTOR" has the meaning specified in the introduction to this Guaranty. "GUARANTOR DEFAULT" means any event or condition that constitutes, or with the giving of notice or the lapse of time or both would constitute, a Guarantor Event of Default. "GUARANTOR EVENT OF DEFAULT" has the meaning specified in Section 7.1. -6- 10 "GUARANTY" means this Guaranty Agreement, as amended, supplemented or modified from time to time. "HAZARDOUS MATERIALS" means any hazardous substance, hazardous or toxic waste, pollutant, contaminant, oil, petroleum product, or other substance (a) which is listed, regulated, or designated as toxic or hazardous (or words of similar meaning and regulatory effect), or with respect to which remedial obligations may be imposed, under any Environmental Laws, or (b) exposure to which may pose a hazard to personal health or safety. "HOLDER" has the meaning specified in the Indenture. "INDEMNITEES" means the Trustee, the Holders from time to time of the Bonds and their respective officers, directors, shareholders, partners, employees, agents, servants, insurers, successors and assigns. "INDEMNITEE" means one of the Indemnitees. "INDEMNITY AGREEMENT" has the meaning specified in the Preliminary Statements. "INDENTURE" has the meaning specified in the Preliminary Statements. "INS" means the United States Immigration and Naturalization Service. "ISSUER" has the meaning specified in the introduction to this Guaranty. "LIEN" means any mortgage, pledge, security interest, easement, restrictive covenant, encumbrance, lien or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction). "MAKE-WHOLE AMOUNT" has the meaning specified in the Indenture. "MATERIAL ADVERSE EFFECT" means, relative to any occurrence of whatever nature (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding), and after taking into account actual insurance coverage and effective indemnification with respect to such occurrence, (a) a material adverse effect on the financial condition, business, operations or properties of the Guarantor and the Restricted Subsidiaries taken as a whole, (b) the impairment of the ability of the Guarantor to perform any of its payment or other material obligations hereunder or under the Operating Agreement or the ability of the Trustee to enforce any of such obligations or any of its remedies hereunder or (c) the subjection of the Trustee or any of the Holders of the Bonds to any civil or criminal liability. "MORTGAGE" has the meaning specified in the Indenture. -7- 11 "MULTIEMPLOYER PLAN" means an employee pension benefit plan within the meaning of section 4001(a)(3) of ERISA to which the Guarantor or any member of the ERISA Group has an obligation, whether or not current or contingent, to make contributions, including for this purpose any person who used to be a member of the ERISA Group in this or the preceding five plan years. "OFFICER'S CERTIFICATE" means a certificate executed on behalf of the Guarantor by its Chairman or its Chief Financial Officer. "OPERATING AGREEMENT" means the Operation and Maintenance Services Agreement dated as of October 24, 1995 among the City, the Issuer and the Guarantor. "OPERATING LEASES" means leases of real, personal or mixed property other than Capital Leases. "OTHER TAXES" has the meaning specified in Section 3.5. "OUTSTANDING" has the meaning specified in the Indenture. "PBGC" means the Pension Benefit Guaranty Corporation of any governmental authority succeeding to any of its functions under ERISA. "PERMITTED BUSINESS" means the design, construction, ownership, start-up, management or operation of detention and correctional facilities together with associated consulting services and ancillary services, including prisoner transport services. "PERSON" means and includes an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof. "PLAN" means an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or is subject to the minimum funding standards under section 412 of the Code and either (a) is maintained, or contributed to, by the Guarantor or any member of the ERISA Group or (b) has at any time within the preceding six years been maintained, or contributed to, by the Guarantor or any person which was at such time a member of the ERISA Group. "PRIVATE PLACEMENT MEMORANDUM" means the Private Placement Memorandum including the exhibits thereto dated October 24, 1995 relating to the private offering by the Issuer of the Bonds. "PURCHASE DATE" has the meaning specified in Article VII. -8- 12 "PURCHASE OPTION" has the same meaning given the term "Options" in the Purchase Option Agreement in effect on the date hereof. "PURCHASER'S LETTER" has the meaning specified in the Indenture. "PURCHASE OPTION AGREEMENT" has the meaning specified in the Preliminary Statements. "PURCHASE PRICE" has the meaning specified in Article VII. "RELEASE" has the meaning specified in CERCLA # 101(22) (42 U.S.A. # 9601(22)). "REQUIRED HOLDERS" means the Holder or Holders of at least a majority of the aggregate Outstanding principal amount of the Bonds at such time. "RESPONSIBLE OFFICER" means the Chairman, any Vice President, the Chief Financial Officer or the Treasurer of the Guarantor. "RESTRICTED SUBSIDIARY" means a Subsidiary (a) organized under the laws of any state of the United States of America (i) at least 80% of the total combined voting power of all classes of Voting Stock and (ii) not less than 100% of the stock or equity interest of each other class of which, shall, in each case, at the time as of which any determination is being made, be owned by the Guarantor either directly or through any Restricted Subsidiary, (b) engaged in a Permitted Business and (c) whose assets and operations are located within the United States of America. "SECURITIES ACT" means the Securities Act of 1933, as amended. "STEPHENS" has the meaning specified in the Preliminary Statements. "SUBORDINATE DEED OF TRUST" has the meaning specified in Section 2.4. "SUBSIDIARY" means any corporation, partnership or other entity of which (a) a majority of the total combined voting power of all classes of Voting Stock and (b) not less than 100% of the stock or other equity interest of every other class, in each case, at the time as of which any determination is being made, is in each case owned by the Guarantor either directly, through one or more Subsidiaries or both. "SUPPLEMENT" has the meaning specified in Section 2.5. "TAXES" has the meaning specified in Section 3.5. "TERMINATION EVENT" means (a) a "Reportable Event" described in section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the -9- 13 provision for 30-day notice to the PBGC under such regulations), or (b) the withdrawal of the Guarantor or any member of the ERISA Group from a Plan during a plan year in which it was a "substantial employer" as defined under section 4001(a)(2) of ERISA, or (c) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under section 4041(c) of ERISA, or (d) the institution of proceedings to terminate a Plan by the PBGC, or (e) the imposition of a lien pursuant to section 412(n) of the Code, or (f) any other event or condition which might constitute grounds under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan. "TIAA" has the meaning specified in the Preliminary Statements. "TOTAL DEBT" means, at the date of any determination thereof, the sum of Current Debt and Funded Debt. "TRANSACTION DOCUMENTS" mean the Financing Documents, the Government Contracts, the Operating Agreement and any other document issued by the Issuer, the City or the Guarantor in favor of the Trustee or any other Person in connection with the issuance of Bonds or pursuant to the Indenture. "TRANSFERRING ENTITY" means any one or more governmental entities which may from time to time contract to transfer their inmates for incarceration in the Facility. "TRUSTEE" has the meaning specified in the Preliminary Statements. "TRUSTEE'S FEES AND EXPENSES" has the meaning specified in the Indenture. "UNFUNDED LIABILITIES" has the meaning specified in Section 7.01(n). "VOTING STOCK" means, when used with respect to any Subsidiary, any shares of stock or other ownership interests of such Subsidiary having general voting power under ordinary circumstances to elect a majority of the Board of Directors of such Subsidiary (irrespective of whether at the time stock or ownership interests of any other class or classes shall have or might have voting power by reason of the happening of any contingency). "WHOLLY OWNED SUBSIDIARY" means any Subsidiary organized under the laws of any state of the United States of America which conducts the major portion of its business in the United States of America, and all of the stock or other ownership interests of every class of which, except director's qualifying shares shall, at the time as of which any determination is being made, be owned by the Guarantor either directly or through Wholly Owned Subsidiaries. SECTION 1.2 Accounting Terms. All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles and, except as otherwise herein expressly provided, the generally accepted accounting -10- 14 principles which shall be applied under this Guaranty are those which shall be in effect from time to time. SECTION 1.3 Interpretation. (a) In this Guaranty, unless a clear contrary intention appears: (i) the singular number includes the plural number and vice versa; (ii) reference to any gender includes each other gender; (iii) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Guaranty as a whole and not to any particular Article, Section or other subdivision; (iv) reference to any Person includes such Person's successors and assigns; (v) reference to any agreement, document or instrument means such agreement, document or instrument as in effect on the date hereof and as the same may thereafter be amended, supplemented or modified, provided, however, that reference to any Financing Document or any other Transaction Document means such Financing Document or Transaction Document, as amended, supplemented or modified in accordance with the terms thereof; (vi) unless the context indicates otherwise, reference to any Article or Section means such Article or Section hereof; (vii) the word "including" (and with correlative meaning "include") means including, without limiting the generality of any description preceding such term; (viii) with respect to the determination of any period of time, the word "from" means "from and including" and the word "to" means "to but excluding"; and (ix) reference to any law means such law as amended, modified, codified or re-enacted, in whole or in part, and in effect from time to time. (b) The Article and Section headings herein are for convenience only and shall not affect the construction hereof. (c) No provision of this Guaranty shall be interpreted or construed against any Person solely because that Person or its legal representative drafted such provision. -11- 15 ARTICLE II AGREEMENTS OF THE ISSUER SECTION 2.1 Effectiveness of Guaranty. This Guaranty shall become effective contemporaneously with the execution hereof by the Trustee, the Corporation and the Guarantor and the sale of the Bonds by Stephens to TIAA. SECTION 2.2 Guaranty Fee. The Issuer hereby agrees to pay to the Guarantor a non-refundable guaranty fee for the period from and including the date upon which the Guarantor ceases to be the operator of the Facility until the expiration of the term hereof as provided in Article V hereof, computed for the actual number of days elapsed during a year of 365 or 366 days, as the case may be, at the rate of one percent (1%) per annum, calculated as a percentage of the principal amount of the Bonds from time to time. The amount of the guaranty fee shall be determined as of the date upon which the Guarantor ceases to be the operator of the Facility and thereafter as of January 1 of each year and shall be payable in equal monthly installments on or before the tenth of each month. The refusal, failure or inability of the Issuer to pay all or any portion of such guaranty fee shall not effect the obligations of the Guarantor hereunder. SECTION 2.3 Payments to the Guarantor. After each and every payment is made by the Guarantor under this Guaranty, the Issuer hereby agrees to pay to the Guarantor, within five (5) Business Days after demand therefor by the Guarantor, an amount equal to the amount paid by the Guarantor hereunder, and to pay interest on any and all such amounts from the date of the Guarantor's payment until payment in full thereof by the Issuer at the prime lending rate of NationsBank of Texas, N.A., determined as of the date of the Guarantors payment. SECTION 2.4 Subordinate Deed of Trust. As security for the Issuer's obligations to the Guarantor under Section 2.2 and Section 2.3, the Issuer shall execute and acknowledge a deed of trust (the "Subordinate Deed of Trust") granting a Lien on the Facility for the benefit of the Guarantor which shall be expressly subordinate and inferior to the Deed of Trust and otherwise in form and substance satisfactory to the Trustee and TIAA. Notwithstanding anything in the Financing Documents to the contrary, the Guarantor may accept a deed in lieu of foreclosure from the Corporation or may initiate foreclosure proceedings and sell the Facility under the Subordinate Deed of Trust, as provided therein, in either case, expressly subject to the Lien of the Mortgage, but only if at the time of the execution of any deed by the Issuer to the Guarantor or the initiation of foreclosure proceedings (and at all times prior to any foreclosure sale of the Facility) neither any Guarantor Default nor Guarantor Event of Default shall exist. SECTION 2.5. Guarantor as Owner of the Facility; Assumption of Bond Obligations. If at any time the Guarantor becomes the owner of the Facility, whether pursuant to the Purchase Option Agreement, a deed executed by the Issuer in lieu of foreclosure, under the Subordinate Deed of Trust or otherwise, the Guarantor shall (a) immediately assume all of the Bond Obligations and all other obligations of the Issuer under the Bonds, the Indenture, the Mortgage, the Assignment of -12- 16 Leases and the Agreement pursuant to an assumption agreement (the "Assumption Agreement"), executed by the Guarantor, dated as of the date the Guarantor becomes the owner of the Facility and otherwise in form and substance satisfactory to the Trustee and the Required Holders; provided, however, the Assumption Agreement shall not require any increase in the rate of interest or the Make-Whole Amount applicable to the Bonds, shorten the average life of the Bonds, contain any representations, warranties or covenants other than those set forth in Article IV, Article V and Article VI of this Guaranty or, except as provided herein, require the payment of any additional fee to any Holder or any other Person as a condition to the effectiveness of the Assumption Agreement; (b) enter into a supplemental indenture of trust (the "Supplement") with the Trustee, dated as of the date of the Assumption Agreement, amending and supplementing the Indenture to include, (i) the covenants (and only the covenants) contained in Article V and Article VI of this Guaranty, (ii) the provisions of Section 7.1 of this Guaranty (set out in full and not by reference) and (iii) any defined terms used in said Article V, Article VI and Section 7.1; (c) deliver to the Trustee a certificate of an officer and of the secretary or an assistant secretary of the Guarantor dated the date of the Assumption Agreement certifying, (i) that the Board of Directors of the Guarantor (or a duly authorized committee thereof) (A) has authorized the execution, delivery and performance by the Guarantor of the Assumption Agreement and the Supplement, (B) has approved the form of the Assumption Agreement and the Supplement and (C) has authorized officers of such Guarantor to execute and deliver the Assumption Agreement and the Supplement, (ii) the incumbency and specimen signatures of the officers of the Guarantor executing the Assumption Agreement and the Supplement and (iii)(A) that the representations and warranties made by the Guarantor in this Guaranty were true and correct in all material respects on the date when made and are true and correct on the date of such certificate as though made on such date, (B) the absence of any proceedings for the dissolution or liquidation of the Guarantor and (C) the absence of the occurrence and continuance of any Event of Default or other event that with the giving of notice or the passage of time or both could become an Event of Default, in each case, under the Indenture as supplemented and amended by the Supplement; (d) cause an opinion of counsel to the Guarantor to be delivered to the Trustee, addressed to the Trustee and upon which the Holders of the Bonds may expressly rely and otherwise in form and substance reasonably satisfactory to the Trustee and the Required Holders, covering, inter alia, the enforceability against the Guarantor of the Assumption Agreement, the Indenture as supplemented by the Supplement, the Bonds, the Mortgage, the Assignment of Leases and the Agreement; and (e) pay all reasonable expenses of the Trustee, each Holder and the Issuer in connection therewith. ARTICLE III GUARANTY SECTION 3.1 Guaranty. (a) The Guarantor hereby unconditionally and irrevocably guarantees the full and prompt payment in full when due in lawful money of the United States, upon maturity by acceleration or otherwise, and at all times thereafter, of (i) any and all of the Bond Obligations, including all such amounts which would become due but for the operation of the -13- 17 automatic stay under Section 362(a) of the Bankruptcy Code and the operation of Sections 502(b) and 506(b) of the Bankruptcy Code, except as such sections are applicable in connection with a bankruptcy proceeding initiated by or against the Guarantor, (ii) all other amounts that the Issuer may from time to time owe to the Trustee under the Indenture and the other Financing Documents and (iii) all Trustees Fees and Expenses and all costs, expenses and liabilities incurred, or resulting from any permitted or required action, by the Trustee under the Financing Documents (including, without limitation, the performance of its duties, the exercise of its rights and powers under, and the enforcement of, the Financing Documents) and for which the Trustee is entitled to be compensated, indemnified or reimbursed pursuant to the Indenture (the obligations of the Guarantor described in clauses (i), (ii) and (iii) being collectively, the "Guaranteed Obligations"). In addition, the Guarantor agrees to pay the fees, costs and expenses described in Section 9.2. The Guarantor agrees that this Guaranty constitutes a guaranty of payment when due and not of collection and waives any right that any resort be had by the Trustee, any Holder of a Bond or any other Person to any of the security held for payment of any of the Bond Obligations or to any balance of any deposit account or credit on the books of the Trustee, any Holder or any other Person in favor of the Issuer or any other Person. (b) The Guarantor further agrees, in furtherance of the foregoing and not in limitation of any other right which the Trustee, any Holder of a Bond or any other Person may have at law or in equity against the Guarantor by virtue hereof, upon the failure of the Issuer to pay any of the Bond Obligations and other obligations under the Financing Documents when and as the same shall become due, whether by required prepayment, declaration or otherwise (including amounts which would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code) (except as such section is applicable in connection with a bankruptcy proceeding initiated by or against the Guarantor), the Guarantor will forthwith pay, or cause to be paid, in cash, to the Trustee for the ratable benefit of the Holders of the Bonds, an amount in the aggregate equal to the sum of the unpaid principal amount of the Guaranteed Obligations then due as aforesaid, accrued and unpaid interest on the Bond Obligations and the other Guaranteed Obligations (including interest which, but for the filing of a petition in bankruptcy with respect to the Issuer, would accrue on the Bond Obligations) and all other Guaranteed Obligations then owed to the Trustee and the Holders of the Bonds as aforesaid. SECTION 3.2 Guaranty Absolute. The Guarantor agrees that the Guaranteed Obligations may be extended or renewed, in whole or in part, without notice or further assent from it, and that the Guarantor will remain bound upon this Guaranty notwithstanding any extension, renewal or other alteration of any Guaranteed Obligation. To the extent permitted by applicable law, the obligations of the Guarantor under this Guaranty shall not be subject to any reduction, limitation, impairment or termination for any reason, including, without limitation, any claim of waiver, release, surrender, alteration or compromise of any of the Guaranteed Obligations, and shall not be subject to any defense or setoff, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of any of the Guaranteed Obligations, discharge of the Issuer or any other Person other than the Guarantor from any of the Guaranteed Obligations in a bankruptcy or similar proceeding or otherwise. Without limiting the generality of the foregoing, to -14- 18 the extent permitted by applicable law, the obligations of the Guarantor under this Guaranty shall not be discharged, impaired or otherwise affected by: (a) the compromise, settlement, release or termination of any or all of the obligations, covenants or agreements of the Issuer under the Indenture or any other Financing Document or the City or the Guarantor under the Operating Agreement; (b) the failure to give notice to the Guarantor of the occurrence of a default under the terms and provisions of this Guaranty, the Indenture or any other Transaction Document, except as specifically provided in this Guaranty; (c) the sale, assignment or mortgaging or the purported assignment or mortgaging of all or any part of the interest of the Issuer in the Facility; (d) the waiver of the payment, performance or observance by the Issuer, the City or the Guarantor of any of the obligations, covenants, or agreements of any of them contained in any Financing Document, the Operating Agreement or this Guaranty; (e) the extension of the time for payment of any of the Bond Obligations or any of the other Guaranteed Obligations or of the time for performance of any other obligations, covenants or agreements under or arising out of this Guaranty or any of the other Transaction Documents or the extension or the renewal of any thereof; (f) any rescission, waiver, modification or amendment (whether material or otherwise) of any of the terms or provisions of this Guaranty or any other Financing Document; (g) the taking or the failure to take any of the actions referred to in any Transaction Document or under this Guaranty; (h) any failure, omission, delay or lack on the part of the Issuer, the Trustee or any Holder to assert any claim or demand against the Guarantor hereunder or against the Guarantor or the Issuer under any Transaction Document or to enforce, assert or exercise any right, power or remedy conferred on the Issuer, the Trustee or any Holder in this Guaranty or under any Transaction Document, or any other act or acts on the part of the Issuer, the Trustee or any of the Holders from time to time of the Bonds; (i) the voluntary or involuntary liquidation, dissolution, marshaling of assets and liabilities, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition with creditors or readjustment of, or other similar proceedings affecting the Guarantor, the Issuer or the City or any of the assets of any of them, or any allegation or contest of the validity of this Guaranty in any such proceeding or the sale or other disposition of all or substantially all the assets of the Issuer or the Guarantor; -15- 19 (j) the release or discharge of the Guarantor from the performance or observance of any obligation, covenant or agreement contained in this Guaranty by operation of law; (k) the failure to perfect any security interest in, or the release of, any collateral security held by the Trustee or any other Person for the Bond Obligations and the other Guaranteed Obligations or any of them or any Holder or any other Person to exercise any right or remedy against the Issuer or against any other guarantor of any of the Bond Obligations and the other Guaranteed Obligations; (l) the default, failure or delay, willful or otherwise, in the performance by the Guarantor or the Issuer to perform any of its obligations set forth herein or by the Guarantor, the Issuer or any other Person to perform any of its obligations set forth in any Transaction Document; (m) any lack of validity or enforceability of the Indenture, any of the other Financing Documents or the Operating Agreement or any other agreement or instrument executed pursuant to the Indenture; (n) any change in the time, manner or place of payment of, or in any other term of, all or any part of the Bond Obligations or any other consent to departure from any Transaction Document; or (o) to the extent permitted by law, any other act or thing or omission or delay to do any other act or thing which may or might in any manner or to any extent vary the risk of the Guarantor or which would otherwise operate as a discharge of the Guarantor as a matter of law or equity. SECTION 3.3 Action by Trustee. In the event of a default by the Issuer of its payment obligations under the Indenture and the other Financing Documents, the Trustee, in its sole discretion, may proceed first and directly against the Guarantor under this Guaranty without proceeding against or exhausting any other remedies which it may have against the Issuer or any other Person and without resorting to any collateral security held by it, and in so proceeding against the Guarantor, no election of remedies shall be deemed made as to the Issuer or this Guaranty or any collateral security or remedy. SECTION 3.4 Renewals, Amendments and Other Security; Partial Releases. The Trustee for the benefit of the Holders of the Bonds may, from time to time, whether before or after any of the Guaranteed Obligations shall become due and payable, without notice to the Guarantor or any other Person, take any or all of the following actions: (a) retain or obtain a security interest in any property to secure payment and performance of any of the Bond Obligations or any of the other Guaranteed Obligations, (b) retain or obtain the primary or secondary liability of any Person, in addition to the Guarantor, with respect to any of the Bond Obligations or any of the other Guaranteed Obligations, (c) create (pursuant to or as permitted by the Financing Documents), extend or renew for any period (whether or not longer than the original period) or alter or exchange any of the Bond Obligations or any of the other Guaranteed Obligations or release or compromise any -16- 20 obligation of any nature of any Person with respect thereto, (d) release or fail to perfect its security interest in, or surrender, release or permit any substitutions or exchange for, all or any part of any property securing any of the Bond Obligations or any of the other Guaranteed Obligations, or create, extend or renew for any period (whether or not longer than the original period) or release, compromise, alter or exchange any obligations of any nature of any Person with respect to any such property, and (e) after the occurrence and during the continuance of an Event of Default, enforce this Guaranty whether or not it (i) shall have resorted to any collateral security or any other property securing payment and performance of the Bond Obligations or any of the other Guaranteed Obligations or (ii) shall have proceeded against any other Person primarily or secondarily liable on any of the Bond Obligations or any of the other Guaranteed Obligations (all of the actions referred to in the preceding clauses (i) and (ii) being hereby expressly waived by the Guarantor to the extent permitted by applicable law). SECTION 3.5 Payments Free and Clear of Taxes, Etc. (a) Any and all payments made by the Guarantor hereunder shall be made free and clear of and without deduction for any present or future taxes, levies, imposts, deductions, charges, or withholdings, and all liabilities with respect thereto, excluding taxes imposed on net income and all income and franchise taxes of the United States and any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes"). If the Guarantor shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.5) each Holder shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Guarantor shall make such deductions and (iii) the Guarantor shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, the Guarantor agrees to pay any present or future stamp or documentary taxes, or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Guaranty (hereinafter referred to as "Other Taxes"). (c) The Guarantor will indemnify each Holder for the full amount of Taxes or Other Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this Section 3.5) paid by such Holder and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within thirty (30) days from the date each Holder makes written demand therefor. (d) Within thirty (30) days after the date of any payment of Taxes, the Guarantor will furnish to each Holder, at its address set forth in the Bond Register, the original or certified copy of a receipt evidencing payment thereof. If no Taxes are payable in respect of any payment, the Guarantor will furnish to each Holder a certificate from each appropriate taxing authority, or an -17- 21 Opinion of Counsel acceptable to the Holders, in either case stating that such payment is exempt from or not subject to Taxes. (e) Without prejudice to the survival of any other agreement of the Guarantor hereunder, the agreements and obligations of the Guarantor contained in subsections (a) through (d) of this Section 3.5 shall survive the payment in full of the Guaranteed Obligations. SECTION 3.6. Effect of Debtor Relief Laws. If after receipt of any payment of, or proceeds of any security applied (or intended to be applied) to the payment of all or any part of the Guaranteed Obligations, the Trustee or any Holder is for any reason compelled to surrender or voluntarily surrenders, such payment or proceeds to any Person (a) because such payment or application of proceeds is or may be avoided, invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, fraudulent conveyance, fraudulent transfer, impermissible set-off or a diversion of trust funds or (b) for any other reason, including (i) any judgment, decree or order of any court or administrative body having jurisdiction over the Trustee, any Holder of a Bond or any of their respective properties or (ii) any settlement or compromise of any such claim effected by the Trustee or any Holder of a Bond with any such claimant, then the Guaranteed Obligations or part thereof intended to be satisfied shall be reinstated and continue, and this Guaranty shall continue in full force as if such payment or proceeds had not been received, notwithstanding any revocation thereof or the cancellation of any Bond or any other instrument evidencing all or any part of the Guaranteed Obligations or otherwise; and the Guarantor shall be liable to pay the Trustee and the Holders of the Bonds, and hereby does indemnify the Trustee and the Holders of the Bonds and hold them harmless for the amount of such payment or proceeds so surrendered and all expenses (including reasonable attorneys' fees, court costs and expenses attributable thereto) incurred by the Trustee or any Holder in the defense of any claim made against it that any payment or proceeds received by the Trustee or any Holder of a Bond in respect of all or part of the Guaranteed Obligations must be surrendered. The provisions of this paragraph shall survive the termination of this Guaranty, and any satisfaction and discharge of the Issuer by virtue of any payment, court order or any federal or state law. SECTION 3.7 Subrogation. Notwithstanding any payment or payments made by the Guarantor hereunder, or any set-off or application by the Trustee or any Holder of any security or of any credits or claims, the Guarantor will not assert or exercise any rights of the Trustee or any Holder against the Issuer to recover the amount of any payment made by the Guarantor to the Trustee or any Holder hereunder by way of any claim, remedy or subrogation, reimbursement, exoneration, contribution, indemnity, participation or otherwise arising by contract, by statute, under common law or otherwise, and the Guarantor shall not have any right of recourse to or any claim against assets or property of the Issuer (other than pursuant to the Subordinate Deed of Trust), until all of the obligations of the Issuer under the Financing Documents are paid in full. If any amount shall nevertheless be paid to the Guarantor by the Issuer prior to payment in full of the obligations of the Guarantor and the Issuer under the Financing Documents, such amount shall be held in trust for the benefit of the Trustee and the Holders and shall forthwith be paid to the Trustee to be credited and applied to the Guaranteed Obligations, whether matured or unmatured. The provisions of this -18- 22 paragraph shall survive the termination of this Guaranty and any satisfaction and discharge of the Issuer by virtue of any payment, court order or any federal or state law. Notwithstanding anything in this Section 3.7 to the contrary, so long as no Guarantee Default or Guarantor Event of Default has occurred and is continuing, the provisions of this Section 3.7 shall not impair or otherwise affect the Guarantor's right or ability (a) to receive payments pursuant to Sections 2.2 and 2.3 hereof, (b) to accept a deed in lieu of foreclosure pursuant to the Subordinate Deed of Trust in accordance with Sections 2.4 and 2.5 hereof, (c) to initiate foreclosure proceedings and sell the Facility pursuant to the Subordinate Deed of Trust in accordance with Sections 2.4 and 2.5 hereof, (d) to exercise, and acquire the Facility pursuant to, the Purchase Option in accordance with Section 2.5 hereof, or (e) upon exercise of the Purchase Option, to receive credit against the purchase price as provided in Section 2 of the Purchase Option Agreement; provided, however, no such credit shall in any manner diminish the obligations of the Guarantor hereunder. SECTION 3.8 Subordination. If the Guarantor is or becomes the Holder of any indebtedness payable by the Issuer, the Guarantor hereby subordinates all indebtedness and liabilities owing to it from the Issuer to all indebtedness and liabilities of the Issuer to the Trustee and the Holders, and agrees that during the continuance of any Event of Default or event that with the giving of notice or the passage of time or both could become an Event of Default, it shall not accept any payment on the same until payment in full of the obligations of the Issuer under the Indenture and the other Financing Documents, and shall in no circumstance whatsoever attempt to set-off or reduce any obligations hereunder because of such indebtedness. If any amount shall nevertheless be paid to the Guarantor by the Issuer prior to payment in full of the Guaranteed Obligations, such amount shall be held in trust for the benefit of the Trustee and the Holders and shall forthwith be paid to the Trustee to be credited and applied to the Guaranteed Obligations, whether matured or unmatured. Notwithstanding anything herein to the contrary, so long as no Guarantee Default or Guarantor Event of Default has occurred and is continuing, the provisions of this Section 3.8 shall not impair or otherwise affect the Guarantor's right or ability (a) to receive payments pursuant to Sections 2.2 and 2.3 hereof, (b) to accept a deed in lieu of foreclosure pursuant to the Subordinate Deed of Trust, (c) to initiate foreclosure proceedings and sell the Facility pursuant to the Subordinate Deed of Trust in accordance with Sections 2.4 and 2.5 hereof, (d) to exercise, and acquire the Facility pursuant to, the Purchase Option in accordance with Sections 2.4 and 2.5 hereof, or (e) upon exercise of the Purchase Option, to receive credit against the purchase price as provided in Section 2 of the Purchase Option Agreement; provided, however, no such credit shall in any manner diminish the obligations of the Guarantor hereunder. SECTION 3.9 Waiver. The Guarantor hereby waives promptness, diligence, notice of acceptance and any other notice with respect to any of the Guaranteed Obligations and this Guaranty and waives presentment, demand of payment, notice of intent to accelerate, notice of dishonor or nonpayment and any requirement that the Trustee or any Holder of a Bond institute suit, collection proceedings or take any other action to collect the Guaranteed Obligations, including any requirement that the Trustee or any Holder of a Bond protect, secure, perfect or insure any Lien against any property subject thereto or exhaust any right or take any action against the Issuer or any other Person or any collateral (it being the intention of the Trustee, the Holders of the Bonds and the -19- 23 Guarantor that this Guaranty is to be a guaranty of payment and not collection). It shall not be necessary for the Trustee or any Holder of a Bond, in order to enforce any payment by the Guarantor hereunder, to institute suit or exhaust its rights and remedies against the Issuer or any other Person, including others liable to pay any Guaranteed Obligations, or to enforce its rights against any security ever given to secure payment thereof. The Guarantor hereby expressly waives to the maximum extent permitted by applicable law each and every right to which it may be entitled by virtue of the suretyship laws of the State of Texas, including any and all rights it may have pursuant to Rule 31, Texas Rules of Civil Procedure, Section 17.001 of the Texas Civil Practice and Remedies Code and Chapter 34 of the Texas Business and Commerce Code. The Guarantor hereby waives marshaling of assets and liabilities, notice by the Trustee or any Holder of a Bond of any indebtedness or liability to which such Trustee or Holder applies or may apply any amounts received by such Trustee or Holder, and of the creation, advancement, increase, existence, extension, renewal, rearrangement or modification of the Guaranteed Obligations. The Guarantor expressly waives, to the extent permitted by applicable law, the benefit of any and all laws providing for exemption of property from execution or for valuation and appraisal upon foreclosure. SECTION 3.10 Full Force and Effect. This Guaranty is a continuing guaranty and shall remain in full force and effect until all Bond Obligations and other of the obligations of the Issuer under the Indenture and the other Financing Documents and all other amounts payable under this Guaranty have been paid in full. All rights, remedies and powers provided in this guaranty may be exercised, and all waivers contained in this Guaranty may be enforced, only to the extent that the exercise or enforcement thereof does not violate any provisions of applicable law which may not be waived. SECTION 3.11 Benefits of Guaranty. This Guaranty is entered into by the Guarantor for the benefit of the Issuer and the Trustee and their successors or assigns, and the Holders of the Bonds, all of whom shall be entitled to enforce the performance and observance of this Guaranty to the same extent as if they were parties signatory hereto. ARTICLE IV REPRESENTATIONS AND WARRANTIES The Guarantor represents and warrants to the Issuer, the Trustee and each Holder from time to time of any Bond as follows: SECTION 4.1 Organization, Qualification, Authorization, Etc. (a) The Guarantor is a corporation duly organized and existing in good standing under the laws of the State of Delaware; each Subsidiary is duly organized and existing in good standing under the laws of the jurisdiction in which it is organized. The Guarantor and each Subsidiary have the corporate power to own their respective properties and to carry on their respective businesses as now being conducted. The Guarantor is qualified as a foreign corporation and is in good standing in the States of Tennessee and Texas, and the Guarantor and all Subsidiaries are duly qualified as foreign -20- 24 corporations to do business and are in good standing in each other jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing would not, individually or in the aggregate, have a Material Adverse Effect. (b) The Guarantor has full right, power and authority to enter into and perform this Guaranty and to operate the Facility pursuant to the Operating Agreement. (c) The execution, delivery and performance by the Guarantor of this Guaranty and the Operating Agreement have been duly authorized by all necessary corporate action on the part of the Guarantor. This Guaranty and the Operating Agreement have been duly executed and delivered by the Guarantor and constitute legal, valid and binding obligations of the Guarantor, enforceable in accordance with their respective terms, except as limited by bankruptcy, moratorium, reorganization and other laws relating to or affecting enforcement of creditors' rights generally and except as enforceability is subject to judicial discretion under general principles of equity and except as enforceability of indemnification or contribution provisions to which this Guaranty relates may be limited, in whole or in part, by applicable securities laws or public policy. SECTION 4.2 Financial Statements, Etc. The Guarantor has furnished the Trustee with the following financial statements: (i) consolidated balance sheet of the Guarantor and the Subsidiaries as at December 31, 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows of the Guarantor and the Subsidiaries for such year, certified by Arthur Andersen LLP; and (ii) unaudited consolidated balance sheet of the Guarantor and the Subsidiaries as at March 31, 1996 and the unaudited related consolidated statements of operations, stockholder's equity and cash flows for the period ended on such date, prepared by the Guarantor. Such financial statements (including any related schedules and/or notes) are true and correct in all material respects (subject, as to interim statements, to changes resulting from audits and year-end adjustments), having been prepared in accordance with generally accepted accounting principles consistently followed throughout the periods involved and show all liabilities, direct and contingent, of the Guarantor and the Subsidiaries required to be shown in accordance with such principles. The balance sheets fairly present the condition of the Guarantor and the Subsidiaries as at the dates thereof, and the statements of operations and statements of cash flows fairly present the results of the operations of the Guarantor and the Subsidiaries for the periods indicated. SECTION 4.3 Full Disclosure. (a) Neither this Guaranty, the Operating Agreement, the Financing Documents, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. (b) There is no fact peculiar to the Guarantor or any of the Subsidiaries which has a Material Adverse Effect or in the future may (so far as the Guarantor can now foresee) have a Material Adverse Effect which has not been set forth in this Guaranty or in the other documents, -21- 25 certificates and statements furnished to the Trustee by or on behalf of the Guarantor prior to the date hereof in connection with the transactions contemplated hereby. SECTION 4.4 Changes, Etc. Since December 31, 1995, (a) neither the Guarantor nor any Subsidiary has entered into any materially adverse transactions not in the ordinary course of business, nor incurred any material liabilities or obligations, direct or contingent, not shown in the Guarantor's Annual Report (Form 10-K) for the fiscal year ended December 31, 1995 or in the Guarantor's Quarterly Report on (Form 10-Q) for the fiscal quarter ended March 31, 1996, and (b) no events have occurred which, individually or in the aggregate, have had, or in the future are likely to have, a Material Adverse Effect. The Facility is not presently affected by any fire, explosion, accident, labor controversy, strike, lockout or other dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy. Neither the business nor the other properties of the Guarantor or any Subsidiary are presently affected by any fire, explosion, accident, labor controversy, strike, lockout or other dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty which could reasonably be expected to have a Material Adverse Effect, or if any such existing event or condition were to continue for more than 30 additional days (unless in the reasonable opinion of the Guarantor such event or condition is not likely to continue for such period) could reasonably be expected to have a Material Adverse Effect. SECTION 4.5 Tax Returns and Payments. The Guarantor has filed all federal tax returns and all other tax returns required by law to be filed by it (or obtained extensions with respect thereto) that, in the case of such other tax returns, if not filed (or extensions not obtained) would have a Material Adverse Effect and has paid all federal income taxes and other taxes, assessments and other governmental charges levied upon it or any of its properties, assets, income or franchises which are due and payable, other than those which are not past due or are presently being contested in good faith by appropriate proceedings diligently conducted for which such reserves or other appropriate provisions, if any, as shall be required by generally accepted accounting principles, have been made or, except for any federal income taxes, which if not paid would have a Material Adverse Effect. SECTION 4.6 Debt. Other than the Debt represented by this Guaranty and the Debt set forth in the Guarantor's Annual Report (Form 10-K) for the fiscal year ended December 31, 1995 or in the Guarantor's Quarterly Report (Form 10-Q) for the fiscal quarter ended March 31, 1996, neither the Guarantor nor any Subsidiary has any secured or unsecured Debt outstanding. In addition to this Guaranty, the only instruments or agreements to which the Guarantor is a party or by which it is bound or which is applicable to it that contain any restrictions on the incurrence by the Guarantor of additional Debt are instruments or agreements entered into in connection with the Debt disclosed in the annual and quarterly reports referred to in the preceding sentence. There exists no default under the provisions of any instrument evidencing such Debt or of any agreement relating thereto. SECTION 4.7 Franchises, Licenses, Agreements, Etc. The Guarantor and each Subsidiary are in possession of and operating in compliance with all franchises, grants, -22- 26 authorizations, approvals, licenses, permits, easements, rights-of-way, consents, certificates and orders and all patents, trademarks, service marks and copyrights that are necessary in any material respect for the ownership, maintenance and operation of the Facility. SECTION 4.8 Compliance with Applicable Law, Other Instruments, Etc. (a) The Guarantor is not in violation of any provision of its certificate of incorporation or bylaws or any Governmental Requirement affecting it or its properties, which violation, individually or collectively, will not have a Material Adverse Effect or any agreement or instrument evidencing indebtedness or any agreement relating thereto, and the execution, delivery and performance of this Guaranty will not result in any violation of or constitute a default under any agreement or instrument to which the Guarantor is a party or result in the creation of (or impose any obligation on the Guarantor to create) any Lien upon any of its properties or assets. (b) Without limiting the foregoing, the Guarantor is not in violation of any term of any agreement or instrument to which it is a party or any Governmental Requirement affecting any of its other properties, facilities or activities other than violations which, individually or collectively, will not have a Material Adverse Effect. (c) Neither the Guarantor nor any Subsidiary is a party to, or otherwise subject to any provision contained in, any instruments evidencing indebtedness of the Guarantor or such Subsidiary, any agreement relating thereto or any other contract or agreement (including its certificate of incorporation) which limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Guarantor of the type to be evidenced by this Guaranty, except as to which any consent has been obtained. SECTION 4.09 Litigation, Etc. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Guarantor, threatened (a) against or affecting the Facility or arising out of or related to any activity of the Guarantor with respect to the Facility by or before any court, arbitrator or administrative or governmental body or (b) against the Guarantor or any of its Subsidiaries, or any property or other rights of the Guarantor or any of the Subsidiaries, by or before any court, arbitrator or administrative or governmental body, in each case, which the Guarantor believes is reasonably likely to be adversely determined against the Guarantor or such Subsidiary and if so adversely determined would reasonably be likely to result individually or in the aggregate in any Material Adverse Effect. SECTION 4.10 ERISA. The Guarantor and each member of its ERISA Group has timely fulfilled all its obligations under the minimum funding standards of ERISA and the Code with respect to each Plan and is (and has been) in compliance in all material respects with the applicable provisions of ERISA, the Code and other law with respect to each Plan and Benefit Arrangement. Each Plan and Benefit Arrangement is (and has been) maintained and operated in compliance in all material respects with the applicable provisions of ERISA, the Code and other law. Neither the Guarantor nor any member of its ERISA Group (i) has sought (or is seeking) a waiver of the minimum funding standard under section 412 of the Code in respect of any Plan, (ii) has failed to -23- 27 timely make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan, which has resulted or could result in the imposition of a lien or the posting of a bond or other security under ERISA or the Code, or (iii) has incurred (and no event exists, including, without limitation, any contingent secondary liability event under section 4204 of ERISA, which could result in) any liability under Title IV of ERISA (other than a liability to the PBGC for premiums under section 4007 of the ERISA). No litigation, investigation or claim (other than a routine, undisputed claim for benefits) is pending or, to the knowledge of the Guarantor, threatened or anticipated concerning any Plan, Multiemployer Plan or Benefit Arrangement. There is no "amount of unfunded benefit liabilities," as defined in section 4001(a)(18) of ERISA, under any Plan and, with respect to each Multiemployer Plan, should a complete or partial withdrawal occur with respect thereto, there would be no withdrawal liability. The Guarantor and the members of the ERISA Group may terminate any and/or all Plan(s) and/or Benefit Arrangement(s) without incurring a Material Adverse Effect. SECTION 4.11 Governmental Consent. Neither the nature of the Guarantor or of any Subsidiary, nor any of their respective businesses or properties, nor any relationship between the Guarantor or any Subsidiary and any other Person, nor any circumstance in connection with the offering, issuance or delivery of this Guaranty is such as to require any authorization, consent, approval, exemption or other action by or notice to or filing with any Person (other than routine filings after the date hereof, with the Securities and Exchange Commission or state securities or Blue Sky authorities) in connection with the execution and delivery of this Guaranty or fulfillment of or compliance with the terms and provisions of this Guaranty and the Operating Agreement. SECTION 4.12 Status Under Certain Federal Statutes. Neither the Guarantor nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as amended, or the Federal Power Act, as amended; provided, however, that Transcor America, Inc., a Subsidiary, is subject to regulation under the Interstate Commerce Act, as amended. SECTION 4.13 Operating Agreement; Government Contracts. (a) The Operating Agreement is in full force and effect and no material term or condition thereof has been amended, modified or waived from the terms and conditions contained in the Operating Agreement. The Guarantor has, and, to the Guarantor's knowledge, the City has, performed and complied in all material respects with all of the terms and conditions set forth in the Operating Agreement, and no default exists thereunder. (b) The Existing Government Contracts are the only Government Contracts in effect on the date hereof. Each of the Existing Government Contracts is in full force and effect and no material term or condition thereof has been amended, modified or waived from the terms and conditions contained in such Existing Governmental Contract. The parties to each of the Existing Government Contracts have performed and complied in all material respects with all of the terms and conditions set forth in such Existing Government Contract, and no default exists thereunder. -24- 28 SECTION 4.14 Chief Executive Office. The chief executive office of the Guarantor and the office where it maintains its records is located at 102 Woodmont Boulevard, Nashville, Tennessee 37205. SECTION 4.15 Review of Documents. The Guarantor has reviewed the Transaction Documents and confirms the rights, powers, privileges and indemnities of the Trustee contained in the Indenture. SECTION 4.16 Credit Decisions. The Guarantor has independently and without reliance upon the Trustee or any Holder or TIAA and based on its review of the Transaction Documents and other documents and information as it has deemed appropriate, made its own credit analysis to enter into this Guaranty. SECTION 4.17. Private Offering by the Guarantor. The Guarantor has not offered the Bonds, this Guaranty for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than, in the case of the Guaranty, Teachers and the Trustee. The Guarantor has not taken, and will not take, any action which would subject the Bonds or the Guaranty to the registration requirements of Section 5 of the Securities Act. ARTICLE V AFFIRMATIVE COVENANTS The Guarantor hereby covenants and agrees with the Issuer, the Trustee and each Holder from time to time of any Bond as follows: SECTION 5.1 Reporting Requirements. So long as any Bond remains unpaid, the Guarantor covenants that it will deliver in duplicate to the Trustee and each Holder of a Bond: (a) as soon as practicable and in any event within 45 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, an unaudited consolidated statement of operations, shareholders' equity and cash flows of the Guarantor and the Restricted Subsidiaries for such quarterly period and for the period from the beginning of the current fiscal year to the end of such quarterly period, and an unaudited consolidated balance sheet of the Guarantor and the Restricted Subsidiaries as at the end of such quarterly period, and setting forth in comparative form figures for the corresponding periods in the preceding fiscal year, all in reasonable detail and certified by an authorized financial officer of the Guarantor, subject to changes resulting from year-end adjustments; (b) as soon as practicable and in any event within 90 days after the end of each fiscal year, a consolidated statement of operations, shareholders' equity and cash flows of the Guarantor and the Restricted Subsidiaries for such year, and a consolidated balance sheet of the Guarantor and the Restricted Subsidiaries as at the end of such year, and setting forth in comparative -25- 29 form corresponding figures from the preceding annual audit, all in reasonable detail and reported on by Arthur Andersen LLP or other independent public accountants of recognized national standing selected by the Guarantor and acceptable to the Trustee whose report shall (i) contain an opinion that shall be unqualified as to the scope or limitations imposed by the Guarantor and shall not be subject to any other material qualifications and (ii) shall state that such financial statements present fairly, in all material respects, the consolidated financial position of the Guarantor and the Restricted Subsidiaries at the dates indicated and their cash flows and the results of their operations and the changes in their financial position for the periods indicated in conformity with generally accepted accounting principles; Together with each delivery of financial statements required by clauses (a) and (b) above, the Guarantor will deliver to each Holder of a Bond an Officer's Certificate (i) demonstrating compliance by the Guarantor and the Restricted Subsidiaries with the provisions of Sections 6.1, 6.2 and 6.3 (with computations in reasonable detail) and (ii) stating that the signers have reviewed this Guaranty and have made, or cause to be made under their supervision, a review of the transactions and conditions of the Guarantor and the Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period of any Guarantor Default or Guarantor Event of Default or, if any, such Guarantor Default or Guarantor Event of Default exists, specifying the nature and period of existence thereof and what action the Guarantor proposes to take with respect thereto. Together with each delivery of financial statements required by clause (b) above, the Guarantor will deliver to the Trustee and each Holder of a Bond, a written statement of such accountants stating that (i) their audit examination has included a review of the terms of this Guaranty and that such review is sufficient to enable them to make the statement referred to in clause (iii) of this sentence (it being understood that no special audit procedures, other than those required by generally accepted auditing standards, shall be required), (ii) whether in the course of their audit examination, they obtained knowledge (and whether, as of the date of such written statement, they have knowledge) of the existence of any Guarantor Default or Guarantor Event of Default and, if so, specifying the nature and period of existence thereof and (iii) they have reviewed the Officer's Certificates delivered pursuant to the immediately preceding sentence and that the matter set forth in such Officer's Certificates pursuant to clause (i) of the immediately preceding sentence have been properly stated in accordance with the terms of this Guaranty. Such accountants, however, shall not be liable to any Person by reason of their failure to obtain knowledge of any Guarantor Default or Guarantor Event of Default which would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards. SECTION 5.2 Further Assurances. The Guarantor shall cure promptly any defects in the execution and delivery of this Guaranty. SECTION 5.3 Payment of Taxes and Claims. The Guarantor covenants that it will pay, and will cause each Subsidiary to pay, all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or profits before any penalty accrues thereon, and all claims (including, without limitation, -26- 30 claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien upon any of its properties or assets, provided that no such tax, assessment, charge or claim need be paid if (i) such charge or claim is being contested in good faith by appropriate proceedings promptly initiated and diligently conducted, (ii) such contest will not subject the Trustee or any Holder of a Bond to civil or criminal liability and (iii) such reserves or other appropriate provision, if any, as shall be required by generally accepted accounting principles shall have been made therefor. SECTION 5.4 Indemnification for Breach of Representations or Covenants. The Guarantor shall indemnify each Indemnitee and hold each Indemnitee harmless from and against all losses, costs, expenses (including reasonable attorneys' fees), obligations, damages, penalties, disbursements and liabilities which such Indemnitee may actually incur as a result of, in connection with or arising out of (a) the breach of any representation or warranty of the Guarantor or any Subsidiary contained herein or (b) the nonfulfillment by the Guarantor or any Subsidiary of, or its failure to perform, any of its covenants or agreements contained in this Guaranty. The indemnity contained in this Section 5.4 shall survive the termination of this Guaranty. SECTION 5.5 Performance of Operating Agreement, Etc. The Guarantor will perform each and every term and condition of the Operating Agreement relating to the Facility so as to cause no default under any Government Contract. SECTION 5.6 Service of Process. The Guarantor agrees that it is and will remain subject to service of process in the States of Delaware, Tennessee and Texas so long as any of the Guaranteed Obligations remains unpaid. ARTICLE VI FINANCIAL COVENANTS The Guarantor covenants and agrees with the Trustee and each Holder from time to time of any Bond as follows: SECTION 6.1 Consolidated Net Worth. The Guarantor will not permit Consolidated Net Worth at any time to be less than (a) $80,000,000 during the period from the date of this Guaranty through December 31, 1995 and (b) an amount during each fiscal quarter thereafter equal to the sum of (i) the amount of Consolidated Net Worth required hereunder for the immediately preceding fiscal quarter plus (ii) if positive, 50% of Consolidated Net Income for such immediately preceding fiscal quarter. SECTION 6.2 Consolidated Fixed Charges. Consolidated Fixed Charge Coverage shall not be less than 2.00 as at June 30, 1996 and as at the end of each fiscal quarter occurring thereafter. -27- 31 SECTION 6.3 Total Debt. The Guarantor will not, and will not permit Consolidated Total Debt to exceed 66 % of Consolidated Total Capitalization at any time. ARTICLE VII GUARANTOR EVENTS OF DEFAULT SECTION 7.1 Guarantor Events of Default. If any of the following events (each such event being a "Guarantor Event of Default") shall occur and be continuing for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise): (a) the Guarantor defaults in the payment of any amount due hereunder; or (b) any representation or warranty made by or on behalf of the Guarantor in this Guaranty or in any writing furnished in connection with or pursuant to this Guaranty shall be false in any material respect on the date as of which made; or (c) the Guarantor fails to perform or observe any agreement contained in Article VI; or (d) the Guarantor fails to perform or observe any other agreement, term or condition contained in this Guaranty and such failure shall not be remedied within 30 consecutive days after the earlier of (i) the date on which such failure shall first have become known to any Responsible Officer or (ii) the date on which written notice thereof shall have been received by a Responsible Officer of the Guarantor from the Trustee or any Holder of any Bond; or (e) the Guarantor or any Subsidiary (i) defaults in any payment of principal of or interest on any other Debt beyond any period of grace provided with respect thereto, or (ii) fails to perform or observe any other agreement, term or condition contained in any agreement under which any such Debt is created within any applicable grace period provided therein (or if any other event thereunder or under any such agreement shall occur and be continuing) and the effect of such failure or other event is (A) to then cause such Debt to become due prior to any stated maturity or (B) to then permit the Holder or Holders of such Debt (or a trustee on behalf of such Holder or Holders) to cause such Debt to become due prior to any stated maturity, provided that the aggregate outstanding principal amount of all Debt as to which such payment defaults shall occur and be continuing or such failures or other events causing or permitting acceleration shall occur and be continuing exceeds $1,000,000; or (f) the Guarantor or any Subsidiary makes an assignment for the benefit of creditors or is generally not paying its debts as such debts become due; or -28- 32 (g) any decree or order for relief in respect of the Guarantor or any Subsidiary is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law, whether now or hereafter in effect (herein called the "Bankruptcy Law"), of any jurisdiction; or (h) the Guarantor or any Subsidiary petitions or applies to any tribunal for, or consents to, the appointment of, or taking possession by, a trustee, receiver, custodian, liquidator or similar official of the Guarantor or any Subsidiary, or of any substantial part of the assets of the Guarantor or any Subsidiary, or commences a voluntary case under the Bankruptcy Law of the United States of America or any proceedings (other than proceedings for the voluntary liquidation and dissolution of a Subsidiary that is not a Restricted Subsidiary) relating to the Guarantor or any Subsidiary under the Bankruptcy Law of any other jurisdiction; or (i) any such petition or application is filed, or any such proceedings as described in clause (h) above are commenced, against the Guarantor or any Subsidiary and the Guarantor or such Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein, or an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 60 consecutive days; or (j) any order, judgment or decree is entered in any proceedings against the Guarantor or any Subsidiary decreeing the dissolution, winding-up or liquidation of the Guarantor or such Subsidiary and such order, judgment or decree remains unstayed and in effect for more than 60 consecutive days; or (k) any order, judgment or decree is entered in any proceedings against the Guarantor or any Subsidiary decreeing a split-up of the Guarantor or such Subsidiary which requires the divestiture of assets representing a substantial part, or the divestiture of the stock of or partnership or other ownership interest in a Subsidiary whose assets represent a substantial part, of the combined assets of the Guarantor and the Subsidiaries (determined in accordance with generally accepted accounting principles) or which requires the divestiture of assets, or stock of or partnership or other ownership interest in a Subsidiary, which shall have contributed a substantial part of the combined net income of the Guarantor and the Subsidiaries (determined in accordance with generally accepted accounting principles) for any of the three fiscal years then most recently ended, and such order, judgment or decree remains unstayed and in effect for more than 60 consecutive days; or (l) a final judgment or final judgments (which are nonappealable or have not been stayed pending appeal or as to which all rights to appeal have been expired or exhausted) in an aggregate amount in excess of $500,000 is rendered against the Guarantor or any Subsidiary and, within 30 consecutive days after entry thereof, such judgment is not -29- 33 discharged or execution thereof stayed pending appeal, or within 30 consecutive days after the expiration of any such stay, such judgment is not discharged; or (m) this Guaranty or any other Transaction Document shall at any time, for any reason, cease to be in full force and effect or shall be declared to be null and void in whole or in any material part by the final judgment of any court or other Governmental Authority or regulatory authority having jurisdiction in respect thereof, or the validity or the enforceability of this Guaranty or any other Transaction Document shall be contested by or on behalf of the Guarantor, or the Guarantor shall renounce this Guaranty or any other Transaction Document, or deny that it is bound by the terms hereof or thereof or has any further liability hereunder or thereunder; or (n) any Termination Event with respect to a Plan shall have occurred, and, 30 days after a Responsible Officer shall become aware, (i) such Termination Event (if correctable) shall not have been corrected and (ii) the then present value of such Plan's benefit liabilities exceeds the then current value of assets accumulated in such Plan ("Unfunded Liabilities") by more than the amount of $500,000 (or in the case of a Termination Event involving the withdrawal of a "substantial employer") (as defined in section 4001(a)(2) of ERISA), the withdrawing employer's proportionate share of such excess shall exceed such amount; or (o) there shall have occurred a complete or partial withdrawal from, or a default, within the meaning of section 4219(c)(5) of ERISA, with respect to one or more Multiemployer Plans which could cause the Guarantor or one or more of the members of the ERISA Group to incur a withdrawal liability in an aggregate amount in excess of $500,000; or (p) any member of the ERISA Group shall (i) engage in any prohibited transaction described in section 406 of ERISA or section 4975 of the Code for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the Department of Labor and which shall result in a Material Adverse Effect; (ii) seek or permit to exist any accumulated funding deficiency (as defined in section 412 of the Code), whether or not waived, with respect to any Plan; (iii) fail to timely pay an amount or amounts aggregating in excess of $500,000 which it is required to pay to or with respect to any Multiemployer Plan and/or Benefit Arrangement; or (iv) amend a Plan resulting in an increase in current liability for the plan year such that security to such Plan is required under section 401(a)(29) of the Code; or (q) a Plan shall have Unfunded Liabilities in excess of $5,000,000 or the aggregate of Unfunded Liabilities of all Plans (excluding in such computation any Plan with assets greater than benefit liabilities) exceeds $5,000,000; or -30- 34 (r) the Guarantor or any member of the ERISA Group shall incur any liability for (or have an obligation or commitment to provide) health benefits to any Person beyond such Person's retirement or other termination of service, other than coverage mandated by Title I, Subtitle B, Part 6 of ERISA, which coverage is fully paid by such Person; or (s) the occurrence of any Event of Default; then, the Guarantor agrees that, to the fullest extent permitted by law, as between the Guarantor, on the one hand, and the Trustee and the Holders of the Bonds, on the other, (i) if such event is an Guarantor Event of Default specified in clauses (f), (g), (h) or (i) of this Section 7.1, all of the Bond Obligations and the other Guaranteed Obligations shall thereupon be and become deemed to be automatically due and payable including all interest accrued thereon and the Make- Whole Amount, if any, with respect to each Bond, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Guarantor, notwithstanding any stay, injunction or other prohibition preventing the Bond Obligations and the other Guaranteed Obligations from becoming automatically due and payable and that, in the event that the Bond Obligations being deemed to have become automatically due and payable, the Bond Obligations and the other Guaranteed Obligations (whether or not due and payable by the Issuer or any other Person) shall forthwith become due and payable by the Guarantor for purposes of this clause (i), and (ii) if such event is any other Event of Default, the Trustee may and, upon the request of the Required Holders, shall by notice to the Guarantor, declare all of the Bond Obligations and the other Guaranteed Obligations to be, and all of the Bond Obligations and the other Guaranteed Obligations shall thereupon be and become, immediately due and payable as provided in Section 6.2 of the Indenture including all interest accrued thereon and the Make-Whole Amount, if any, with respect to each Bond for purposes of this Section 7.1, notwithstanding any stay, injunction or other prohibition preventing such declaration as against the Issuer or any other Person and that, in the event of such declaration, the Bond Obligations and the other Guaranteed Obligations (whether or not due and payable by the Issuer or any other Person) shall forthwith become due and payable by the Guarantor under this Guaranty without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Guarantor. SECTION 7.2 Other Remedies. If any Event of Default shall occur and be continuing, the Trustee and each the Holder of any Bond may proceed to protect and enforce its rights under this Guaranty, such Bond and each other Financing Document by exercising such remedies as are available to the Trustee or such Holder of a Bond in respect thereof under applicable law, either by suit, in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Guaranty or such other Bond Document or in aid of the exercise of any power granted in this Guaranty. No remedy conferred in this Guaranty or any other Financing Document upon the Trustee or any Holder of any Bond is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or in any Financing Document or now or hereafter existing at law or in equity or by statute or otherwise. -31- 35 ARTICLE VIII BOND PURCHASE OPTION During the existence of any Event of Default, the Guarantor may, at its sole option, provide the Trustee and each Holder of the Bonds at such Holder's address specified in the Bond Register with facsimile notice (confirmed by a notice sent by overnight mail or overnight courier service) that on the date specified in such notice (which date shall not be less than five business days after receipt by the Trustee and such Holder of such notice (such date being the "Purchase Date") Guarantor will purchase 100% of the Outstanding Bonds for a price (the "Purchase Price") equal to the unpaid principal and unpaid interest accrued on the Bonds to the Purchase Date together with the Make-Whole Amount, if any, on the Bonds calculated to the Purchase Date; provided, however, if the Purchase Date occurs after the Bonds have been accelerated pursuant to Section 6.2 of the Indenture, the Make-Whole Amount, if any, shall be calculated to the date of such acceleration. By accepting the benefits of this Guaranty, each Holder of a Bond agrees that upon receipt of the notice specified in the preceding sentence, it will sell its Bonds to the Guarantor on the Purchase Date for the Purchase Price. On the Purchase Date, the Guarantor shall irrevocably pay the Purchase Price to the Trustee pursuant to Section 9.1 for the equal and ratable benefit of the Holders and deliver to the Trustee a duly executed Purchaser's Letter against receipt by the Guarantor from each Holder of (a) its Bonds together with bond powers or other appropriate documents of transfer, transferring all of such Holder's right, title and interest in its Bonds to the Guarantor and (b) a certificate of such Holder certifying to the Guarantor (i) its ownership of the Bonds to be transferred to the Guarantor free and clear of all Liens created by such Holder and (ii) the outstanding principal and accrued interest on such Bonds and the Make-Whole Amount, if any, on such Bonds calculated to the Purchase Date. ARTICLE IX MISCELLANEOUS SECTION. 9.1 Payments. All amounts payable or to be payable to the Trustee or the Holders pursuant to this Guaranty (including payments pursuant to Article VIII) shall be payable in lawful money of the United States of America and shall be made by wire transfer of immediately available funds to the Trustee as from time to time the Trustee shall have directed to the Guarantor in writing, or, if no such direction shall have been given, by check of the Guarantor payable to the order of the Trustee and mailed to the Trustee in the manner and at the address set forth in Section 9.5. SECTION 9.2 Expenses. (a) The Guarantor will pay all reasonable costs and expenses incurred after the Closing Date by the Trustee or any Holder of a Bond in connection with this Guaranty and any amendments, waivers or consents under or in respect of this Guaranty (including any amendment, waiver or consent that is requested but does not become effective) and in connection with the preparation, execution and delivery of the Assumption Agreement and the -32- 36 Supplement and the transactions referred to in Section 2.4 and Section 2.5 (the preparation, execution and delivery of the Assumption Agreement, the Supplement and the transactions referred to in Section 2.4 and Section 2.5 being collectively, the "Assumption Transactions"). Such costs and expenses include, but are not limited to: (i) the reasonable fees, expenses and disbursements of any counsel in connection with any amendments, waivers or consents referred to above, and all out-of-pocket expenses incurred by the Trustee and the Holders of the Bonds in connection with any such amendments or waivers; (ii) the reasonable fees, expenses and disbursements of any counsel in connection with the Assumption Transactions, and all out-of-pocket expenses incurred by the Trustee, the Issuer and the Holders of the Bonds in connection with the Assumption Transactions; (iii) all reasonable costs and expenses, including reasonable attorneys' fees, incurred in enforcing (or determining whether or how to enforce) any rights under this Guaranty or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Guaranty, or otherwise in connection with the transactions contemplated hereby (other than such costs and expenses related to responding to any such subpoena, process or demand required of the Trustee or a Holder by its regulators in the ordinary course of the Trustee's or such Holder's business); and (iv) all reasonable costs and expenses, including reasonable attorneys' and financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Guarantor or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Bonds. (b) The obligations of the Guarantor under this Section 9.2 shall survive the enforcement, amendment or waiver of any provision of this Guaranty, and the termination of this Guaranty. SECTION 9.3 Amendment and Waivers. Any provision of this Guaranty may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Trustee and the Holders and, in the case of any amendment, the Guarantor. No failure on the part of the Trustee 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. SECTION 9.4 Successors and Assigns. This Guaranty shall be binding upon the Guarantor and its permitted successors and assigns and shall inure to the benefit of the Trustee, the Holders from time to time of the Bonds and their respective successors and assigns. -33- 37 SECTION 9.5 Notices. Any and all notices, requests or other communications hereunder shall be given in writing and delivered by: (a) regular, overnight, registered or certified mail (return receipt requested), with first class postage prepaid; (b) hand delivery; (c) facsimile transmission; or (d) overnight courier service, to the Guarantor and the Trustee at the following address or facsimile number for such Person: (i) if to the Guarantor, to it at: 102 Woodmont Boulevard Nashville, Tennessee 37205 Attention: President Facsimile Number: (615) 269-8635 Telephone Number: (615) 292-3100 (ii) if to the Trustee, to it at: 15 East 5th Street Tulsa, Oklahoma 74103 Attention: Corporate Trust Department Facsimile Number: (918) 586-5099 Telephone Number: (918) 586-5763
or at such other address or number as shall be designated by such Person in a notice to the other parties given in accordance with this Section 9.5. Except as otherwise provided in this Guaranty, all such communications shall be deemed to have been duly given: (A) in the case of a notice sent by regular mail, on the date actually received by the addressee; (B) in the case of a notice sent by registered or certified mail, on the date receipted for (or refused) on the return receipt; (C) in the case of a notice delivered by hand, when personally delivered; (D) in the case of a notice sent by facsimile, upon transmission subject to telephone confirmation of receipt; and (E) in the case of a notice sent by overnight mail or overnight courier service, the date delivered at the designated address, in each case given or addressed as aforesaid. SECTION 9.6 Severability. Should any clause, sentence, paragraph, subsection or section of this Guaranty be judicially declared to be invalid, unenforceable or void, such decision will not have the effect of invalidating or voiding the remainder of this Guaranty, and the parties hereto agree that the part or parts of this Guaranty so held to be invalid, unenforceable or void will be deemed to have been stricken herefrom by the parties hereto, and the remainder will have the same force and effectiveness as if such stricken part or parts had never been included herein. SECTION 9.7 Conflicts With Indemnity Agreement. In the case of any conflict or inconsistency between the provisions of this Guaranty and the provisions of the Indemnity Agreement, the provisions of this Guaranty shall prevail and shall be given effect. -34- 38 SECTION 9.8 Counterparts. This Guaranty may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed an original and all of which taken together shall constitute but one and the same agreement. SECTION 9.9 Entire Agreement. This Guaranty sets forth all of the covenants, agreements, conditions, understandings, warranties and representations among the Guarantor and the Trustee and the Holders relative to the subject matter hereof, and any previous agreement among such parties with respect to the subject matter hereof is superseded by this Guaranty. SECTION 9.10 GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF TEXAS. IN WITNESS WHEREOF, the parties hereto have executed this Guaranty to be executed effective as of the date first stated herein, by their respective officers thereunto duly authorized. CORRECTIONS CORPORATION OF AMERICA By: ------------------------------------------------------------------- Name: ----------------------------------------------------------------- Title: --------------------------------------------------------------- EDEN CORRECTIONAL FACILITIES CORPORATION By: ------------------------------------------------------------------- Name: ----------------------------------------------------------------- Title: President of the Board of Directors LIBERTY BANK AND TRUST COMPANY OF TULSA, NATIONAL ASSOCIATION, AS TRUSTEE By: ------------------------------------------------------------------- Name: Craig R. Cunningham Title: Senior Vice President and Trust Officer
EX-10.157 8 CREDIT AGREEMENT DATED SEPT. 6, 1996 1 Exhibit 10.157 ================================================================================ CREDIT AGREEMENT DATED AS OF SEPTEMBER 6, 1996, BY AND AMONG CORRECTIONS CORPORATION OF AMERICA, AS BORROWER, THE LENDERS REFERRED TO HEREIN, AND FIRST UNION NATIONAL BANK OF TENNESSEE, AS ADMINISTRATIVE AGENT ================================================================================ 2 TABLE OF CONTENTS
PAGE ARTICLE I DEFINITIONS..................................................................... 1 SECTION 1.1. Definitions.......................................... 1 SECTION 1.2. General.............................................. 14 SECTION 1.3. Other Definitions and Provisions..................... 14 ARTICLE II REVOLVING CREDIT FACILITY....................................................... 15 SECTION 2.1. Revolving Credit Loans. ............................ 15 SECTION 2.2. Swingline Loans...................................... 15 SECTION 2.3. Procedure for Advances of Revolving Credit and Swingline Loans........................... 16 SECTION 2.4. Repayment of Loans................................... 17 SECTION 2.5. Notes................................................ 18 SECTION 2.6. Permanent Reduction of the Aggregate Commitment...... 19 SECTION 2.7. Revolving Termination Date........................... 19 SECTION 2.8. Use of Proceeds...................................... 21 ARTICLE III LETTER OF CREDIT FACILITY....................................................... 21 SECTION 3.1. L/C Commitment....................................... 21 SECTION 3.2. Procedure for Issuance of Letters of Credit.......... 21 SECTION 3.3. Commissions and Other Charges........................ 22 SECTION 3.4. L/C Participations................................... 22 SECTION 3.5. Reimbursement Obligation of the Borrower............. 24 SECTION 3.6. Obligations Absolute................................. 24 SECTION 3.7. Effect of Application................................ 25 SECTION 3.8. Taylor, Texas Letter of Credit....................... 25 ARTICLE IV GENERAL LOAN PROVISIONS......................................................... 25 SECTION 4.1. Interest............................................. 25 SECTION 4.2. Notice and Manner of Conversion or Continuation of Loans............................................. 28
-i- 3 SECTION 4.3. Fees................................................. 28 SECTION 4.4. Manner of Payment.................................... 29 SECTION 4.5. Crediting of Payments and Proceeds................... 30 SECTION 4.6. Adjustments.......................................... 30 SECTION 4.7. Nature of Obligations of Lenders Regarding Extensions of Credit; Assumption by the Administrative Agent................................. 31 SECTION 4.8. Changed Circumstances................................ 31 SECTION 4.9. Indemnity............................................ 33 SECTION 4.10. Capital Requirements................................. 34 SECTION 4.11. Taxes................................................ 35 ARTICLE V CLOSING; CONDITIONS OF CLOSING AND BORROWING.................................... 37 SECTION 5.1. Closing.............................................. 37 SECTION 5.2. Conditions to Closing and Initial Extensions of Credit............................................ 37 SECTION 5.3. Conditions to All Loans and Letters of Credit........ 40 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE BORROWER.................................. 41 SECTION 6.1. Representations and Warranties....................... 41 SECTION 6.2. Survival of Representations and Warranties, Etc...... 48 ARTICLE VII FINANCIAL INFORMATION AND NOTICES............................................... 48 SECTION 7.1. Financial Statements and Projections................. 48 SECTION 7.2. Officer's Compliance Certificate..................... 49 SECTION 7.3. Other Reports........................................ 49 SECTION 7.4. Notice of Litigation and Other Matters............... 50 SECTION 7.5. Accuracy of Information.............................. 51 ARTICLE VIII AFFIRMATIVE COVENANTS........................................................... 51 SECTION 8.1. Preservation of Corporate Existence and Related Matters...................................... 51 SECTION 8.2. Maintenance of Property.............................. 51 SECTION 8.3. Insurance............................................ 51 SECTION 8.4. Accounting Methods and Financial Records............. 52
-ii- 4 SECTION 8.5. Payment and Performance of Obligations............... 52 SECTION 8.6. Compliance With Laws and Approvals................... 52 SECTION 8.7. Environmental Laws................................... 52 SECTION 8.8. Compliance with ERISA................................ 53 SECTION 8.9. Compliance With Agreements........................... 53 SECTION 8.10. Conduct of Business.................................. 53 SECTION 8.11. Visits and Inspections............................... 53 SECTION 8.12. Additional Guarantors................................ 53 SECTION 8.13. Further Assurances................................... 54 ARTICLE IX FINANCIAL COVENANTS............................................................. 54 SECTION 9.1 Minimum Net Worth.................................... 54 SECTION 9.2. Leverage Ratio....................................... 54 SECTION 9.3 Senior Leverage Ratio................................ 54 SECTION 9.4. Interest Coverage Ratio.............................. 54 ARTICLE X NEGATIVE COVENANTS.............................................................. 55 SECTION 10.1. Limitations on Debt.................................. 55 SECTION 10.2. Limitations on Contingent Obligations................ 56 SECTION 10.3. Limitations on Liens................................. 56 SECTION 10.4. Limitations on Loans, Advances, Investments and Acquisitions..................................... 57 SECTION 10.5. Limitations on Mergers and Liquidation............... 59 SECTION 10.6. Limitations on Sale of Assets........................ 59 SECTION 10.7. Limitations on Dividends and Distributions........... 60 SECTION 10.8. Transactions with Affiliates......................... 60 SECTION 10.9. Certain Accounting Changes........................... 60 SECTION 10.10. Amendments; Payments and Prepayments of Subordinated Debt.................................... 60 SECTION 10.11. Restrictive Agreements............................... 60 ARTICLE XI DEFAULT AND REMEDIES............................................................ 61 SECTION 11.1. Events of Default.................................... 61 SECTION 11.2. Remedies............................................. 63 SECTION 11.3. Rights and Remedies Cumulative; Non-Waiver; etc...... 64 ARTICLE XII THE ADMINISTRATIVE AGENT........................................................ 65
-iii- 5 SECTION 12.1. Appointment.......................................... 65 SECTION 12.2. Delegation of Duties................................. 65 SECTION 12.3. Exculpatory Provisions............................... 65 SECTION 12.4. Reliance by the Administrative Agent................. 66 SECTION 12.5. Notice of Default.................................... 66 SECTION 12.6. Non-Reliance on the Administrative Agent and Other Lenders........................................ 67 SECTION 12.7. Indemnification...................................... 67 SECTION 12.8. The Administrative Agent in Its Individual Capacity............................................. 68 SECTION 12.9. Resignation of the Administrative Agent; Successor Administrative Agent....................... 68 ARTICLE XIII MISCELLANEOUS................................................................... 69 SECTION 13.1. Notices.............................................. 69 SECTION 13.2. Expenses; Indemnity.................................. 70 SECTION 13.3. Set-off.............................................. 71 SECTION 13.4. Governing Law........................................ 71 SECTION 13.5. Consent to Jurisdiction.............................. 71 SECTION 13.6. Binding Arbitration; Waiver of Jury Trial............ 72 SECTION 13.7. Reversal of Payments................................. 73 SECTION 13.8. Accounting Matters................................... 73 SECTION 13.9. Successors and Assigns; Participations............... 74 SECTION 13.10. Amendments, Waivers and Consents..................... 77 SECTION 13.11. Performance of Duties................................ 77 SECTION 13.12. All Powers Coupled with Interest..................... 77 SECTION 13.13. Survival of Indemnities.............................. 77 SECTION 13.14. Titles and Captions.................................. 78 SECTION 13.15. Severability of Provisions........................... 78 SECTION 13.16. Counterparts......................................... 78 SECTION 13.17. Term of Agreement.................................... 78
-iv- 6 Exhibits and Schedules EXHIBITS Exhibit A-1 - Form of Revolving Credit Note Exhibit A-2 - Form of Swingline Note Exhibit B - Form of Notice of Borrowing Exhibit C - Form of Notice of Prepayment Exhibit D - Form of Notice of Conversion/ Continuation Exhibit E - Form of Officer's Certificate Exhibit F - Form of Assignment and Acceptance Exhibit G - Form of Guaranty Exhibit H - Form of Pledge Agreement Exhibit I - Form of Intercompany Subordination Agreement SCHEDULES Schedule 1 - Lenders and Commitments Schedule 1.2 - First Union Letters of Credit Schedule 6.1(a) - Jurisdictions of Organization and Qualification Schedule 6.1(b) - Subsidiaries and Capitalization Schedule 6.1(i) - ERISA Plans Schedule 6.1(h) - Environmental Matters Schedule 6.1(l) - Material Contracts Schedule 6.1(m) - Labor and Collective Bargaining Agreements Schedule 6.1(f) - Debt and Contingent Obligations Schedule 6.1(u) - Litigation Schedule 10.3 - Existing Liens Schedule 10.4 - Existing Loans, Advances and Investments -v- 7 CREDIT AGREEMENT, dated as of the 6th day of September, 1996, by and among Corrections Corporation of America, a corporation organized under the laws of Delaware (the "Borrower"), the Lenders who are or may become a party to this Agreement, and FIRST UNION NATIONAL BANK OF TENNESSEE, as Administrative Agent for the Lenders (the "Administrative Agent"). STATEMENT OF PURPOSE The Borrower has requested, and the Lenders have agreed, to extend certain credit facilities to the Borrower on the terms and conditions of this Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, such parties hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Definitions. The following terms when used in this Agreement shall have the meanings assigned to them below: "Affiliate" means, with respect to any Person, any other Person (other than a Subsidiary) which directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such first Person or any of its Subsidiaries. The term "control" means (a) the power to vote five percent (5%) or more of the securities or other equity interests of a Person having ordinary voting power, or (b) the possession, directly or indirectly, of any other power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting securities, by contract or otherwise. "Administrative Agent" means First Union in its capacity as Administrative Agent hereunder, and any successor thereto appointed pursuant to Section 12.9. "Administrative Agent's Office" means the office of the Administrative Agent specified in or determined in accordance with the provisions of Section 13.1. "Aggregate Commitment" means the aggregate amount of the Lenders' Commitments hereunder, as such amount may be reduced or modified at any time or from time to time pursuant to Section -1- 8 2.6. On the Closing Date, the Aggregate Commitment shall be One Hundred and Seventy Million Dollars ($170,000,000). "Agreement" means this Credit Agreement, as amended or supplemented from time to time. "Applicable Law" means all applicable provisions of constitutions, statutes, laws, rules, treaties, regulations and orders of all Governmental Authorities and all orders and decrees of all courts and arbitrators. "Applicable Margin" shall have the meaning assigned thereto in Section 4.1(c). "Application" means an application, in the form specified by the Issuing Lender from time to time, requesting the Issuing Lender to issue a Letter of Credit. "Assignment and Acceptance" shall have the meaning assigned thereto in Section 13.10. "Available Commitment" means, as to any Lender at any time, an amount equal to the excess, if any, of (a) such Lender's Commitment over (b) such Lender's Extensions of Credit. "Base Rate" means, at any time, the higher of (a) the Prime Rate or (b) the Federal Funds Rate plus 1/2 of 1%; each change in the Base Rate shall take effect simultaneously with the corresponding change or changes in the Prime Rate or the Federal Funds Rate. "Base Rate Loan" means any Loan bearing interest at a rate based upon the Base Rate as provided in Section 4.1(a). "Borrower" means Corrections Corporation of America in its capacity as borrower hereunder. "Business Day" means (a) for all purposes other than as set forth in clause (b) below, any day other than a Saturday, Sunday or legal holiday on which banks in Charlotte, North Carolina and New York, New York are open for the conduct of their commercial banking business, and (b) with respect to all notices and determinations in connection with, and payments of principal and interest on, any LIBOR Rate Loan, any day that is a Business Day described in clause (a) and that is also a day for trading by and between banks in Dollar deposits in the London interbank market. "Capital Asset" means, with respect to the Borrower and its Subsidiaries, any asset that should, in accordance with GAAP, be -2- 9 classified and accounted for as a capital asset on a Consolidated balance sheet of the Borrower and its Subsidiaries. "Capital Lease" means, with respect to the Borrower and its Subsidiaries, any lease of any property that should, in accordance with GAAP, be classified and accounted for as a capital lease on a Consolidated balance sheet of the Borrower and its Subsidiaries. "Change in Control" shall have the meaning assigned thereto in Section 11.1(i). "Closing Date" means the date of this Agreement. "Code" means the Internal Revenue Code of 1986, and the rules and regulations thereunder, each as amended or supplemented from time to time. "Commitment" means, as to any Lender, the obligation of such Lender to make Loans to and issue or participate in Letters of Credit issued for the account of the Borrower hereunder in an aggregate principal or face amount at any time outstanding not to exceed the amount set forth opposite such Lender's name on Schedule 1.1 hereto, as the same may be reduced or modified at any time or from time to time pursuant to Sections 2.5 and 13.9. "Commitment Percentage" means, as to any Lender at any time, the ratio of (a) the amount of the Commitment of such Lender to (b) the Aggregate Commitment of all of the Lenders. "Consolidated" means, when used with reference to financial statements or financial statement items of the Borrower and its Subsidiaries, such statements or items on a consolidated basis in accordance with applicable principles of consolidation under GAAP. "Contingent Obligation" means, with respect to the Borrower and its Subsidiaries, without duplication, any obligation, contingent or otherwise, of any such Person pursuant to which such Person has directly or indirectly guaranteed any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of any such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement condition or otherwise) or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment -3- 10 thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, that the term Contingent Obligation shall not include endorsements for collection or deposit in the ordinary course of business. "Credit Facility" means the collective reference to the Revolving Credit Facility and the L/C Facility. "Debt" means, with respect to the Borrower and its Subsidiaries at any date and without duplication, the sum of the following calculated in accordance with GAAP: (a) all liabilities, obligations and indebtedness for borrowed money including but not limited to obligations evidenced by bonds, debentures, notes or other similar instruments of any such Person, (b) all obligations to pay the deferred purchase price of property or services of any such Person, except trade payables arising in the ordinary course of business not more than ninety (90) days past due, (c) all obligations of any such Person as lessee under Capital Leases, (d) all Debt of any other Person secured by a Lien on any asset of any such Person, (e) all Contingent Obligations of any such Person, (f) all obligations, contingent or otherwise, of any such Person relative to the face amount of letters of credit, whether or not drawn, including without limitation any Reimbursement Obligation, and banker's acceptances issued for the account of any such Person, (g) all obligations to redeem, repurchase, exchange, defease or otherwise make payments in respect of capital stock or other securities of such Person and (h) all termination payments which would be due and payable by any such Person pursuant to a Hedging Agreement. "Default" means any of the events specified in Section 11.1 which with the passage of time, the giving of notice or any other condition, would constitute an Event of Default. "Dollars" or "$" means, unless otherwise qualified, dollars in lawful currency of the United States. "EBIT" means, with respect to the Borrower and its Subsidiaries for any period, the following, calculated on a Consolidated basis without duplication for such period in accordance with GAAP: (a) Net Income for such period, plus (b) the sum of the following to the extent deducted in the determination of Net Income: (i) income and franchise taxes and (ii) Interest Expense. "Eligible Assignee" means, with respect to any assignment of the rights, interest and obligations of a Lender hereunder, a Person that is at the time of such assignment (a) a commercial bank organized under the laws of the United States or any state thereof, having combined capital and surplus in excess of -4- 11 $1,000,000,000, (b) a finance company, insurance company, investment bank or other financial institution which in the ordinary course of business extends credit of the type extended hereunder and that has total assets in excess of $3,000,000,000, (c) already a Lender hereunder (whether as an original party to this Agreement or as the assignee of another Lender), (d) the successor (whether by transfer of assets, merger or otherwise) to all or substantially all of the commercial lending business of the assigning Lender, or (e) any other Person that has been approved in writing as an Eligible Assignee by the Borrower and the Administrative Agent. "Employee Benefit Plan" means any employee benefit plan within the meaning of Section 3(3) of ERISA which (a) is maintained for employees of the Borrower or any ERISA Affiliate or (b) has at any time within the preceding six years been maintained for the employees of the Borrower or any current or former ERISA Affiliate. "Environmental Laws" means any and all federal, state and local laws, statutes, ordinances, rules, regulations, permits, licenses, approvals, interpretations and orders of courts or Governmental Authorities, relating to the protection of human health or the environment, including, but not limited to, requirements pertaining to the manufacture, processing, distribution, use, treatment, storage, disposal, transportation, handling, reporting, licensing, permitting, investigation or remediation of Hazardous Materials. "ERISA" means the Employee Retirement Income Security Act of 1974, and the rules and regulations thereunder, each as amended or modified from time to time. "ERISA Affiliate" means any Person who together with the Borrower is treated as a single employer within the meaning of Section 414(b), (c), (m) or (o) of the Code or Section 4001(b) of ERISA. "Eurodollar Reserve Percentage" means, for any day, the percentage (expressed as a decimal and rounded upwards, if necessary, to the next higher 1/100th of 1%) which is in effect for such day as prescribed by the Federal Reserve Board (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) in respect of Eurocurrency liabilities or any similar category of liabilities for a member bank of the Federal Reserve System in New York City. -5- 12 "Event of Default" means any of the events specified in Section 11.1, provided that any requirement for passage of time, giving of notice, or any other condition, has been satisfied. "Existing Letters of Credit" means (a) the Letter of Credit issued by First Union National Bank of North Carolina in favor of Liberty Bank Trust Company of Tulsa, National Association, as Trustee, in the face amount of $25,156,781.00 which has an expiration date of June 15, 1997, (b) the Letter of Credit issued by First Union National Bank of North Carolina in favor of MBIA Investment Management Corporation, NationsBank of Florida and Correctional Privatization Commission in the face amount of $1,492,835.00 which has an expiration date of February 15, 1997 and (c) the Letter of Credit issued by First Union National Bank of North Carolina in favor of National Fire Insurance Company of Pittsburgh in the face amount of $1,600,000.00 which has an expiration date of March 31, 1997. "Extensions of Credit" means, as to any Lender at any time, an amount equal to the sum of (a) the aggregate principal amount of all Loans made by such Lender then outstanding and (b) such Lender's Commitment Percentage of the L/C Obligations then outstanding. "FDIC" means the Federal Deposit Insurance Corporation, or any successor thereto. "Federal Funds Rate" means, the rate per annum (rounded upwards, if necessary, to the next higher 1/100th of 1%) representing the daily effective federal funds rate as quoted by the Administrative Agent and confirmed in Federal Reserve Board Statistical Release H.15 (519) or any successor or substitute publication selected by the Administrative Agent. If, for any reason, such rate is not available, then "Federal Funds Rate" shall mean a daily rate which is determined, in the opinion of the Administrative Agent, to be the rate at which federal funds are being offered for sale in the national federal funds market at 9:00 a.m. (Charlotte time). Rates for weekends or holidays shall be the same as the rate for the most immediate preceding Business Day. "First Union" means First Union National Bank of Tennessee, a national banking association, and its successors. "First Union Letters of Credit" means the letters of credit issued by First Union more particularly described on Schedule 1.2 attached hereto and incorporated herein by reference. "First Union Letter of Credit Facility Agreement" means the Letter of Credit Facility Agreement of even date between First -6- 13 Union and the Borrower, pursuant to which First Union has agreed to issue letters of credit for the benefit of the Borrower in an aggregate face amount not to exceed $2,500,000. "Fiscal Year" means the fiscal year of the Borrower and its Subsidiaries ending on December 31. "GAAP" means generally accepted accounting principles, as recognized by the American Institute of Certified Public Accountants and the Financial Accounting Standards Board, consistently applied and maintained on a consistent basis for the Borrower and its Subsidiaries throughout the period indicated and consistent with the prior financial practice of the Borrower and its Subsidiaries. "Governmental Approvals" means all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and reports to, all Governmental Authorities. "Governmental Authority" means any nation, province, state or political subdivision thereof, and any government or any Person exercising executive, legislative, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Guarantors" means Transcor America, Inc.; Concept Incorporated; Correction Management Affiliates, Inc.; Correctional Services Group, Inc.; CCA International, Inc.; Corrections Partners, Inc.; Mineral Wells R.E. Holding Corp.; and each other Person that becomes party to the Guaranty Agreement from time to time (including, without limitation, United Concept, Limited Partnership which shall become a party to the Guaranty Agreement at the earlier to occur of (a) such time as the Notes issued pursuant to the Indenture dated as of November 15, 1993 between United-Concept, Limited Partnership and The First National Bank of Chicago, as Trustee, have been paid in full or (b) the holders of such Notes consent to United Concept, Limited Partnership becoming a party to the Guaranty Agreement). "Guaranty Agreement" means the Unconditional Guaranty Agreement of even date executed by each of the Guarantors in favor of the Administrative Agent, for the ratable benefit of itself, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1, substantially in the form of Exhibit G hereto, as amended or supplemented from time to time. "Hazardous Materials" means any substances or materials (a) which are or become defined as hazardous wastes, hazardous -7- 14 substances, pollutants, contaminants, chemical substances or mixtures or toxic substances under any Environmental Law, (b) which are toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or otherwise harmful to human health or the environment and are or become regulated by any Governmental Authority, (c) the presence of which require investigation or remediation under any Environmental Law or common law, (d) the discharge or emission or release of which requires a permit or license under any Environmental Law or other Governmental Approval, (e) which are deemed to constitute a nuisance, a trespass or pose a health or safety hazard to persons or neighboring properties, (f) which are materials consisting of underground or aboveground storage tanks, whether empty, filled or partially filled with any substance, or (g) which contain, without limitation, asbestos, polychlorinated biphenyls, urea formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived substances or waste, crude oil, nuclear fuel, natural gas or synthetic gas. "Hedging Agreement" means any agreement with respect to an interest rate swap, collar, cap, floor or a forward rate agreement or other agreement regarding the hedging of interest rate risk exposure executed in connection with hedging the interest rate exposure of the Borrower under this Agreement, and any confirming letter executed pursuant to such hedging agreement, all as amended or supplemented from time to time. "Holdenville Letter of Credit" means the Letter of Credit issued by First Union National Bank of North Carolina in favor of Liberty Bank and Trust Company of Oklahoma City, N.A., as Trustee, in the face amount $34,346,301.00 which has an expiration date of September 16, 1996. "Holdenville Letter of Credit Obligations" means the sum of (a) the aggregate undrawn and unexpired amount of the then outstanding Holdenville Letter of Credit and (b) the aggregate amount of drawings under the Holdenville Letter of Credit which have not then been reimbursed by the Borrower. "Immaterial Subsidiaries" means Technical and Business Institute of America, Inc.; United Concept, Inc.; Concept Incorporated Overton; CCA France, Inc.; and CCA(UK), Limited. "Intercompany Subordination Agreement" means the Intercompany Subordination Agreement of even date executed by the Loan Parties in favor of the Administrative Agent for the benefit of itself and the Lenders, substantially in the form of Exhibit I, as amended or supplemented from time to time. -8- 15 "Interest Expense" means, with respect to the Borrower and its Subsidiaries for any period, the gross interest expense (including without limitation, interest expense attributable to Capital Leases and all net obligations pursuant to Hedging Agreements) of the Borrower and its Subsidiaries, determined for such period on a Consolidated basis in accordance with GAAP. "Interest Period" shall have the meaning assigned thereto in Section 4.1(b). "Issuing Lender" means First Union or First Union National Bank of North Carolina, each in its capacity as issuer of any Letter of Credit, or any successor thereto. "L/C Commitment" means (a) One Hundred Thirty-Six Million Dollars ($136,000,000) minus (b) the Holdenville Letter of Credit Obligations. "L/C Facility" means the letter of credit facility established pursuant to Article III hereof. "L/C Obligations" means at any time, an amount equal to the sum of (a) the aggregate undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed pursuant to Section 3.5. "L/C Participants" means the collective reference to all the Lenders other than the Issuing Lender. "Lender" means each Person executing this Agreement as a Lender set forth on the signature pages hereto and each Person that hereafter becomes a party to this Agreement as a Lender pursuant to Section 13.9. "Lending Office" means, with respect to any Lender, the office of such Lender maintaining such Lender's Commitment Percentage of the Loans. "Letters of Credit" shall have the meaning assigned thereto in Section 3.1. "LIBOR" means the rate for deposits in Dollars for a period equal to the Interest Period selected which appears on the Telerate Page 3750 at approximately 11:00 a.m. London time, two (2) Business Days prior to the commencement of the applicable Interest Period. If, for any reason, such rate is not available, then "LIBOR" shall mean the rate per annum at which, as determined by the Administrative Agent, Dollars in the amount of $5,000,000 are being offered to leading banks at approximately -9- 16 11:00 a.m. London time, two (2) Business Days prior to the commencement of the applicable Interest Period for settlement in immediately available funds by leading banks in the London interbank market for a period equal to the Interest Period selected. "LIBOR Rate" means a rate per annum (rounded upwards, if necessary, to the next higher 1/100th of 1%) determined by the Administrative Agent pursuant to the following formula: LIBOR Rate = LIBOR ------------------------ 1.00-Eurodollar Reserve Percentage "LIBOR Rate Loan" means any Loan bearing interest at a rate based upon the LIBOR Rate as provided in Section 4.1(a). "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, a Person shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement relating to such asset. "Loans" means the collective reference to the Revolving Credit Loans and the Swingline Loans and "Loan" means any of such Loans. "Loan Documents" means, collectively, this Agreement, the Notes, the Applications, the Letters of Credit, any Hedging Agreement executed by any Lender, the Guaranty Agreement, the Pledge Agreement, the Intercompany Subordination Agreement, the First Union Letter of Credit Facility Agreement and each other document, instrument and agreement executed and delivered by the Borrower, its Subsidiaries or their counsel in connection with this Agreement or otherwise referred to herein or contemplated hereby, all as may be amended or supplemented from time to time. "Loan Parties" means the collective reference to the Borrower and the Guarantors and "Loan Party" means any one of them individually. "Material Adverse Effect" means, with respect to the Borrower or any of its Subsidiaries, a material adverse effect on the properties, business, prospects, operations or condition (financial or otherwise) of any such Person, the ability of any such Person to perform its obligations under the Loan Documents or Material Contracts, in each case to which it is a party, or -10- 17 the ability of the Agent or any Lender to enforce its respective rights and remedies under the Loan Documents. "Material Contract" means (a) any contract or other agreement, written or oral, of the Borrower or any of its Subsidiaries involving monetary liability of or to any such Person in an amount in excess of $1,000,000 per annum, or (b) any other contract or agreement, written or oral, of the Borrower or any of its Subsidiaries the failure to comply with which could reasonably be expected to have a Material Adverse Effect. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making, or is accruing an obligation to make, contributions within the preceding six years. "Net Cash Proceeds" means, with respect to any offering of capital stock or any exercise of warrants or options exercisable in respect of its capital stock, the gross cash proceeds received by the Borrower or any of its Subsidiaries therefrom less, all legal, underwriting and similar fees and expenses incurred in connection therewith. "Net Income" means, with respect to the Borrower and its Subsidiaries, the Consolidated net income (or loss) of the Borrower and its Subsidiaries for such period determined in accordance with GAAP; provided, that there shall be excluded from net income (or loss): (a) the income (or loss) of any Person (other than a Subsidiary of such Person) in which such Person has an ownership interest unless received by such Person in a cash distribution, (b) the income (or loss) of any Person accrued prior to the date it became a Subsidiary of such first Person or is merged into or consolidated with such first Person, and (c) to the extent not included in clauses (a) and (b) above, any after-tax extraordinary gains and non-cash losses. "Net Worth" means, with respect to any Person, at any date, the stockholders' equity (including capital stock, additional paid-in capital and retained earnings, after deducting treasury stock) of such Person on such date determined in accordance with GAAP. "Notes" means the collective reference to the Revolving Credit Notes and the Swingline Notes and "Note" means any of such Notes. "Notice of Borrowing" shall have the meaning assigned thereto in Section 2.3(a). -11- 18 "Notice of Conversion/Continuation" shall have the meaning assigned thereto in Section 4.2. "Notice of Prepayment" shall have the meaning assigned thereto in Section 2.5(c). "Obligations" means, in each case, whether now in existence or hereafter arising: (a) the principal of and interest on (including interest accruing after the filing of any bankruptcy or similar petition) the Loans, (b) the L/C Obligations, (c) all obligations of the Borrower owing to First Union in connection with the First Union Letters of Credit and the First Union Letter of Credit Facility Agreement, (d) all payment and other obligations owing by the Borrower to any Lender (or its Affiliate) or the Administrative Agent under any Hedging Agreement permitted pursuant to Section 10.1 to which a Lender (or its Affiliate) is a party and (e) all other fees and commissions (including attorney's fees), charges, indebtedness, loans, liabilities, financial accommodations, obligations, covenants and duties owing by the Borrower to the Lenders or the Administrative Agent, of every kind, nature and description, direct or indirect, absolute or contingent, due or to become due, contractual or tortious, liquidated or unliquidated, and whether or not evidenced by any note, and whether or not for the payment of money under or in respect of this Agreement, any Note, any Letter of Credit or any of the other Loan Documents. "Officer's Compliance Certificate" shall have the meaning assigned thereto in Section 7.2. "Other Taxes" shall have the meaning assigned thereto in Section 4.11(b). "PBGC" means the Pension Benefit Guaranty Corporation or any successor agency. "Pension Plan" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or Section 412 of the Code and which (a) is maintained for employees of the Borrower or any ERISA Affiliates or (b) has at any time within the preceding six years been maintained for the employees of the Borrower or any of their current or former ERISA Affiliates. "Person" means an individual, corporation, partnership, limited liability company, association, trust, business trust, joint venture, joint stock company, pool, syndicate, sole proprietorship, unincorporated organization, Governmental Authority or any other form of entity or group thereof. -12- 19 "Pledge Agreements" means each of the Pledge Agreements dated as of even date executed by the Borrower and certain of the Guarantors in favor of the Administrative Agent, for the ratable benefit of itself, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1, substantially in the form of Exhibit H hereto, as amended or supplemented from time to time. "Prime Rate" means, at any time, the rate of interest per annum publicly announced from time to time by First Union as its prime rate. Each change in the Prime Rate shall be effective as of the opening of business on the day such change in the Prime Rate occurs. The parties hereto acknowledge that the rate announced publicly by First Union as its Prime Rate is an index or base rate and shall not necessarily be its lowest or best rate charged to its customers or other banks. "Project Letter of Credit" means any Letter of Credit issued in support of Project Related Debt. "Project Related Debt" means any Debt of the Borrower issued in connection with the acquisition, construction or development of a correctional facility. "Register" shall have the meaning assigned thereto in Section 13.9(d). "Reimbursement Obligation" means the obligation of the Borrower to reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of Credit. "Required Lenders" means, at any date, any combination of holders of at least sixty-six and two-thirds percent (66-2/3%) of the aggregate Extensions of Credit, or if no Extensions of Credit are outstanding, any combination of Lenders whose Commitment Percentages aggregate at least sixty-six and two-thirds percent (66-2/3%). "Revolving Credit Facility" means the revolving credit facility established pursuant to Article II hereof. "Revolving Credit Loan" means any revolving loan made to the Borrower pursuant to Section 2.1, and all such Loans collectively as the context requires. "Revolving Credit Notes" means the separate Revolving Credit Notes made by the Borrower payable to the order of each Lender, substantially in the form of Exhibit A-1 hereto, evidencing the Revolving Credit Facility, and any amendments and modifications thereto, any substitutes therefor, and any replacements, restate- -13- 20 ments, renewals or extension thereof, in whole or in part; "Revolving Credit Note" means any of such Notes. "Revolving Termination Date" means the earliest of the dates referred to in Section 2.7. "Security Documents" means the collective reference to the Guaranty Agreement, the Pledge Agreement, and each other agreement or writing pursuant to which the Borrower or any Subsidiary thereof pledges or grants a security interest in any property or assets securing the Obligations or any such Person guaranties the payment and/or performance of the Obligations. "Senior Debt" means, as of any date of determination, the Consolidated Debt of the Borrower and its Subsidiaries as of such date minus all Subordinated Debt as of such date. "Senior Leverage Ratio" means the ratio determined in accordance with Section 9.3 hereof. "Solvent" means, as to the Borrower and its Subsidiaries on a particular date, that any such Person (a) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage and is able to pay its debts as they mature, (b) owns property having a value, both at fair valuation and at present fair saleable value, greater than the amount required to pay its probable liabilities (including contingencies), and (c) does not believe that it will incur debts or liabilities beyond its ability to pay such debts or liabilities as they mature. "Subordinated Debt" means the collective reference to Debt on Schedule 6.1(t) hereof designated as Subordinated Debt and any other Debt of the Borrower or any Subsidiary thereof subordinated in right and time of payment to the Obligations and containing terms and conditions satisfactory to the Required Lenders. "Subsidiary" means as to any Person, any corporation, partnership or other entity, domiciled within the United States, of which more than fifty percent (50%) of the outstanding capital stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other managers of such corporation, partnership or other entity is at the time, directly or indirectly, owned by or the management is otherwise controlled by such Person (irrespective of whether, at the time, capital stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency). Unless otherwise qualified references to "Subsidiary" or "Subsidiaries" herein shall refer to those of the Borrower. -14- 21 "Swingline Commitment" means Five Million Dollars ($5,000,000). "Swingline Lender" means First Union in its capacity as swingline lender hereunder. "Swingline Loan" means any swingline loan made by the Swingline Lender to the Borrower pursuant to Section 2.2, and all such Loans collectively as the context requires. "Swingline Note" means the Swingline Note made by the Borrower payable to the order of the Swingline Lender, substantially in the form of Exhibit A-2 hereto, evidencing the Swingline Loans, and any amendments and modifications thereto, any substitutes therefor, and any replacements, restatements, renewals or extension thereof, in whole or in part. "Swingline Termination Date" means the earlier to occur of (a) the resignation of First Union as Administrative Agent in accordance with Section 12.9 and (b) the Revolving Termination Date. "Taxes" shall have the meaning assigned thereto in Section 4.11(a). "Termination Event" means: (a) a "Reportable Event" described in Section 4043 of ERISA, or (b) the withdrawal of the Borrower or any ERISA Affiliate from a Pension Plan during a plan year in which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) the termination of a Pension Plan, the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination under Section 4041 of ERISA, or (d) the institution of proceedings to terminate, or the appointment of a trustee with respect to, any Pension Plan by the PBGC, or (e) any other event or condition which would constitute grounds under Section 4042(a) of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan, or (f) the partial or complete withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan, or (g) the imposition of a Lien pursuant to Section 412 of the Code or Section 302 of ERISA, or (h) any event or condition which results in the reorganization or insolvency of a Multiemployer Plan under Sections 4241 or 4245 of ERISA, or (i) any event or condition which results in the termination of a Multiemployer Plan under Section 4041A of ERISA or the institution by PBGC of proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA. -15- 22 "Uniform Customs" the Uniform Customs and Practice for Documentary Credits (1994 Revision), International Chamber of Commerce Publication No. 500. "UCC" means the Uniform Commercial Code as in effect in the State of North Carolina. "United States" means the United States of America. "Wholly-Owned" means, with respect to a Subsidiary, a Subsidiary all of the shares of capital stock or other ownership interests of which are, directly or indirectly, owned or controlled by the Borrower and/or one or more of its Wholly-Owned Subsidiaries. SECTION 1.2. General. Unless otherwise specified, a reference in this Agreement to a particular section, subsection, Schedule or Exhibit is a reference to that section, subsection, Schedule or Exhibit of this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. Any reference herein to "Charlotte time" shall refer to the applicable time of day in Charlotte, North Carolina. SECTION 1.3. Other Definitions and Provisions. (a) Use of Capitalized Terms. Unless otherwise defined therein, all capitalized terms defined in this Agreement shall have the defined meanings when used in this Agreement, the Notes and the other Loan Documents or any certificate, report or other document made or delivered pursuant to this Agreement. (b) Miscellaneous. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. -16- 23 ARTICLE II REVOLVING CREDIT FACILITY SECTION 2.1. Revolving Credit Loans. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make Revolving Credit Loans to the Borrower from time to time from the Closing Date through the Revolving Termination Date as requested by the Borrower in accordance with the terms of Section 2.3; provided, that (a) the aggregate principal amount of all outstanding Revolving Credit Loans (after giving effect to any amount requested) shall not exceed the Aggregate Commitment less the sum of all outstanding Swingline Loans and the L/C Obligations and (b) the principal amount of outstanding Revolving Credit Loans from any Lender to the Borrower shall not at any time exceed such Lender's Commitment. Each Revolving Credit Loan by a Lender shall be in a principal amount equal to such Lender's Commitment Percentage of the aggregate principal amount of Revolving Credit Loans requested on such occasion. Subject to the terms and conditions hereof, the Borrower may borrow, repay and reborrow Revolving Credit Loans hereunder until the Revolving Termination Date. SECTION 2.2. Swingline Loans. (a) Availability. Subject to the terms and conditions of this Agreement, the Swingline Lender agrees to make Swingline Loans to the Borrower from time to time from the Closing Date through the Swingline Termination Date; provided, that the aggregate principal amount of all outstanding Swingline Loans (after giving effect to any amount requested), shall not exceed the lesser of (i) the Aggregate Commitment less the sum of all outstanding Revolving Credit Loans and the L/C Obligations and (ii) the Swingline Commitment. (b) Refunding. (i) Swingline Loans (except with respect to any Swingline Loan extended after the occurrence and during the continuance of an Event of Default which has not been waived by the Required Lenders or the Lenders, as applicable) shall be refunded by the Lenders on demand by the Swingline Lender. Such refundings shall be made by the Lenders in accordance with their respective Commitment Percentages and shall thereafter be reflected as Revolving Credit Loans of the Lenders on the books and records of the Administrative Agent. Each Lender shall fund its respective Commitment Percentage of Revolving Credit Loans as required to repay Swingline Loans outstanding to the Swingline Lender upon demand by the Swingline Lender but in no event later than 2:00 p.m. (Charlotte time) on the next succeeding Business Day after such demand is made. No Lender's obligation to fund its respective Commitment Percentage of a Swingline Loan shall be affected by any other Lender's failure to fund its Commitment Percentage of a Swingline Loan, nor shall any Lender's Commitment Percentage be increased as a result of any such failure of any other Lender to fund its Commitment Percentage. -17- 24 (ii) The Borrower shall pay to the Swingline Lender on demand the amount of such Swingline Loans to the extent amounts received from the Lenders are not sufficient to repay in full the outstanding Swingline Loans requested or required to be refunded. In addition, the Borrower hereby authorizes the Administrative Agent to charge any account maintained by it with the Swingline Lender (up to the amount available therein) in order to immediately pay the Swingline Lender the amount of such Swingline Loans to the extent amounts received from the Lenders are not sufficient to repay in full the outstanding Swingline Loans requested or required to be refunded. If any portion of any such amount paid to the Swingline Lender shall be recovered by or on behalf of the Borrower from the Swingline Lender in bankruptcy or otherwise, the loss of the amount so recovered shall be ratably shared among all the Lenders in accordance with their respective Commitment Percentages. (iii) Each Lender acknowledges and agrees that its obligation to refund Swingline Loans (except any Swingline Loan extended after the occurrence and during the continuance of an Event of Default which has not been waived by the Required Lenders or the Lenders, as applicable) in accordance with the terms of this Section 2.2 is absolute and unconditional and shall not be affected by any circumstance whatsoever; provided, that if prior to the refunding of any outstanding Swingline Loans pursuant to this Section 2.2, one of the events described in Section 11.1(j) or (k) shall have occurred, each Lender will, on the date the applicable Revolving Credit Loan would have been made, purchase an undivided participating interest in the Swingline Loan to be refunded in an amount equal to its Commitment Percentage of the aggregate amount of such Swingline Loan. Each Lender will immediately transfer to the Swingline Lender, in immediately available funds, the amount of its participation and upon receipt thereof the Swingline Lender will deliver to such Lender a certificate evidencing such participation dated the date of receipt of such funds and for such amount. Whenever, at any time after the Swingline Lender has received from any Lender such Lender's participating interest in a Swingline Loan, the Swingline Lender receives any payment on account thereof, the Swingline Lender will distribute to such Lender its participating interest in such amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender's participating interest was outstanding and funded). SECTION 2.3. Procedure for Advances of Revolving Credit and Swingline Loans. (a) Requests for Borrowing. The Borrower shall give the Administrative Agent irrevocable prior written notice in the form attached hereto as Exhibit B (a "Notice of Borrowing") not later than 12:00 noon (Charlotte time) (i) at least one Business Day before each Base Rate Loan (other than a Swingline Loan), (ii) on the same Business Day as each Swingline Loan and (iii) at least three Business Days before each LIBOR Rate Loan, of its intention to borrow, specifying (A) the date of such borrowing, which shall be a Business Day, (B) the amount of such borrowing, which shall be in a minimum principal amount of -18- 25 $1,000,000 or an integral multiple of $100,000 in excess thereof for Base Rate Loans, a minimum principal amount of $2,500,000 or an integral multiple of $500,000 in excess thereof for LIBOR Rate Loans and a minimum principal amount of $500,000 or an integral multiple of $50,000 in excess thereof for Swingline Loans, (C) whether such Loan is to be a Revolving Credit Loan or a Swingline Loan, (D) in the case of a Revolving Credit Loan, whether the Loans are to be LIBOR Rate Loans or Base Rate Loans, and (E) in the case of a LIBOR Rate Loan, the duration of the Interest Period applicable thereto. Notices received after 12:00 noon (Charlotte time) shall be deemed received on the next Business Day. The Administrative Agent shall promptly notify the Lenders of each Notice of Borrowing with respect to a Revolving Credit Loan. (b) Disbursement of Revolving Credit and Swingline Loans. Not later than 2:00 p.m. (Charlotte time) on the proposed borrowing date, (i) each Lender will make available to the Administrative Agent, for the account of the Borrower, at the office of the Administrative Agent in funds immediately available to the Administrative Agent, such Lender's Commitment Percentage of the Revolving Credit Loans to be made on such borrowing date and (ii) the Swingline Lender will make available to the Administrative Agent, for the account of the Borrower, at the office of the Administrative Agent in funds immediately available to the Administrative Agent, the Swingline Loans to be made to the Borrower on such borrowing date. The Borrower hereby irrevocably authorizes the Administrative Agent to disburse the proceeds of each borrowing requested pursuant to this Section 2.3 in immediately available funds by crediting such proceeds to a deposit account of the Borrower maintained with the Administrative Agent or by wire transfer to such account as may be agreed upon by the Borrower and the Administrative Agent from time to time. Subject to Section 4.7 hereof, the Administrative Agent shall not be obligated to disburse the proceeds of any Revolving Credit Loan requested pursuant to this Section 2.3 to the extent that any Lender has not made available to the Administrative Agent its Commitment Percentage of such Loan. Revolving Credit Loans to be made for the purpose of refunding Swingline Loans shall be made by the Lenders as provided in Section 2.2(b) hereof. SECTION 2.4. Repayment of Loans. (a) Repayment. The Borrower shall repay the outstanding principal amount of (i) all Revolving Credit Loans on the Revolving Termination Date, if not sooner repaid, and (ii) all Swingline Loans in accordance with Section 2.2(b), together, in each such case, with all accrued but unpaid interest thereon. -19- 26 (b) Mandatory Repayment of Excess Loans. If at any time the outstanding principal amount of all Loans plus the L/C Obligations exceeds the Aggregate Commitment, the Borrower shall repay immediately upon notice from the Administrative Agent, by payment to the Administrative Agent for the account of the Lenders, Extensions of Credit in an amount equal to such excess with each such repayment applied first to the principal amount of outstanding Swingline Loans, second to the principal amount of outstanding Revolving Credit Loans, and third, with respect to any Letters of Credit then outstanding, a payment of cash collateral into a cash collateral account opened by the Borrower with the Administrative Agent for the benefit of the Lenders (such cash collateral to be applied in accordance with Section 11.2(b)). Each such repayment shall be accompanied by any amount required to be paid pursuant to Section 4.9 hereof. (c) Optional Repayments. The Borrower may at any time and from time to time repay the Revolving Credit Loans, in whole or in part, by providing irrevocable prior written notice, in the form attached hereto as Exhibit C (a "Notice of Prepayment"), to the Administrative Agent not later than 12:00 noon (Charlotte time) at least one (1) Business Day prior to such repayment with respect to LIBOR Rate Loans repaid at the maturity of such LIBOR Rate Loans, three (3) Business Days prior to such repayment with respect to any other LIBOR Rate Loans and one (1) Business Day prior to such repayment with respect to Base Rate Loans, specifying the date and amount of repayment and whether the repayment is of LIBOR Rate Loans (and if so, which LIBOR Rate Loans), Base Rate Loans or a combination thereof, and, if of a combination thereof, the amount allocable to each. Upon receipt of such notice, the Administrative Agent shall promptly notify each Lender. If any such notice is given, the amount specified in such notice shall be due and payable on the date set forth in such notice. Partial repayments shall be in a minimum principal amount of $1,000,000 or an integral multiple of $100,000 in excess thereof for Base Rate Loans, a minimum principal amount of $2,500,000 or an integral multiple of $500,000 in excess thereof for LIBOR Rate Loans and a minimum principal amount of $500,000 or an integral multiple of $50,000 in excess thereof for Swingline Loans. Each such repayment shall be accompanied by any amount required to be paid pursuant to Section 4.9 hereof. (d) Limitation on Repayment of LIBOR Rate Loans. Notwithstanding the provisions of Section 2.4(c), the Borrower may not repay any LIBOR Rate Loan on any day other than on the last day of the Interest Period applicable thereto unless such repayment is accompanied by any amount required to be paid pursuant to Section 4.9 hereof. -20- 27 SECTION 2.5. Notes. (a) Revolving Credit Notes. Each Lender's Revolving Credit Loans and the obligation of the Borrower to repay such Revolving Credit Loans shall be evidenced by a Revolving Credit Note executed by the Borrower payable to the order of such Lender representing the Borrower's obligation to pay such Lender's Commitment or, if less, the aggregate unpaid principal amount of all Revolving Credit Loans made and to be made by such Lender to the Borrower hereunder, plus interest and all other fees, charges and other amounts due thereon. Each Revolving Credit Note shall be dated the date hereof and shall bear interest on the unpaid principal amount thereof at the applicable interest rate per annum specified in Section 4.1. (b) Swingline Notes. The Swingline Loans and the obligation of the Borrower to repay such Swingline Loans shall be evidenced by a Swingline Note executed by the Borrower payable to the order of the Swingline Lender representing the Borrower's obligation to pay the Swingline Lender's Swingline Commitment or, if less, the aggregate unpaid principal amount of all Swingline Loans made by the Swingline Lender to the Borrower hereunder, plus interest on such principal amounts and all other fees, charges and other amounts due thereon. The Swingline Note shall be dated the date hereof and shall bear interest on the unpaid principal amount thereof at the applicable interest rate per annum specified in Section 4.1. SECTION 2.6. Permanent Reduction of the Aggregate Commitment. (a) The Borrower shall have the right at any time and from time to time, upon at least five (5) Business Days prior written notice to the Agent, to permanently reduce, in whole at any time or in part from time to time, without premium or penalty, the Aggregate Commitment in a minimum principal amount not less than $2,500,000 or any whole multiple of $1,000,000 in excess thereof. (b) Each permanent reduction permitted pursuant to this Section 2.6 shall be accompanied by a payment of principal (and with respect to L/C Obligations, furnishing of cash collateral) sufficient to reduce the aggregate outstanding Extensions of Credit of the Lenders after such reduction to the Aggregate Commitment as so reduced. Any reduction of the Aggregate Commitment to zero shall be accompanied by payment of all outstanding Obligations (and furnishing of cash collateral satisfactory to the Agent for all L/C Obligations) and, if such reduction is permanent, termination of the Commitments and Credit Facility. Such cash collateral shall be applied in accordance with Section 11.2(b). If the reduction of the Aggregate Commitment requires the repayment of any LIBOR Rate Loan, such reduction may be made only on the last day of the then current Interest Period applicable thereto unless such repayment is accompanied by any amount required to be paid pursuant to Section 4.9 hereof. -21- 28 SECTION 2.7. Revolving Termination Date. The Credit Facility (subject to Section 2.2(a) with respect to Swingline Loans) shall terminate on the earliest of (a) September 6, 1999 (b) the date of termination by the Borrower pursuant to Section 2.6(a), and (c) the date of termination by the Administrative Agent on behalf of the Lenders pursuant to Section 11.2(a); provided, that not earlier than the ninetieth (90th) day and not later than the sixtieth (60th) day prior to each of the second and third anniversaries of the Closing Date (each, an "Extension Date"), the Borrower may, by written notice (an "Extension Request") given to the Administrative Agent, request that the date set forth in clause (a) above be extended in each such instance to a date that is one (1) year after such date then in effect; provided, however, that such date shall not thereby be extended beyond September 6, 2001. The Administrative Agent shall promptly advise each Lender of its receipt of any Extension Request and furnish each Lender with a copy thereof. Each Lender may, in its sole discretion, consent to a requested extension by giving written notice thereof to the Administrative Agent not later than the Business Day (the "Extension Confirmation Date") immediately preceding the date which is sixteen (16) days after receipt of the Extension Request. No Lender shall be under any obligation or commitment to extend such date and no such obligation or commitment on the part of any Lender shall be inferred from the provisions of this Section 2.7. Failure on the part of any Lender to respond to an Extension Request by the applicable Extension Confirmation Date shall be deemed to be a denial of such request by such Lender. The requested extension shall not be granted unless Lenders holding Commitments aggregating at least 80% of the Aggregate Commitment as of the date the Extension Request is given shall have consented in writing to such extension. If Lenders holding Commitments aggre gating less than 100% but equal to or greater than 80% of such Aggregate Commitment so consent to such an extension, the Borrower may elect by written notice to the Administrative Agent and Lenders to (i) continue the Credit Facility for such additional period with an Aggregate Commitment equal to the then effective Aggregate Commitment less the total Commitments of Lenders who have not consented to such an extension ("Non-Consenting Lenders") or (ii) require any such Non-Consenting Lender to transfer and assign without recourse (in accordance with the provisions of Section 13.9) its Commitment and other interests, rights and obligations under this Agreement to an Eligible Assignee, which shall assume such obligations; provided that (A) no such assignment shall conflict with any Applicable Law, (B) such assignment shall be at the expense of the Borrower and (C) the purchase price to be paid to such Non-Consenting Lender shall be an amount equal to the outstanding principal amount of Loans of such Non-Consenting Lender plus all interest accrued and unpaid thereon and all other amounts owing to such Non-Consenting Lender hereunder. Promptly following the applicable Extension Confirmation Date and in any event within five (5) Business Days, the Administrative Agent shall provide notice to the Borrower in writing as to whether the requested extension has been granted and, if applicable, the list of Non-Consenting Lenders (an "Extension Confirmation Notice"). If granted, such extension shall become effective with respect to each Lender consenting thereto pursuant to the terms hereof upon the date of issuance of such Extension Confirmation Notice. The Administrative Agent shall promptly thereafter provide a copy of such Extension Confirmation Notice to each Lender. SECTION 2.8. Use of Proceeds. The Borrower shall use the proceeds of the Loans (a) to finance the acquisition of Capital Assets and (b) for working capital and general corporate require ments of the Borrower and its Subsidiaries, including the payment of certain fees and expenses incurred in connection with the transactions. -22- 29 ARTICLE III LETTER OF CREDIT FACILITY SECTION 3.1. L/C Commitment. Subject to the terms and conditions hereof, the Issuing Lender, in reliance on the agree ments of the other Lenders set forth in Section 3.4(a), agrees to issue standby or direct pay letters of credit ("Letters of Credit") for the account of the Borrower on any Business Day from the Closing Date through but not including the Revolving Termination Date in such form as may be approved from time to time by the Issuing Lender; provided, that the Issuing Lender shall have no obligation to issue any Letter of Credit if, after giving effect to such issuance, (a) the L/C Obligations would exceed the L/C Commitment or (b) the Available Commitment of any Lender would be less than zero. Each Letter of Credit shall (i) be denominated in Dollars in a minimum amount of $1,000,000, (ii) be a standby or direct pay letter of credit issued to support obligations of the Borrower or any of its Subsidiaries, contingent or otherwise, incurred in the ordinary course of business (including without limitation in support of obligations in connection with Project Related Debt) (iii) expire on a date satisfactory to the Issuing Lender, which date shall be no later than the Revolving Termination Date and (iv) be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of North Carolina. The Issuing Lender shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Lender or any L/C Participant to exceed any limits imposed by, any Applicable Law. References herein to "issue" and derivations thereof with respect to Letters of Credit shall also include extensions or modifications of any existing Letters of Credit, unless the context otherwise requires. SECTION 3.2. Procedure for Issuance of Letters of Credit. The Borrower may from time to time request that the Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender at the Administrative Agent's Office an Application therefor, completed to the satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may request. Upon receipt of any Application, the Issuing Lender shall process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall, subject to Section 3.1 and Article V hereof, promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than three Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing Lender and the Borrower. The Issuing Lender shall furnish to the Borrower a copy of such Letter of Credit and furnish to each Lender a copy of such Letter of Credit and the amount of each Lender's participation therein pursuant to Section 3.4(a), all promptly following the issuance of such Letter of Credit. SECTION 3.3. Commissions and Other Charges. (a) The Borrower shall pay to the Administrative Agent, for the account of the Issuing Lender and the L/C Participants, a letter of credit fee with respect to each Letter of Credit in an amount equal to the product of (i) a per annum fee equal to the Applicable Margin in effect with respect to LIBOR Rate Loans as set forth in Section 4.1(c) and (ii) the face amount of such Letter of Credit. Such fee shall be payable quarterly in arrears on the last Business Day of each fiscal quarter of the Borrower and on the Revolving Termination Date. -23- 30 The Administrative Agent shall, promptly following its receipt thereof, distribute to the Issuing Lender and L/C Participants all commissions received by the Administrative Agent in accordance with their respective Commitment Percentages. Notwithstanding the foregoing, fees payable with respect to the Holdenville Letter of Credit shall be payable for the account of First Union National Bank of North Carolina in such amounts and payable on such dates as currently required by such Holdenville Letter of Credit until such time as such Holdenville Letter of Credit are replaced with Letters of Credit issued pursuant to Section 3.1 hereof. (b) The Borrower shall pay to the Issuing Lender a fronting fee with respect to each Letter of Credit in an amount equal to the product of (i) 0.125% (on a per annum basis) and (ii) the face amount of such Letter of Credit. Such fee shall be payable quarterly in arrears on the last Business Day of each fiscal quarter of the Borrower as long as such Letter of Credit is outstanding. (c) In addition to the foregoing fees, the Borrower shall pay or reimburse the Issuing Lender for such normal and customary costs and expenses as are incurred or charged by the Issuing Lender in issuing, effecting payment under, amending or otherwise administering any Letter of Credit. SECTION 3.4. L/C Participations. (a) The Issuing Lender irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce the Issuing Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Lender, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk an undivided interest equal to such L/C Partici pant's Commitment Percentage in the Issuing Lender's obligations and rights under each Letter of Credit issued hereunder and the amount of each draft paid by the Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably agrees with the Issuing Lender that, if a draft is paid under any Letter of Credit for which the Issuing Lender is not reimbursed in full by the Borrower in accordance with the terms of this Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at the Issuing Lender's address for notices specified herein an amount equal to such L/C Participant's Commitment Percentage of the amount of such draft, or any part thereof, which is not so reimbursed and such payments shall thereafter be reflected as Extensions of Credit of the Lenders on the books and records of the Administrative Agent. -25- 31 (b) Upon becoming aware of any amount required to be paid by any L/C Participant to the Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion of any payment made by the Issuing Lender under any Letter of Credit, the Issuing Lender shall notify each L/C Participant of the amount and due date of such required payment and such L/C Participant shall pay to the Issuing Lender the amount specified on the applicable due date. If any such amount is paid to the Issuing Lender after the date such payment is due, such L/C Participant shall pay to the Issuing Lender on demand, in addition to such amount, the product of (i) such amount, times (ii) the daily average Federal Funds Rate as determined by the Administrative Agent during the period from and including the date such payment is due to the date on which such payment is immediately available to the Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. A certificate of the Issuing Lender with respect to any amounts owing under this Section shall be conclusive in the absence of manifest error. With respect to payment to the Issuing Lender of the unreimbursed amounts described in this Section 3.4(b), if the L/C Participants receive notice that any such payment is due (A) prior to 1:00 p.m. (Charlotte time) on any Business Day, such payment shall be due that Business Day, and (B) after 1:00 p.m. (Charlotte time) on any Business Day, such payment shall be due on the following Business Day. (c) Whenever, at any time after the Issuing Lender has made payment under any Letter of Credit and has received from any L/C Participant its Commitment Percentage of such payment in accordance with this Section 3.4, the Issuing Lender receives any payment related to such Letter of Credit (whether directly from the Borrower or otherwise), or any payment of interest on account thereof, the Issuing Lender will distribute to such L/C Participant its pro rata share thereof; provided, that in the event that any such payment received by the Issuing Lender shall be required to be returned by the Issuing Lender, such L/C Participant shall return to the Issuing Lender the portion thereof previously distributed by the Issuing Lender to it. SECTION 3.5. Reimbursement Obligation of the Borrower. The Borrower agrees to reimburse the Issuing Lender on each date on which the Issuing Lender notifies the Borrower of the date and amount of a draft paid under any Letter of Credit for the amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs or expenses incurred by the Issuing Lender in connection with such payment. Each such payment shall be made to the Issuing Lender at its address for notices specified herein in lawful money of the United States and in immediately available -26- 32 funds. Interest shall be payable on any and all amounts remaining unpaid by the Borrower under this Article III from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full at the rate which would be payable on any outstanding Base Rate Loans which were then overdue. If the Borrower fails to timely reimburse the Issuing Lender on the date the Borrower receives the notice referred to in this Section 3.5, the Borrower shall be deemed to have timely given a Notice of Borrowing hereunder to the Administrative Agent requesting the Lenders to make a Base Rate Loan on such date in an amount equal to the amount of such drawing and, subject to the satisfaction or waiver of the conditions precedent specified in Article V, the Lenders shall make Base Rate Loans in such amount, the proceeds of which shall be applied to reimburse the Issuing Lender for the amount of the related drawing and costs and expenses. SECTION 3.6. Obligations Absolute. The Borrower's obliga tions under this Article III (including without limitation the Reimbursement Obligation) shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Borrower may have or have had against the Issuing Lender, any L/C Participant, the Agent or any beneficiary of a Letter of Credit. The Borrower also agrees with the Issuing Lender and each L/C Participant that neither the Issuing Lender nor any L/C Participant shall be responsible for, and the Borrower's Reimbursement Obligation under Section 3.5 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of a Borrower against any beneficiary of such Letter of Credit or any such transferee. The Issuing Lender shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions caused by the Issuing Lender's gross negligence or willful misconduct. The Borrower agrees that any action taken or omitted by the Issuing Lender or any L/C Participant under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards of care specified in the Uniform Customs and, to the extent not inconsistent therewith, the UCC, shall be binding on the Borrower and shall not result in any liability of the Issuing Lender or any L/C Participant to the Borrower. The responsibility of the Issuing Lender to the Borrower in connection with any draft presented for payment under any Letter -27- 33 of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are in conformity with such Letter of Credit. SECTION 3.7. Effect of Application. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Article III, the provisions of this Article III shall apply. SECTION 3.8. Existing Letters of Credit. As of the Closing Date, the Existing Letters of Credit shall be deemed to be Letters of Credit issued pursuant to and subject to the terms and conditions of this Agreement and each of the L/C Participants shall be deemed to have purchased an interest in such Existing Letters of Credit pursuant to the terms and conditions set forth in Section 3.4 hereof. ARTICLE IV GENERAL LOAN PROVISIONS SECTION 4.1. Interest. (a) Interest Rate Options. Subject to the provisions of this Section 4.1, at the election of the Borrower, the aggregate principal balance of the Revolving Credit Notes or any portion thereof shall bear interest at the Base Rate or the LIBOR Rate plus, in each case, the Applicable Margin as set forth below; provided that the LIBOR Rate shall not be available until three Business Days after the Closing Date. The Borrower shall select the rate of interest and Interest Period, if any, applicable to any Loan at the time a Notice of Borrowing is given pursuant to Section 2.2 or at the time a Notice of Conversion/Continuation is given pursuant to Section 4.2. Each Loan or portion thereof bearing interest based on the Base Rate shall be a "Base Rate Loan" and each Loan or portion thereof bearing interest based on the LIBOR Rate shall be a "LIBOR Rate Loan." Any Swingline Loan shall bear interest at the Base Rate. Any Loan or any portion thereof as to which the Borrower has not duly specified an interest rate as provided herein shall be deemed a Base Rate Loan. (b) Interest Periods. In connection with each LIBOR Rate Loan, the Borrower, by giving notice at the times described in Section 4.1(a), shall elect an interest period (each, an "Interest Period") to be applicable to such Loan, which -28- 34 Interest Period shall be a period of one (1), two (2) or three (3) months; provided that: (i) the Interest Period shall commence on the date of advance of or conversion to any LIBOR Rate Loan and, in the case of immediately successive Interest Periods, each successive Interest Period shall commence on the date on which the next preceding Interest Period expires; (ii) if any Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided, that if any Interest Period with respect to a LIBOR Rate Loan would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iii) any Interest Period with respect to a LIBOR Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the relevant calendar month at the end of such Interest Period; (iv) no Interest Period shall extend beyond the Revolving Termination Date; and (v) there shall be no more than seven (7) Interest Periods outstanding at any time. (c) Applicable Margin. The Applicable Margin provided for in Section 4.1(a) with respect to the Loans (the "Applicable Margin") shall be (i) during the period from the Closing Date through and including the date which is five (5) Business Days following receipt by the Administrative Agent of the financial statements and Officer's Compliance Certificate for the fiscal quarter ending June 30, 1996 required pursuant to Sections 7.1 and 7.2, respectively, 0.00% for Base Rate Loans and 0.75% for LIBOR Rate Loans and (ii) on the fifth (5th) Business Day after receipt by the Administrative Agent of such financial statements for the Borrower and its Subsidiaries noted in (i) above and the accompanying Officer's Compliance Certificate and for each fiscal quarter thereafter, determined by reference to the Senior Leverage Ratio as of the end of the fiscal quarter immediately preceding the delivery of the applicable Officer's Compliance Certificate as follows: -29- 35
Applicable Margin Per Annum Tier Senior Leverage Ratio Base Rate + LIBOR Rate + - ---- --------------------- ------------------------- I less than 0.30 0.00% .50% II greater than or equal to 0.30 and less than or equal to 0.45 0.00% .75% III greater than .45 0.00% 1.00%
Adjustments, if any, in the Applicable Margin shall be made by the Administrative Agent on the tenth (10th) Business Day after receipt by the Administrative Agent of quarterly financial statements for the Borrower and its Subsidiaries and the accompanying Officer's Compliance Certificate setting forth the Senior Leverage Ratio of the Borrower and its Subsidiaries as of the most recent fiscal quarter end. Subject to Section 4.1(d), in the event the Borrower fails to deliver such financial statements and certificate within the time required by Sections 7.1 and 7.2 hereof, the Applicable Margin shall be the highest Applicable Margin set forth above until the tenth (10th) Business Day after delivery of such financial statements and certificate. (d) Default Rate. Upon the occurrence and during the continuance of an Event of Default, (i) the Borrower shall no longer have the option to request LIBOR Rate Loans, (ii) all outstanding LIBOR Rate Loans shall bear interest at a rate per annum two percent (2%) in excess of the rate then applicable to LIBOR Rate Loans until the end of the applicable Interest Period and thereafter at a rate equal to two percent (2%) in excess of the rate then applicable to Base Rate Loans, and (iii) all outstanding Base Rate Loans shall bear interest at a rate per annum equal to two percent (2%) in excess of the rate then applicable to Base Rate Loans. Interest shall continue to accrue on the Notes after the filing by or against the Borrower of any petition seeking any relief in bankruptcy or under any act or law pertaining to insolvency or debtor relief, whether state, federal or foreign. (e) Interest Payment and Computation. Interest on each Base Rate Loan shall be payable in arrears on the last Business Day of each fiscal quarter commencing September 30, 1996; and interest on each LIBOR Rate Loan shall be payable on the last day of each Interest Period applicable thereto, and if such Interest Period extends over three (3) months, at the end of each three (3) month interval during such Interest Period. All interest rates, fees and commissions provided hereunder shall be computed on the basis of a 360-day year and assessed for the actual number of days elapsed. (f) Maximum Rate. In no contingency or event whatsoever shall the aggregate of all amounts deemed interest hereunder or under any of the Notes charged or collected pursuant -30- 36 to the terms of this Agreement or pursuant to any of the Notes exceed the highest rate permissible under any Applicable Law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that the Lenders have charged or received interest hereunder in excess of the highest applicable rate, the rate in effect hereunder shall automatically be reduced to the maximum rate permitted by Applicable Law and the Lenders shall at the Administrative Agent's option promptly refund to the Borrower any interest received by Lenders in excess of the maximum lawful rate or shall apply such excess to the principal balance of the Obligations. It is the intent hereof that the Borrower not pay or contract to pay, and that neither the Administrative Agent nor any Lender receive or contract to receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be paid by the Borrower under Applicable Law. SECTION 4.2. Notice and Manner of Conversion or Continua tion of Loans. Provided that no Event of Default has occurred and is then continuing, the Borrower shall have the option to (a) convert at any time all or any portion of its outstanding Base Rate Loans (other than Swingline Loans) in a minimum principal amount equal to $2,500,000 or any whole multiple of $500,000 in excess thereof into one or more LIBOR Rate Loans; or (b) upon the expiration of any Interest Period, (i) convert all or any part of its outstanding LIBOR Rate Loans in a minimum principal amount equal to $1,000,000 or a whole multiple of $100,000 in excess thereof into Base Rate Loans, or (ii) continue such LIBOR Rate Loans as LIBOR Rate Loans. Whenever the Borrower desires to convert or continue Loans as provided above, the Borrower shall give the Administrative Agent irrevocable prior written notice in the form attached as Exhibit D (a "Notice of Conversion/ Continuation") not later than 12:00 noon (Charlotte time) three (3) Business Days before the day on which a proposed conversion or continuation of such Loan is to be effective specifying (A) the Loans to be converted or continued, and, in the case of any LIBOR Rate Loan to be converted or continued, the last day of the Interest Period therefor, (B) the effective date of such conversion or continuation (which shall be a Business Day), (C) the principal amount of such Loans to be converted or continued, and (D) the Interest Period to be applicable to such converted or continued LIBOR Rate Loan. The Administrative Agent shall promptly notify the Lenders of such Notice of Conversion/Continuation. SECTION 4.3. Fees. (a) Commitment Fee. Commencing on the Closing Date, the Borrower shall pay to the Administrative Agent, for the account of the Lenders, a non-refundable commitment fee on the -31- 37 average daily unused portion of the Aggregate Commitment (provided, that the Holdenville Letter of Credit Obligations shall not be deemed to be useage of the Aggregate Commitment) at a rate per annum which shall be (i) during the period from the Closing Date through and including the date which is five (5) Business Days following receipt by the Administrative Agent of the financial statements and Officer's Compliance Certificate for the fiscal quarter ending June 30, 1996 required pursuant to Sections 7.1 and 7.2, respectively, 0.20% and (ii) on the fifth (5th) Business Day after receipt by the Administrative Agent of such financial statements for the Borrower and its Subsidiaries noted in (i) above and the accompanying Officer's Compliance Certificate and for each fiscal quarter thereafter, determined by reference to the Senior Leverage Ratio as of the end of the fiscal quarter immediately preceding the delivery of the applicable Officer's Compliance Certificate, as follows:
Tier Senior Leverage Ratio Commitment Fee - ---- --------------------- -------------- I less than 0.30 .1875% II greater than or equal to 0.30 and less than or equal to 0.45 .20% III greater than .45 .25%
Adjustments, if any, in the commitment fee shall be made by the Administrative Agent on the tenth (10th) Business Day after receipt by the Administrative Agent of quarterly financial statements for the Borrower and its Subsidiaries and the accompanying Officer's Compliance Certificate setting forth the Senior Leverage Ratio of the Borrower and its Subsidiaries as of the most recent fiscal quarter end. In the event the Borrower fails to deliver such financial statements and certificate within the time required by Sections 7.1 and 7.2 hereof, the commitment fee shall be the highest commitment fee set forth above until the tenth (10th) Business Day after delivery of such financial statements and certificate. The commitment fee shall be payable in arrears on the last Business Day of each fiscal quarter during the term of this Agreement commencing September 30, 1996, and on the Revolving Termination Date. Such commitment fee shall be distributed by the Administrative Agent to the Lenders pro rata in accordance with the Lenders' respective Commitment Percentag es. (b) Administrative Agent's and Other Fees. The Borrower agrees to pay to the Administrative Agent, for its account, the fees set forth in the separate fee letter agreement -32- 38 executed by the Borrower and the Administrative Agent dated June 4, 1996. SECTION 4.4. Manner of Payment. Each payment by the Borrower on account of the principal of or interest on the Loans or of any fee, commission or other amounts (including the Reimbursement Obligation) payable to the Lenders under this Agreement or any Note shall be made not later than 2:00 p.m. (Charlotte time) on the date specified for payment under this Agreement to the Agent at the Agent's Office, for the account of the Lenders pro rata in accordance with their respective Commitment Percentages (other than as specifically set forth below), in Dollars, in immediately available funds and shall be made without any set-off, counterclaim or deduction whatsoever. Any payment received after such time but before 3:00 p.m. (Charlotte time) on such day shall be deemed a payment on such date for the purposes of Section 11.1, but for all other purposes shall be deemed to have been made on the next succeeding Business Day. Any payment received after 3:00 p.m. (Charlotte time) shall be deemed to have been made on the next succeeding Business Day for all purposes. Upon receipt by the Agent of each such payment, the Agent shall distribute to each Lender at its address for notices set forth herein its pro rata share of such payment in accordance with this Section 4.4 and shall wire advice of the amount of such credit to each Lender. All payments received on or before 12:00 Noon (Charlotte, North Carolina time) shall be remitted by the Administrative Agent to each of the Lenders in accordance with this Section 4.4 on the same Business Day that such payments are received. Any payments received after 12:00 Noon (Charlotte, North Carolina time) shall be remitted by the Administrative Agent to the Lenders in accordance with this Section 4.4 on the next succeeding Business Day. Each payment to the Agent of the Issuing Lender's fees or L/C Participants' commissions shall be made in like manner, but for the account of the Issuing Lender or the L/C Participants, as the case may be. Each payment to the Agent of Agent's fees or expenses shall be made for the account of the Agent and any amount payable to any Lender under Sections 4.8, 4.9, 4.10, 4.11 or 13.2 shall be paid to the Agent for the account of the applicable Lender. SECTION 4.5. Crediting of Payments and Proceeds. In the event that the Borrower shall fail to pay any of the Obligations when due and the Obligations have been accelerated pursuant to Section 11.2, all payments received by the Lenders upon the Notes and the other Obligations and all net proceeds from the enforcement of the Obligations shall be applied first to all expenses then due and payable by the Borrower hereunder, then to all indemnity obligations then due and payable by the Borrower hereunder, then to all Administrative Agent's and Issuing Lender's fees then due and payable, then to all commitment and -33- 39 other fees and commissions then due and payable, then to accrued and unpaid interest on the Swingline Note to the Swingline Lender, then to the principal amount outstanding under the Swingline Note to the Swingline Lender, then to accrued and unpaid interest on the Revolving Credit Notes, the Reimbursement Obligation and any termination payments due in respect of a Hedging Agreement with any Lender permitted pursuant to Section 10.1 (pro rata in accordance with all such amounts due), then to the principal amount of the Revolving Credit Notes and Reimbursement Obligation and then to the cash collateral account described in Section 11.2(b) hereof to the extent of any L/C Obligations then outstanding, in that order. SECTION 4.6. Adjustments. If any Lender (a "Benefitted Lender") shall at any time receive any payment of all or part of its Extensions of Credit, or interest thereon, or if any Lender shall at any time receive any collateral in respect of its Extensions of Credit (whether voluntarily or involuntarily, by set-off or otherwise) in a greater proportion than any such payment to and collateral received by any other Lender, if any, in respect of such other Lender's Extensions of Credit, or interest thereon, such Benefitted Lender shall purchase for cash from the other Lenders such portion of each such other Lender's Extensions of Credit, 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, 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, with interest (only if the Benefitted Lender must pay interest) ratably, based on the amount which each such Lender must return to the aggregate amount which must be returned by the Benefitted Lender. The Borrower agrees that each Lender so purchasing a portion of another Lender's Extensions of Credit may exercise all rights of payment (including, without limitation, rights of set-off) with respect to such portion as fully as if such Lender were the direct holder of such portion. SECTION 4.7. Nature of Obligations of Lenders Regarding Extensions of Credit; Assumption by the Administrative Agent. The obligations of the Lenders under this Agreement to make the Loans and issue or participate in Letters of Credit are several and are not joint or joint and several. Unless the Administrative Agent shall have received notice from a Lender prior to a proposed borrowing date that such Lender will not make available to the Administrative Agent such Lender's ratable portion of the amount to be borrowed on such date (which notice shall not release such Lender of its obligations hereunder), the -34- 40 Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the proposed borrowing date in accordance with Section 2.3(b) and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If such amount is made available to the Administrative Agent on a date after such borrowing date, such Lender shall pay to the Administrative Agent on demand an amount, until paid, equal to the product of (a) the amount of such Lender's Commitment Percentage of such borrowing, times (b) the daily average Federal Funds Rate during such period as determined by the Administrative Agent, times (c) a fraction the numerator of which is the number of days that elapse from and including such borrowing date to the date on which such Lender's Commitment Percentage of such borrowing shall have become immediately available to the Administrative Agent and the denominator of which is 360. A certificate of the Administrative Agent with respect to any amounts owing under this Section shall be conclusive, absent manifest error. If such Lender's Commitment Percentage of such borrowing is not made available to the Administrative Agent by such Lender within three (3) Business Days of such borrowing date, the Administrative Agent shall be entitled to recover such amount made available by the Administrative Agent with interest thereon at the rate per annum applicable to Base Rate Loans hereunder, on demand, from the Borrower. The failure of any Lender to make its Commitment Percentage of any Loan available shall not relieve it or any other Lender of its obligation, if any, hereunder to make its Commitment Percentage of such Loan available on such borrowing date, but no Lender shall be responsible for the failure of any other Lender to make its Commitment Percentage of such Loan available on the borrowing date. SECTION 4.8. Changed Circumstances. (a) Circumstances Affecting LIBOR Rate Availability. If with respect to any Interest Period the Administrative Agent or any Lender (after consultation with Administrative Agent) shall determine that, by reason of circumstances affecting the foreign exchange and interbank markets generally, deposits in eurodollars, in the applicable amounts are not being quoted via Telerate Page 3750 or offered to the Administrative Agent or such Lender for such Interest Period, then the Administrative Agent shall forthwith give notice thereof to the Borrower. Thereafter, until the Administrative Agent notifies the Borrower that such circumstances no longer exist, the obligation of the Lenders to make LIBOR Rate Loans and the right of the Borrower to convert any Revolving Credit Loan to or continue any Revolving Credit Loan as a LIBOR Rate Loan shall be suspended, and the Borrower shall repay in full (or cause to be -35- 41 repaid in full) the then outstanding principal amount of each such LIBOR Rate Loan together with accrued interest thereon, on the last day of the then current Interest Period applicable to such LIBOR Rate Loan or convert the then outstanding principal amount of each such LIBOR Rate Loan to a Base Rate Loan as of the last day of such Interest Period. (b) Laws Affecting LIBOR Rate Availability. If, after the date hereof, the introduction of, or any change in, any Applicable Law 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 any of their respective Lending Offices) with any request or directive (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, shall make it unlawful or impossible for any of the Lenders (or any of their respective Lending Offices) to honor its obligations hereunder to make or maintain any LIBOR Rate Loan, such Lender shall promptly give notice thereof to the Administrative Agent and the Administrative Agent shall promptly give notice to the Borrower and the other Lenders. Thereafter, until the Administrative Agent notifies the Borrower that such circumstances no longer exist, (i) the obligations of the Lenders to make LIBOR Rate Loans and the right of the Borrower to convert any Revolving Credit Loan to or continue any Revolving Credit Loan as a LIBOR Rate Loan shall be suspended and thereafter the Borrower may select only Base Rate Loans hereunder, and (ii) if any of the Lenders may not lawfully continue to maintain a LIBOR Rate Loan to the end of the then current Interest Period applicable thereto as a LIBOR Rate Loan, the applicable LIBOR Rate Loan shall immediately be converted to a Base Rate Loan for the remainder of such Interest Period. (c) Increased Costs. If, after the date hereof, the introduction of, or any change in, any Applicable Law, or 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 of the Lenders (or any of their respective Lending Offices) with any request or directive (whether or not having the force of law) of such Governmental Authority, central bank or comparable agency: (i) shall subject any of the Lenders or the Issuing Lender, as Issuing Lender (or any of their respective Lending Offices) to any tax, duty or other charge with respect to any Note, Letter of Credit or Application or shall change the basis of taxation of payments to any of the Lenders (or any of their respective Lending Offices) of the principal of or interest on any Note, Letter of Credit or Application or any other amounts -36- 42 due under this Agreement in respect thereof (except for changes in the rate of tax on the overall net income of any of the Lenders or any of their respective Lending Offices imposed by the jurisdiction in which such Lender is organized or is or should be qualified to do business or such Lending Office is located); or (ii) shall impose, modify or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit, insurance or capital or similar requirement against assets of, deposits with or for the account of, or credit extended by any of the Lenders (or any of their respective Lending Offices) or shall impose on any of the Lenders (or any of their respective Lending Offices) or the foreign exchange and interbank markets any other condition affecting any Note; and the result of any of the foregoing is to increase the costs to any of the Lenders of maintaining any LIBOR Rate Loan or issuing or participating in Letters of Credit or to reduce the yield or amount of any sum received or receivable by any of the Lenders under this Agreement or under the Notes in respect of a LIBOR Rate Loan or Letter of Credit or Application, then such Lender shall promptly notify the Administrative Agent, and the Administrative Agent shall promptly notify the Borrower of such fact and demand compensation therefor and, within fifteen (15) days after such notice by the Administrative Agent, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or Lenders for such increased cost or reduction. The Administrative Agent will promptly notify the Borrower of any event of which it has knowledge which will entitle such Lender to compensation pursuant to this Section 4.8(c); provided, that the Administrative Agent shall incur no liability whatsoever to the Lenders or the Borrower in the event it fails to do so. The amount of such compensation shall be determined, in the applicable Lender's sole discretion, based upon the assumption that such Lender funded its Commitment Percentage of the LIBOR Rate Loans in the London interbank market, and using any reasonable attribution or averaging methods which such Lender deems appropriate and practical. A certificate of such Lender setting forth the basis for determining such amount or amounts necessary to compensate such Lender shall be forwarded to the Borrower through the Administrative Agent and shall be conclusively presumed to be correct save for manifest error. SECTION 4.9. Indemnity. The Borrower hereby indemnifies each of the Lenders against any loss or expense (including, without limitation, any administrative fees and expenses) which may arise or be attributable to each Lender's obtaining, liquidating or employing deposits or other funds acquired to -37- 43 effect, fund or maintain any Loan (a) as a consequence of any failure by the Borrower to make any payment when due of any amount due hereunder in connection with a LIBOR Rate Loan, (b) due to any failure of the Borrower to borrow on a date specified therefor in a Notice of Borrowing or Notice of Conversion/Continuation or (c) due to any payment, prepayment or conversion (other than a conversion pursuant to Section 4.8(b)(ii)) of any LIBOR Rate Loan on a date other than the last day of the Interest Period therefor. The amount of such loss or expense shall be determined, in the applicable Lender's sole discretion, based upon the assumption that such Lender funded its Commitment Percentage of the LIBOR Rate Loans in the London interbank market, using any reasonable attribution or averaging methods which such Lender deems appropriate and practical, and pursuant to the following formula: Indemnified Amount = (COFO-COFBD) times P times D ---------------------------- 360 where: "COFO" means the cost of deposits or funds in connection with any Loan referred to in this Section 4.9 at the origination of such Loan, as determined by the applicable Lender. "COFBD" means the cost of deposits or funds in connection with any Loan referred to in this Section 4.9 on the breakage date giving rise to the compensation provided for in this Section 4.9 for the days remaining in the Interest Period applicable to such Loan, as determined by the applicable Lender. "P" means the aggregate principal amount of such Loan subject to compensation under this Section 4.9. "D" means the number of days remaining in the original Interest Period applicable to such Loan referred to in this Section 4.9. A certificate of such Lender setting forth the basis for determining such amount or amounts necessary to compensate such Lender shall be forwarded to the Borrower through the Administrative Agent and shall be conclusively presumed to be correct save for manifest error. SECTION 4.10. Capital Requirements. If either (a) the introduction of, or any change in, or in the interpretation of, any Applicable Law or (b) compliance with any guideline or request from any central bank or comparable agency or other -38- 44 Governmental Authority (whether or not having the force of law), has or would have the effect of reducing the rate of return on the capital of, or has affected or would affect the amount of capital required to be maintained by, any Lender or any corporation controlling such Lender as a consequence of, or with reference to the Commitments and other commitments of this type, below the rate which the Lender or such other corporation could have achieved but for such introduction, change or compliance, then within five (5) Business Days after written demand by any such Lender, the Borrower shall pay to such Lender from time to time as specified by such Lender additional amounts sufficient to compensate such Lender or other corporation for such reduction. A certificate as to such amounts submitted to the Borrower and the Administrative Agent by such Lender, shall, in the absence of manifest error, be presumed to be correct and binding for all purposes. SECTION 4.11. Taxes. (a) Payments Free and Clear. Any and all payments by the Borrower hereunder or under the Notes or the Letters of Credit shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholding, and all liabilities with respect thereto excluding, (i) in the case of each Lender and the Administrative Agent, income and franchise taxes imposed by the jurisdiction under the laws of which such Lender or the Administrative Agent (as the case may be) is organized or is or should be qualified to do business or any political subdivision thereof and (ii) in the case of each Lender, income and franchise taxes imposed by the jurisdiction of such Lender's Lending Office or any political subdivision thereof (all such non-excluded taxes, 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 hereunder or under any Note or Letter of Credit to any Lender or the Administrative Agent, (A) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 4.11) such Lender or the Administrative Agent (as the case may be) receives an amount equal to the amount such party would have received had no such deductions been made, (B) the Borrower shall make such deductions, (C) the Borrower shall pay the full amount deducted to the relevant taxing authority or other authority in accordance with Applicable Law, and (D) the Borrower shall deliver to the Administrative Agent evidence of such payment to the relevant taxing authority or other authority in the manner provided in Section 4.11(d). -39- 45 (b) Stamp and Other Taxes. In addition, the Borrower shall pay any present or future stamp, registration, recordation or documentary taxes or any other similar fees or charges or excise or property taxes, levies of the United States or any state or political subdivision thereof or any applicable foreign jurisdiction which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the Loans, the Letters of Credit, the other Loan Documents, or the perfection of any rights or security interest in respect thereto (hereinafter referred to as "Other Taxes"). (c) Indemnity. The Borrower shall indemnify each Lender and the Administrative Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this Section 4.11) paid by such Lender or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Such indemnification shall be made within thirty (30) days from the date such Lender or the Administrative Agent (as the case may be) makes written demand therefor. (d) Evidence of Payment. Upon the request of the Administrative Agent, the Borrower shall furnish to the Administrative Agent evidence of the Borrower's payment of any Taxes or Other Taxes in the form of the original or a certified copy of a receipt of payment thereof or other evidence of payment satisfactory to the Administrative Agent. (e) Delivery of Tax Forms. Each Lender organized under the laws of a jurisdiction other than the United States or any state thereof shall deliver to the Borrower, with a copy to the Administrative Agent, on the Closing Date or concurrently with the delivery of the relevant Assignment and Acceptance, as applicable, (i) two United States Internal Revenue Service Forms 4224 or Forms 1001, as applicable (or successor forms) properly completed and certifying in each case that such Lender is entitled to a complete exemption from withholding or deduction for or on account of any United States federal income taxes, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor applicable form, as the case may be, to establish an exemption from United States backup withholding taxes. Each such Lender further agrees to deliver to the Borrower, with a copy to the Administrative Agent, a Form 1001 or 4224 and Form W-8 or W-9, or successor applicable forms or manner of certification, as the case may be, on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a -40- 46 change in the most recent form previously delivered by it to the Borrower, certifying in the case of a Form 1001 or 4224 that such Lender is entitled to receive payments under this Agreement without deduction or withholding of any United States federal income taxes (unless in any such case an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any such delivery would otherwise be required which renders such forms inapplicable or the exemption to which such forms relate unavailable and such Lender notifies the Borrower and the Administrative Agent that it is not entitled to receive payments without deduction or withholding of United States federal income taxes) and, in the case of a Form W-8 or W- 9, establishing an exemption from United States backup withholding tax. (f) Survival. Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 4.11 shall survive the payment in full of the Obligations and the termination of the Commitments. ARTICLE V CLOSING; CONDITIONS OF CLOSING AND BORROWING SECTION 5.1. Closing. The closing shall take place at the offices of Kennedy Covington Lobdell & Hickman, L.L.P., 100 North Tryon Street, Charlotte, North Carolina at 10:00 a.m. on September 6, 1996, or on such other date as the parties hereto shall mutually agree. SECTION 5.2. Conditions to Closing and Initial Extensions of Credit. The obligation of the Lenders to close this Agreement and to make the initial Loan or issue the initial Letter of Credit is subject to the satisfaction of each of the following conditions: (a) Executed Loan Documents. The following Loan Documents, in form and substance satisfactory to the Administrative Agent and each Lender: (i) this Agreement; (ii) the Revolving Credit Notes; (iii) the Swingline Notes; (iv) the Guaranty Agreement; -41- 47 (vi) the Pledge Agreement; and (viii) the Intercompany Subordination Agreement; shall have been duly authorized, executed and delivered by the Loan Parties party thereto, shall be in full force and effect and no default shall exist thereunder, and the Borrower shall have delivered original counterparts thereof to the Administrative Agent. (b) Pledged Stock. The Administrative Agent shall have received original stock certificates evidencing the capital stock pledged pursuant to the Pledge Agreement, together with an appropriate undated stock power for each certificate duly executed in blank by the registered owner thereof. (c) Closing Certificates; etc. (i) Officers's Certificate of the Borrower. The Administrative Agent shall have received a certificate from the chief executive officer or chief financial officer of the Borrower, in form and substance satisfactory to the Administrative Agent, to the effect that all representations and warranties of the Borrower contained in this Agreement and the other Loan Documents are true, correct and complete in all material respects; that the Borrower is not in violation of any of the covenants contained in this Agreement and the other Loan Documents; that, after giving effect to the transactions contemplated by this Agreement, no Default or Event of Default has occurred and is continuing; and that the Borrower has satisfied each of the closing conditions. (ii) Certificate of Secretary of the Borrower. The Administrative Agent shall have received a certificate of the secretary or assistant secretary of each Loan Party certifying that attached thereto is a true and complete copy of the certificate of incorporation of such Loan Party and all amendments thereto, certified as of a recent date by the appropriate Governmental Authority in its jurisdiction of incorporation; that attached thereto is a true and complete copy of the bylaws of such Loan Party as in effect on the date of such certification; that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of such Loan Party authorizing the borrowings contemplated hereunder and the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party; and as to the incumbency and genuineness of the signature of each officer of such Loan Party executing Loan Documents to which it is a party. -42- 48 (iii) Certificates of Good Standing. The Administrative Agent shall have received long-form certificates as of a recent date of the good standing of each Loan Party under the laws of its jurisdiction of organization and each other jurisdiction where such Loan Party is qualified to do business and a certificate of the relevant taxing authorities of such jurisdictions certifying that such Person has filed required tax returns and owes no delinquent taxes. (iv) Opinions of Counsel. The Administrative Agent shall have received favorable opinions of counsel to the Borrower and each other Loan Party addressed to the Administrative Agent and the Lenders with respect to the Loan Parties, the Loan Documents and such other matters as the Lenders shall request. (v) Tax Forms. The Administrative Agent shall have received copies of the United States Internal Revenue Service forms required by Section 4.11(e) hereof. (d) Consents; Defaults. (i) Governmental and Third Party Approvals. All necessary approvals, authorizations and consents, if any be required, of any Person and of all Governmental Authorities and courts having jurisdiction with respect to the transactions contemplated by this Agreement and the other Loan Documents shall have been obtained. (ii) No Injunction, Etc. No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed before any Governmental Authority to enjoin, restrain, or prohibit, or to obtain substantial damages in respect of, or which is related to or arises out of this Agreement or the other Loan Documents or the consummation of the transactions contemplated hereby or thereby, or which, in the Administrative Agent's discretion, would make it inadvisable to consummate the transactions contemplated by this Agreement and such other Loan Documents. (iii) No Event of Default. No Default or Event of Default shall have occurred and be continuing. (e) Financial Matters. (i) Financial Statements. The Administrative Agent shall have received recent annual and interim financial statements of the Borrower and its Subsidiaries and such other financial information with respect to the Borrower and its Subsidiaries as may be reasonably requested by the Administrative -43- 49 Agent, all in form and substance satisfactory to the Administrative Agent. (ii) Financial Condition Certificate. The Borrower shall have delivered to the Administrative Agent a certificate, in form and substance satisfactory to the Administrative Agent, and certified as accurate by the chief executive officer or chief financial officer of the Borrower, that (A) the Borrower and each of its Subsidiaries are each Solvent, (B) the Borrower's payables are current and not past due, (C) attached thereto is a pro forma balance sheet of the Borrower and its Subsidiaries setting forth on a pro forma basis the financial condition of the Borrower and its Subsidiaries on a Consolidated basis as of that date, reflecting on a pro forma basis the effect of the transactions contemplated herein, including all fees and expenses in connection therewith, and evidencing compliance on a pro forma basis with the covenants contained in Articles IX and X hereof and (D) attached thereto are the financial projections previously delivered to the Administrative Agent representing the good faith opinions of the Borrower and senior management thereof as to the projected results contained therein. (iii) Payment at Closing; Fee Letters. There shall have been paid by the Borrower to the Administrative Agent and the Lenders the fees set forth or referenced in Section 4.3 and any other accrued and unpaid fees or commissions due hereunder (including, without limitation, legal fees and expenses), and to any other Person such amount as may be due thereto in connection with the transactions contemplated hereby, including all taxes, fees and other charges in connection with the execution, delivery, recording, filing and registration of any of the Loan Documents. The Administrative Agent shall have received duly authorized and executed copies of the fee letter agreement referred to in Section 4.3(b). (f) Miscellaneous. (i) Notice of Borrowing. The Administrative Agent shall have received written instructions from the Borrower to the Administrative Agent directing the payment of any proceeds of Loans made under this Agreement that are to be paid on the Closing Date. (ii) Proceedings and Documents. All opinions, certificates and other instruments and all proceedings in connection with the transactions contemplated by this Agreement shall be satisfactory in form and substance to the Lenders. The Lenders shall have received copies of all other instruments and other evidence as the Lender may reasonably request, in form and substance satisfactory to the Lenders, with respect to the -44- 50 transactions contemplated by this Agreement and the taking of all actions in connection therewith. (iii) Due Diligence and Other Documents. The Borrower shall have delivered to the Administrative Agent such other documents, certificates and opinions as the Administrative Agent reasonably requests, including without limitation copies of each document evidencing or governing the Subordinated Debt, certified by a secretary or assistant secretary of the Borrower as a true and correct copy thereof. SECTION 5.3. Conditions to All Loans and Letters of Credit. The obligations of the Lenders to make any Loan or issue any Letter of Credit is subject to the satisfaction of the following conditions precedent on the relevant borrowing or issue date, as applicable: (a) Continuation of Representations and Warranties. The representations and warranties contained in Article VI shall be true and correct on and as of such borrowing or issuance date with the same effect as if made on and as of such date. (b) No Existing Default. No Default or Event of Default shall have occurred and be continuing hereunder (i) on the borrowing date with respect to such Loan or after giving effect to the Loans to be made on such date or (ii) the issue date with respect to such Letter of Credit or after giving affect to such Letters of Credit on such date. (c) Officer's Compliance Certificate; Additional Documents. The Agent shall have received the financial statements and Officer's Compliance Certificate required pursuant to Sections 7.1 and 7.2 respectively and each additional document, instrument, legal opinion or other item of information reasonably requested by it. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE BORROWER SECTION 6.1. Representations and Warranties. To induce the Administrative Agent to enter into this Agreement and the Lenders to make the Loans or issue or participate in the Letters of Credit, the Borrower hereby represents and warrants to the Administrative Agent and Lenders that: (a) Organization; Power; Qualification. Each of the Borrower and its Subsidiaries is duly organized, validly -45- 51 existing and in good standing under the laws of the jurisdiction of its incorporation or formation, has the power and authority to own its properties and to carry on its business as now being and hereafter proposed to be conducted and is duly qualified and authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification and authorization, except in those jurisdictions in which the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. The jurisdictions in which the Borrower and its Subsidiaries are organized and qualified to do business are described on Schedule 6.1(a). (b) Ownership. Each Subsidiary of the Borrower is listed on Schedule 6.1(b). The capitalization of the Borrower and its Subsidiaries consists of the number of shares, authorized, issued and outstanding, of such classes and series, with or without par value, described on Schedule 6.1(b). All outstanding shares have been duly authorized and validly issued and are fully paid and nonassessable. The shareholders of the Subsidiaries of the Borrower and the number of shares owned by each are described on Schedule 6.1(b). There are no outstanding stock purchase warrants, subscriptions, options, securities, instruments or other rights of any type or nature whatsoever, which are convertible into, exchangeable for or otherwise provide for or permit the issuance of capital stock of the Borrower or its Subsidiaries, except as described on Schedule 6.1(b). (c) Authorization of Agreement, Loan Documents and Borrowing. Each of the Borrower and its Subsidiaries has the right, power and authority and has taken all necessary corporate and other action to authorize the execution, delivery and performance of this Agreement and each of the other Loan Documents to which it is a party in accordance with their respective terms. This Agreement and each of the other Loan Documents have been duly executed and delivered by the duly authorized officers of the Borrower and each of its Subsidiaries party thereto, and each such document constitutes the legal, valid and binding obligation of the Borrower or its Subsidiary party thereto, enforceable in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar state or federal debtor relief laws from time to time in effect which affect the enforce ment of creditors' rights in general and the availability of equitable remedies. (d) Compliance of Agreement, Loan Documents and Borrowing with Laws, Etc. The execution, delivery and perfor mance by the Borrower and its Subsidiaries of the Loan Documents to which each such Person is a party, in accordance with their -46- 52 respective terms, the borrowings hereunder and the transactions contemplated hereby do not and will not, by the passage of time, the giving of notice or otherwise, (i) require any Governmental Approval or violate any Applicable Law relating to the Borrower or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute a default under the certificate of incorporation, bylaws or other organizational documents of the Borrower or any of its Subsidiaries or any indenture, agreement or other instrument to which such Person is a party or by which any of its properties may be bound or any Governmental Approval relating to such Person, or (iii) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by such Person other than Liens arising under the Loan Documents. (e) Compliance with Law; Governmental Approvals. Each of the Borrower and its Subsidiaries (i) has all Governmental Approvals required by any Applicable Law for it to conduct its business, each of which is in full force and effect, is final and not subject to review on appeal and is not the subject of any pending or, to the best of its knowledge, threat ened attack by direct or collateral proceeding, and (ii) is in compliance with each Governmental Approval applicable to it and in compliance with all other Applicable Laws relating to it or any of its respective properties. (f) Tax Returns and Payments. Each of the Borrower and its Subsidiaries has duly filed or caused to be filed all federal, state, local and other tax returns required by Applicable Law to be filed, and has paid, or made adequate provision for the payment of, all federal, state, local and other taxes, assessments and governmental charges or levies upon it and its property, income, profits and assets which are due and payable. No Governmental Authority has asserted any Lien or other claim against the Borrower or any Subsidiary thereof with respect to unpaid taxes which has not been discharged or resolved. The charges, accruals and reserves on the books of the Borrower and any of its Subsidiaries in respect of federal, state, local and other taxes for all Fiscal Years and portions thereof since the organization of the Borrower and any of its Subsidiaries are in the judgment of the Borrower adequate, and the Borrower does not anticipate any additional taxes or assess ments for any of such years. (g) Intellectual Property Matters. Each of the Borrower and its Subsidiaries owns or possesses rights to use all franchises, licenses, copyrights, copyright applications, patents, patent rights or licenses, patent applications, trademarks, trademark rights, trade names, trade name rights, copyrights and rights with respect to the foregoing which are -47- 53 required to conduct its business, except where the failure to so own or possess could not reasonably be expected to have a Material Adverse Effect. No event has occurred which permits, or after notice or lapse of time or both would permit, the revocation or termination of any such rights, and neither the Borrower nor any Subsidiary thereof is liable to any Person for infringement under Applicable Law with respect to any such rights as a result of its business operations. (h) Environmental Matters. Except those matters in existence on the Closing Date and set forth on Schedule 6.1(h), to the best of the Borrower's knowledge after due inquiry: (i) The properties of the Borrower and its Subsidiaries do not contain, and have not previously contained, any Hazardous Materials in amounts or concentrations which (A) constitute or constituted a violation of, or (B) could give rise to liability under, applicable Environmental Laws; (ii) Such properties and all operations conducted in connection therewith are in compliance, and have been in compliance, with all applicable Environmental Laws, and there is no contamination at, under or about such properties or such operations which could interfere with the continued operation of such properties or impair the fair saleable value thereof; (iii) Neither the Borrower nor any Subsidiary thereof has received any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of their properties or the operations conducted in connection therewith, nor does the Borrower or any Subsidiary thereof have knowledge or reason to believe that any such notice will be received or is being threatened; (iv) Hazardous Materials have not been transported or disposed of from the properties of the Borrower or any of its Subsidiaries in violation of, or in a manner or to a location which could give rise to liability under, Environmental Laws, nor have any Hazardous Materials been generated, treated, stored or disposed of at, on or under any of such properties in violation of, or in a manner that could give rise to liability under, any applicable Environmental Laws; (v) No judicial proceedings or governmental or administrative action is pending, or, to the knowledge of the Borrower, threatened, under any Environmental Law to which the Borrower or any Subsidiary thereof is or will be named as a party with respect to such properties or operations conducted in connection therewith, nor are there any consent decrees or other -48- 54 decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to such properties or such operations; and (vi) There has been no release, or threat of release, of Hazardous Materials at or from such properties, in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws. (i) ERISA. (i) Neither the Borrower nor any ERISA Affiliate maintains or contributes to, or has any obligation under, any Employee Benefit Plans other than those identified on Schedule 6.1(i); (ii) the Borrower and each ERISA Affiliate is in compliance with all applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to all Employee Benefit Plans except for any required amendments for which the remedial amendment period as defined in Section 401(b) of the Code has not yet expired. Each Employee Benefit Plan that is intended to be qualified under Section 401(a) of the Code has been determined by the Internal Revenue Service to be so qualified, and each trust related to such plan has been determined to be exempt under Section 501(a) of the Code. No liability has been incurred by the Borrower or any ERISA Affiliate which remains unsatisfied for any taxes or penalties with respect to any Employee Benefit Plan or any Multiemployer Plan; (iii) No Pension Plan has been terminated, nor has any accumulated funding deficiency (as defined in Section 412 of the Code) been incurred (without regard to any waiver granted under Section 412 of the Code), nor has any funding waiver from the Internal Revenue Service been received or requested with respect to any Pension Plan, nor has the Borrower or any ERISA Affiliate failed to make any contributions or to pay any amounts due and owing as required by Section 412 of the Code, Section 302 of ERISA or the terms of any Pension Plan prior to the due dates of such contributions under Section 412 of the Code or Section 302 of ERISA, nor has there been any event requiring any disclosure under Section 4041(c)(3)(C) or 4063(a) of ERISA with respect to any Pension Plan; (iv) Neither the Borrower nor any ERISA Affiliate has: (A) engaged in a nonexempt prohibited transaction described in Section 406 of the ERISA or Section 4975 of the Code, (B) incurred any liability to the PBGC which remains outstanding -49- 55 other than the payment of premiums and there are no premium payments which are due and unpaid, (C) failed to make a required contribution or payment to a Multiemployer Plan, or (D) failed to make a required installment or other required payment under Section 412 of the Code; (v) No Termination Event has occurred or is reasonably expected to occur; and (vi) No proceeding, claim, lawsuit and/or investigation is existing or, to the best knowledge of the Borrower after due inquiry, threatened concerning or involving any (A) employee welfare benefit plan (as defined in Section 3(1) of ERISA) currently maintained or contributed to by the Borrower or any ERISA Affiliate, (B) Pension Plan or (C) Multiemployer Plan. (j) Margin Stock. Neither the Borrower nor any Subsidiary thereof is engaged principally or as one of its activities in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" (as each such term is defined or used in Regulations G and U of the Board of Governors of the Federal Reserve System). No part of the proceeds of any of the Loans or Letters of Credit will be used for purchasing or carrying margin stock or for any purpose which violates, or which would be inconsistent with, the provisions of Regulation G, T, U or X of such Board of Governors. (k) Government Regulation. Neither the Borrower nor any Subsidiary thereof is an "investment company" or a company "controlled" by an "investment company" (as each such term is defined or used in the Investment Company Act of 1940, as amended) and neither the Borrower nor any Subsidiary thereof is, or after giving effect to any Extension of Credit will be, subject to regulation under the Public Utility Holding Company Act of 1935 or the Interstate Commerce Act, each as amended, or any other Applicable Law which limits its ability to incur or consummate the transactions contemplated hereby. (l) Material Contracts. Schedule 6.1(l) sets forth a complete and accurate list of all Material Contracts of the Borrower and its Subsidiaries in effect as of the Closing Date not listed on any other Schedule hereto; other than as set forth in Schedule 6.1(l), each such Material Contract is, and after giving effect to the consummation of the transactions contemplated by the Loan Documents will be, in full force and effect in accordance with the terms thereof. (m) Employee Relations. Each of the Borrower and its Subsidiaries has a stable work force in place and is not, -50- 56 except as set forth on Schedule 6.1(m), party to any collective bargaining agreement nor has any labor union been recognized as the representative of its employees. The Borrower knows of no pending, threatened or contemplated strikes, work stoppage or other collective labor disputes involving its employees or those of its Subsidiaries. (n) Burdensome Provisions. Neither the Borrower nor any Subsidiary thereof is a party to any indenture, agreement, lease or other instrument, or subject to any corporate or partnership restriction, Governmental Approval or Applicable Law which is so unusual or burdensome as in the foreseeable future could be reasonably expected to have a Material Adverse Effect. The Borrower and its Subsidiaries do not presently anticipate that future expenditures needed to meet the provisions of any statutes, orders, rules or regulations of a Governmental Authority will be so burdensome as to have a Material Adverse Effect. (o) Financial Statements. The (i) Consolidated balance sheets of the Borrower and its Subsidiaries as of December 31, 1995 and the related statements of income and retained earnings and cash flows for the Fiscal Year then ended and (ii) unaudited Consolidated balance sheet of the Borrower and its Subsidiaries as of June 30, 1996 and related unaudited interim statements of revenue and retained earnings, copies of which have been furnished to the Administrative Agent and each Lender, are complete and correct and fairly present the assets, liabilities and financial position of the Borrower and its Subsidiaries as at such dates, and the results of the operations and changes of financial position for the periods then ended. All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP. The Borrower and its Subsidiaries have no Debt, obligation or other unusual forward or long-term commitment which is not fairly reflected in the foregoing financial statements or in the notes thereto. (p) No Material Adverse Change. Since December 31, 1995, there has been no material adverse change in the properties, business, operations, prospects, or condition (financial or otherwise) of the Borrower and its Subsidiaries and no event has occurred or condition arisen that could reasonably be expected to have a Material Adverse Effect. (q) Solvency. As of the Closing Date and after giving effect to each Extension of Credit made hereunder, the Borrower and each of its Subsidiaries will be Solvent. -51- 57 (r) Titles to Properties. Each of the Borrower and its Subsidiaries has such title to the real property owned by it as is necessary or desirable to the conduct of its business and valid and legal title to all of its personal property and assets, including, but not limited to, those reflected on the balance sheets of the Borrower and its Subsidiaries delivered pursuant to Section 6.1(o), except those which have been disposed of by the Borrower or its Subsidiaries subsequent to such date which dispositions have been in the ordinary course of business or as otherwise expressly permitted hereunder. (s) Liens. None of the properties and assets of the Borrower or any Subsidiary thereof is subject to any Lien, except Liens permitted pursuant to Section 10.3. No financing statement under the Uniform Commercial Code of any state which names the Borrower or any Subsidiary thereof or any of their respective trade names or divisions as debtor and which has not been terminated, has been filed in any state or other jurisdiction and neither the Borrower nor any Subsidiary thereof has signed any such financing statement or any security agreement authorizing any secured party thereunder to file any such financing statement, except to perfect those Liens permitted by Section 10.3 hereof. (t) Debt and Contingent Obligations. Schedule 6.1(f) is a complete and correct listing of all Debt and Contingent Obligations of the Borrower and its Subsidiaries in excess of $250,000. The Borrower and its Subsidiaries have performed and are in compliance with all of the terms of such Debt and Contingent Obligations and all instruments and agreements relating thereto, and no default or event of default, or event or condition which with notice or lapse of time or both would constitute such a default or event of default on the part of the Borrower or its Subsidiaries exists with respect to any such Debt or Contingent Obligation. (u) Litigation. Except for those matters in existence on the Closing Date as set forth on Schedule 6.1(u), there are no actions, suits or proceedings pending nor, to the knowledge of the Borrower, threatened against or in any other way relating adversely to or affecting the Borrower or any Subsidiary thereof or any of their respective properties in any court or before any arbitrator of any kind or before or by any Governmental Authority the result of which could reasonably be expected to have a Material Adverse Effect. (v) Absence of Defaults. No event has occurred or is continuing which constitutes a Default or an Event of De fault, or which constitutes, or which with the passage of time or giving of notice or both would constitute, a default or event of -52- 58 default by the Borrower or any Subsidiary thereof under any Material Contract or judgment, decree or order to which the Borrower or any of its Subsidiaries is a party or by which the Borrower or any of its Subsidiaries or any of their respective properties may be bound or which would require the Borrower or any of its Subsidiaries to make any payment thereunder prior to the scheduled maturity date therefor. (w) Accuracy and Completeness of Information. All written information, reports and other papers and data produced by or on behalf of the Borrower or any Subsidiary thereof and furnished to the Lenders were, at the time the same were so furnished, complete and correct in all respects to the extent necessary to give the recipient a true and accurate knowledge of the subject matter. No document furnished or written statement made to the Administrative Agent or the Lenders by the Borrower or any Subsidiary thereof in connection with the negotiation, preparation or execution of this Agreement or any of the Loan Documents contains or will contain any untrue statement of a fact material to the creditworthiness of the Borrower or its Subsidiaries or omits or will omit to state a fact necessary in order to make the statements contained therein not misleading. The Borrower is not aware of any facts which it has not disclosed in writing to the Administrative Agent having a Material Adverse Effect, or insofar as the Borrower can now foresee, could reasonably be expected to have a Material Adverse Effect. SECTION 6.2. Survival of Representations and Warranties, Etc. All representations and warranties set forth in this Article VI and all representations and warranties contained in any certificate, or any of the Loan Documents (including but not limited to any such representation or warranty made in or in connection with any amendment thereto) shall constitute repre sentations and warranties made under this Agreement. All repre sentations and warranties made under this Agreement shall be made or deemed to be made at and as of the Closing Date, shall survive the Closing Date and shall not be waived by the execution and delivery of this Agreement, any investigation made by or on behalf of the Lenders or any borrowing hereunder and shall continue until the Obligations hereunder have been finally and indefeasibly paid and satisfied in full and the Commitments terminated. -53- 59 ARTICLE VII FINANCIAL INFORMATION AND NOTICES Until all the Obligations have been finally and indefeasibly paid and satisfied in full and the Commitments terminated, unless consent has been obtained in the manner set forth in Section 13.10 hereof, the Borrower will furnish or cause to be furnished to the Administrative Agent at the Administrative Agent's Office at the address set forth in Section 13.1 hereof and to each Lender at its respective address as set forth on Schedule 1.1(b), or such other office as may be designated by the Administrative Agent or such Lender from time to time: SECTION 7.1. Financial Statements and Projections. (a) Quarterly Financial Statements. As soon as practicable and in any event within forty-five (45) days after the end of each fiscal quarter, an unaudited Consolidated balance sheet of the Borrower and its Subsidiaries as of the close of such fiscal quarter and unaudited Consolidated statements of income and cash flows for the fiscal quarter then ended and that portion of the Fiscal Year then ended, including the notes thereto, all in reasonable detail setting forth in comparative form the corresponding figures for the preceding Fiscal Year and prepared by the Borrower in accordance with GAAP and, if applicable, containing disclosure of the effect on the financial position or results of operations of any change in the application of accounting principles and practices during the period, and certified by the chief financial officer of the Borrower to present fairly in all material respects the financial condition of the Borrower and its Subsidiaries as of their respective dates and the results of operations of the Borrower and its Subsidiaries for the respective periods then ended, subject to normal year end adjustments. (b) Annual Financial Statements. As soon as practicable and in any event within ninety (90) days after the end of each Fiscal Year, an audited Consolidated balance sheet of the Borrower and its Subsidiaries as of the close of such Fiscal Year and audited Consolidated statements of income, retained earnings and cash flows for the Fiscal Year then ended, including the notes thereto, all in reasonable detail setting forth in comparative form the corresponding figures for the preceding Fiscal Year and prepared by an independent certified public accounting firm acceptable to the Administrative Agent in accordance with GAAP and, if applicable, containing disclosure of the effect on the financial position or results of operation of any change in the application of accounting principles and -54- 60 practices during the year, and accompanied by a report thereon by such certified public accountants that is not qualified with respect to scope or limitations imposed by the Borrower or any of its Subsidiaries or with respect to accounting principles followed by the Borrower or any of its Subsidiaries not in accordance with GAAP. SECTION 7.2. Officer's Compliance Certificate. At each time financial statements are delivered pursuant to Sections 7.1(a) or (b) a certificate of the chief financial officer or the treasurer of the Borrower in the form of Exhibit E attached hereto (an "Officer's Compliance Certificate"). SECTION 7.3. Other Reports. (a) Promptly upon receipt thereof, copies of all reports, if any, submitted to the Borrower or its Board of Directors by its independent public accountants in connection with their auditing function, including, without limitation, any management report and any management responses thereto; (b) As soon as practicable and in any event within forty-five (45) days after the end of each of the first three fiscal quarters and within ninety (90) days after the end of the fourth fiscal quarter, a projection of sources and uses of funds for the following twelve (12) month period; (c) At least ten (10) days prior to the issuance of any Project Letter of Credit, a summary report of the applicable correctional facility (including without limitation, the project cost, size and location, anticipated incarceration and management terms and expectations of permanent financing); and (d) Such other information regarding the operations, business affairs and financial condition of the Borrower or any of its Subsidiaries as the Administrative Agent or any Lender may reasonably request. SECTION 7.4. Notice of Litigation and Other Matters. Prompt (but in no event later than ten (10) days after an officer of the Borrower obtains knowledge thereof) telephonic and written notice of: (a) the commencement of all proceedings and investigations by or before any Governmental Authority and all actions and proceedings in any court or before any arbitrator against or involving the Borrower or any Subsidiary thereof or any of their respective properties, assets or businesses, the -55- 61 result of which could reasonably be expected to have a Material Adverse Effect; (b) any notice of any violation received by the Borrower or any Subsidiary thereof from any Governmental Authority including, without limitation, any notice of violation of Environmental Laws which in any such case could reasonably be expected to have a Material Adverse Effect; (c) any labor controversy that has resulted in, or threatens to result in, a strike or other work action against the Borrower or any Subsidiary thereof; (d) any attachment, judgment, lien, levy or order exceeding $1,000,000 that may be assessed against or threatened against the Borrower or any Subsidiary thereof; (e) (i) any Default or Event of Default, (ii) any event which constitutes or which with the passage of time or giving of notice or both would constitute a default or event of default under any Material Contract to which the Borrower or any of its Subsidiaries is a party or by which the Borrower or any Subsidiary thereof or any of their respective properties may be bound or (iii) any termination prior to the stated termination date under any Material Contract to which the Borrower or any of its Subsidiaries is a party or by which the Borrower or any Subsidiary thereof or any of their respective properties may be bound; (f) (i) any unfavorable determination letter from the Internal Revenue Service regarding the qualification of an Employee Benefit Plan under Section 401(a) of the Code (along with a copy thereof), (ii) all notices received by the Borrower or any ERISA Affiliate of the PBGC's intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan, (iii) all notices received by the Borrower or any ERISA Affiliate from a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA and (iv) the Borrower obtaining knowledge or reason to know that the Borrower or any ERISA Affiliate has filed or intends to file a notice of intent to terminate any Pension Plan under a distress termination within the meaning of Section 4041(c) of ERISA; and (g) any event which makes any of the representations set forth in Section 6.1 inaccurate in any material respect. SECTION 7.5. Accuracy of Information. All written information, reports, statements and other papers and data -56- 62 furnished by or on behalf of the Borrower to the Administrative Agent or any Lender (other than financial forecasts) whether pursuant to this Article VII or any other provision of this Agreement, or any of the Security Documents, shall be, at the time the same is so furnished, complete and correct in all material respects to the extent necessary to give the Administrative Agent or any Lender complete, true and accurate knowledge of the subject matter based on the Borrower's knowledge thereof. ARTICLE VIII AFFIRMATIVE COVENANTS Until all of the Obligations have been finally and indefeasibly paid and satisfied in full and the Commitments terminated, unless consent has been obtained in the manner provided for in Section 13.10, the Borrower will, and will cause each of its Subsidiaries to: SECTION 8.1. Preservation of Corporate Existence and Related Matters. Except as permitted by Section 10.5, preserve and maintain its separate corporate existence and all rights, franchises, licenses and privileges necessary to the conduct of its business, and qualify and remain qualified as a foreign corporation and authorized to do business in each jurisdiction in which the failure to so qualify could reasonably be expected to have a Material Adverse Effect. SECTION 8.2. Maintenance of Property. Protect and preserve all properties useful in and material to its business, including copyrights, patents, trade names and trademarks; maintain in good working order and condition all buildings, equipment and other tangible real and personal property; and from time to time make or cause to be made all renewals, replacements and additions to such property necessary for the conduct of its business, so that the business carried on in connection therewith may be properly and advantageously conducted at all times. SECTION 8.3. Insurance. Maintain insurance with financially sound and reputable insurance companies against such risks and in such amounts as are customarily maintained by similar businesses and as may be required by Applicable Law (including without limitation, general liability insurance in a minimum amount of $30,000,000), and on the Closing Date and from time to time thereafter deliver to the Administrative Agent upon its request a detailed list of the insurance then in effect, stating the names of the insurance companies, the amounts and -57- 63 rates of the insurance, the dates of the expiration thereof and the properties and risks covered thereby. SECTION 8.4. Accounting Methods and Financial Records. Maintain a system of accounting, and keep such books, records and accounts (which shall be true and complete in all material respects) as may be required or as may be necessary to permit the preparation of financial statements in accordance with GAAP and in compliance with the regulations of any Governmental Authority having jurisdiction over it or any of its properties. SECTION 8.5. Payment and Performance of Obligations. Pay and perform all Obligations under this Agreement and the other Loan Documents, and pay or perform (a) all taxes, assessments and other governmental charges that may be levied or assessed upon it or any of its property, and (b) all other indebtedness, obligations and liabilities in accordance with customary trade practices; provided, that the Borrower or such Subsidiary may contest any item described in this Section 8.5 in good faith so long as adequate reserves are maintained with respect thereto in accordance with GAAP. SECTION 8.6. Compliance With Laws and Approvals. Observe and remain in compliance with all Applicable Laws and maintain in full force and effect all Governmental Approvals, in each case applicable to the conduct of its business. SECTION 8.7. Environmental Laws. In addition to and without limiting the generality of Section 8.6, (a) comply with, and use its best efforts to ensure such compliance by all agents, contractors, tenants and subtenants, if any, with, all applicable Environmental Laws and obtain and comply with and maintain, and use its best efforts to ensure that all agents, contractors, tenants and subtenants obtain and comply with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws, (b) conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws, and promptly comply with all lawful orders and directives of any Governmental Authority regarding Environmental Laws, and (c) defend, indemnify and hold harmless the Administrative Agent and the Lenders, and their respective parents, Subsidiaries, Affiliates, employees, agents, officers and directors, from and against any claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature known or unknown, contingent or otherwise, arising out of, or in any way relating to the violation of, noncompliance with or liability under any Environmental Laws applicable to the operations of the Borrower or such Subsidiary, or any orders, requirements or demands of -58- 64 Governmental Authorities related thereto, including, without limitation, reasonable attorney's and consultant's fees, investigation and laboratory fees, response costs, court costs and litigation expenses, except to the extent that any of the foregoing directly result from the gross negligence or willful misconduct of the party seeking indemnification therefor. SECTION 8.8. Compliance with ERISA. In addition to and without limiting the generality of Section 8.6, (a) comply with all applicable provisions of ERISA and the regulations and published interpretations thereunder with respect to all Employee Benefit Plans, (b) not take any action or fail to take action the result of which could be a liability to the PBGC or to a Multiemployer Plan, (c) not participate in any prohibited transaction that could result in any civil penalty under ERISA or tax under the Code, (d) operate each Employee Benefit Plan in such a manner that will not incur any tax liability under Section 4980B of the Code or any liability to any qualified beneficiary as defined in Section 4980B of the Code and (e) furnish to the Administrative Agent upon the Administrative Agent's request such additional information about any Employee Benefit Plan as may be reasonably requested by the Administrative Agent. SECTION 8.9. Compliance With Agreements. Comply in all respects with each term, condition and provision of all leases, agreements and other instruments entered into in the conduct of its business including, without limitation, any Material Contract; provided, that the Borrower or such Subsidiary may contest any such lease, agreement or other instrument in good faith through applicable proceedings so long as adequate reserves are maintained in accordance with GAAP. SECTION 8.10. Conduct of Business. Engage only in businesses in substantially the same fields as the businesses conducted on the Closing Date and in lines of business reasonably related thereto. SECTION 8.11. Visits and Inspections. Permit representa tives of the Administrative Agent or any Lender, from time to time, to visit and inspect its properties; inspect, audit and make extracts from its books, records and files, including, but not limited to, management letters prepared by independent accountants; and discuss with its principal officers, and its independent accountants, its business, assets, liabilities, financial condition, results of operations and business prospects. SECTION 8.12. Additional Guarantors. Upon the creation of any Subsidiary permitted by this Agreement, cause to be executed and delivered to the Agent within ten (10) Business Days after -59- 65 the creation of such Subsidiary, (a) a supplement substantially in the form of the Supplement attached to the Guaranty Agreement executed by such new Subsidiary, (b) the supplement substantially in the form of the Supplement attached to the Pledge Agreement executed by the Borrower, (c) the closing documents and certificates required of each of the Loan Parties pursuant to Section 5.2(c) hereof with respect to such new Subsidiary and (d) such other documents reasonably requested by the Administrative Agent in order that such Subsidiary shall become bound by and entitled to the benefits of all of the terms, covenants and agreements contained in the Guaranty Agreement and the capital stock of such Subsidiary shall become Collateral for the Obligations. Upon satisfaction of the conditions set forth in this Section 8.12, such Subsidiary shall become a Guarantor under the Guaranty Agreement, as of such date, as if an original signatory thereto. SECTION 8.13. Further Assurances. Make, execute and deliver all such additional and further acts, things, deeds and instruments as the Administrative Agent or any Lender may reasonably require to document and consummate the transactions contemplated hereby and to vest completely in and insure the Administrative Agent and the Lenders their respective rights under this Agreement, the Notes, the Letters of Credit and the other Loan Documents. ARTICLE IX FINANCIAL COVENANTS Until all of the Obligations have been finally and indefeasibly paid and satisfied in full and the Commitments terminated, unless consent has been obtained in the manner set forth in Section 13.10 hereof, the Borrower and its Subsidiaries on a Consolidated basis will not: SECTION 9.1 Minimum Net Worth. Permit the Consolidated Net Worth of the Borrower and its Subsidiaries at any time to be less than (a) $95,000,000 plus (b) fifty percent (50%) of Consolidated Net Income of the Borrower and its Subsidiaries (if positive) as of each fiscal quarter end occurring after December 31, 1995 plus (c) one hundred percent (100%) of the aggregate Net Cash Proceeds with respect to any offering of capital stock or any exercise of warrants or options exercisable with respect to capital stock of the Borrower or any of its Subsidiaries received after December 31, 1995 plus (d) the aggregate amount of any Subordinated Debt converted into capital stock of the Borrower or any of its Subsidiaries after December 31, 1995. -60- 66 SECTION 9.2. Leverage Ratio. As of the end of any fiscal quarter, permit the ratio of (a) the Consolidated Debt of the Borrower and its Subsidiaries as of such fiscal quarter end to (b) the sum of (i) Consolidated Net Worth of the Borrower and its Subsidiaries plus (ii) the Consolidated Debt of the Borrower and its Subsidiaries, each as of such fiscal quarter end, to exceed 0.65 to 1.00. SECTION 9.3 Senior Leverage Ratio. As of the end of any fiscal quarter, permit the ratio of (a) Senior Debt as of such fiscal quarter end to (b) the sum of (i) Consolidated Net Worth of the Borrower and its Subsidiaries plus (ii) the Consolidated Debt of the Borrower and its Subsidiaries, each as of such fiscal quarter end, to exceed 0.55 to 1.00. SECTION 9.4. Interest Coverage Ratio. As of the end of any fiscal quarter, permit the ratio of (a) Consolidated EBIT of the Borrower and its Subsidiaries for the period of four (4) consecutive fiscal quarters ending on such fiscal quarter to (b) Interest Expense for such period of four (4) consecutive fiscal quarters, to be less than 3.00 to 1.00. ARTICLE X NEGATIVE COVENANTS Until all of the Obligations have been finally and indefeasibly paid and satisfied in full and the Commitments terminated, unless consent has been obtained in the manner set forth in Section 13.10 hereof, the Borrower has not and will not permit any of its Subsidiaries to: SECTION 10.1. Limitations on Debt. Create, incur, assume or suffer to exist any Debt except: (a) the Obligations; (b) the Existing Letter of Credit; (c) Debt incurred in connection with a Hedging Agreement with a counterparty and upon terms and conditions reasonably satisfactory to the Administrative Agent; (d) Subordinated Debt; (e) Debt existing on the Closing Date and not otherwise permitted under this Section 10.1, as set forth on Schedule 6.1(f) and the renewal and refinancing (but not the increase) thereof; -61- 67 (f) Debt of the Borrower and its Subsidiaries incurred in connection with Capitalized Leases in an aggregate amount not to exceed $5,000,000 on any date of determination; (g) purchase money Debt of the Borrower and its Subsidiaries in an aggregate amount not to exceed $5,000,000 on any date of determination; (h) Debt consisting of Contingent Obligations permitted by Section 10.2; (i) intercompany Debt between the Borrower and the Guarantors (provided that such Debt is subordinated in right and time of payment to the Obligations and on terms and conditions and in form satisfactory to the Required Lenders); and (j) unsecured Debt of the Borrower not otherwise permitted herein in an aggregate amount not to exceed $10,000,000 outstanding at any time; provided, that none of the Debt permitted to be incurred by this Section shall restrict, limit or otherwise encumber (by covenant or otherwise) the ability of any Subsidiary of the Borrower to make any payment to the Borrower or any of its Subsidiaries (in the form of dividends, intercompany advances or otherwise) for the purpose of enabling the Borrower to pay the Obligations. SECTION 10.2. Limitations on Contingent Obligations. Create, incur, assume or suffer to exist any Contingent Obligations except: (a) Contingent Obligations in favor of the Administrative Agent for the benefit of the Administrative Agent and the Lenders; (b) Contingent Obligations existing on the Closing Date and not otherwise permitted under this Section 10.2, as set forth on Schedule 6.1(f); (c) guaranties incurred in the ordinary course of business in an aggregate amount not to exceed Twenty-Five Million Dollars ($25,000,000) at any time; provided that not more than Five Million Dollars ($5,000,000) in guaranties under this subsection shall be incurred to secure Debt other than Project Related Debt; (d) guaranties incurred to secure Project Related Debt to the extent that a Letter of Credit has been issued and is in effect in connection therewith (to the extent it is less than or equal to the aggregate amount of such Letter of Credit); and -62- 68 (e) guaranties incurred to secure the obligations of the trustee or administrator under the Corrections Corporation of America Employee Savings and Stock Ownership Plan (or any successor plan) in an aggregate amount not to exceed $10,000,000 at any time. SECTION 10.3. Limitations on Liens. Create, incur, assume or suffer to exist, any Lien on or with respect to any of its assets or properties (including without limitation shares of capital stock or other ownership interests), real or personal, whether now owned or hereafter acquired, except: (a) Liens for taxes, assessments and other governmental charges or levies (excluding any Lien imposed pursuant to any of the provisions of ERISA or Environmental Laws) not yet due or as to which the period of grace (not to exceed thirty (30) days), if any, related thereto has not expired or which are being contested in good faith and by appropriate proceedings if adequate reserves are maintained to the extent required by GAAP; (b) the claims of materialmen, mechanics, carriers, warehousemen, processors or landlords for labor, materials, supplies or rentals incurred in the ordinary course of business, (i) which are not overdue for a period of more than thirty (30) days or (ii) which are being contested in good faith and by appropriate proceedings; (c) Liens consisting of deposits or pledges made in the ordinary course of business in connection with, or to secure payment of, obligations under workers' compensation, unemployment insurance or similar legislation. (d) Liens constituting encumbrances in the nature of zoning restrictions, easements and rights or restrictions of record on the use of real property, which in the aggregate are not substantial in amount and which do not, in any case, detract from the value of such property or impair the use thereof in the ordinary conduct of business; (e) Liens in favor of the Administrative Agent for the benefit of the Administrative Agent and the Lenders; (f) Liens not otherwise permitted by this Section 10.3 and in existence on the Closing Date and described on Schedule 10.3; and (g) Liens securing Debt permitted under Sections 10.1(e) and (f); provided, that (i) such Liens shall be created substantially simultaneously with the acquisition or lease of the -63- 69 related asset, (ii) such Liens do not at any time encumber any property other than the property financed by such Debt, (iii) the amount of Debt secured thereby is not increased and (iv) the principal amount of Debt secured by any such Lien shall at no time exceed one hundred percent (100%) of the original purchase or lease price of such property at the time it was acquired or leased. SECTION 10.4. Limitations on Loans, Advances, Investments and Acquisitions. Purchase, own, invest in or otherwise acquire, directly or indirectly, any capital stock, interests in any partnership or joint venture (including without limitation the creation or capitalization of any Subsidiary), evidence of Debt or other obligation or security, substantially all of the business or assets of any other Person or any other investment or interest whatsoever in any other Person, or make or permit to exist, directly or indirectly, any loans, advances or extensions of credit to, or any investment in cash or by delivery of property in, any Person, or enter into, directly or indirectly, any commitment or option in respect of the foregoing except: (a) investments in Subsidiaries existing on the Closing Date and the other loans, advances and investments existing on the Closing Date and described on Schedule 10.4; (b) investments in (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency thereof maturing within 180 days from the date of acquisition thereof, (ii) commercial paper maturing no more than 180 days from the date of creation thereof and currently having the highest rating obtainable from either Standard & Poor's Rating's Group, a Division of McGraw-Hill Corporation or Moody's Investors Service, Inc., (iii) certificates of deposit maturing no more than 180 days from the date of creation thereof issued by commercial banks incorporated under the laws of the United States of America, each having combined capital, surplus and undivided profits of not less than $500,000,000 and having a rating of "A" or better by a nationally recognized rating agency; provided, that the aggregate amount invested in such certificates of deposit shall not at any time exceed $5,000,000 for any one such certificate of deposit and $10,000,000 for any one such bank, or (iv) time deposits maturing no more than 30 days from the date of creation thereof with commercial banks or savings banks or savings and loan associations each having membership either in the FDIC or the deposits of which are insured by the FDIC and in amounts not exceeding the maximum amounts of insurance thereunder; and (c) investments by the Borrower or any Subsidiary in the form of acquisitions of at least eighty percent (80%) of -64- 70 the business (whether by the acquisition of capital stock, assets or any combination thereof) of any other Person if each such acquisition meets all of the following requirements: (i) the Person to be acquired shall engage in a business or the assets being acquired are used in a business described in Section 8.10, (ii) the Borrower or a Guarantor shall be the surviving Person and no Change of Control shall have been effected thereby, (iii) the Borrower shall have demonstrated pro forma compliance with each covenant contained in Article IX hereof prior to consummating the acquisition and no Default or Event of Default shall have occurred and be continuing both before and after giving effect to the acquisition, (iv) a description of the acquisition shall have been delivered to the Administrative Agent at least ten (10) days prior to the consummation of the acquisition and (v) the acquisition shall have been approved by the Board of Directors of the Person being acquired; provided, that the fair market value of all consideration paid in connection with all such acquisitions shall not exceed $50,000,000 in the aggregate, of which cash consideration paid and Debt assumed shall not exceed $25,000,000; (d) investments by the Borrower or any Guarantor after the Closing Date in Immaterial Subsidiaries or loans and advances by the Borrower or any Guarantor after the Closing Date to Immaterial Subsidiaries in an aggregate amount not to exceed $1,000,000; (e) investments after the Closing Date in other Persons in an aggregate amount not to exceed $10,000,000, provided that (i) such Person shall be engaged in the businesses described in Section 8.10 hereof and (ii) no Default or Event of Default shall have occurred and be continuing both before and after giving effect to such investment; (f) intercompany loans and advances to the extent permitted by Section 10.1(i); and (g) investments by the Borrower after the Closing Date in (i) the Bent County Colorado Corrections Facility in an aggregate amount not to exceed $12,500,000, (ii) the Marion County, Indiana Correctional Facility in an aggregate amount not to exceed $4,500,000 and (iii) the rights and interest of First Trust National Association, as trustee, with respect to the bonds issued by Appleton Prison Corporation and secured by the Prairie Corrections Facility in an aggregate amount not to exceed $25,000,000. SECTION 10.5. Limitations on Mergers and Liquidation. Merge, consolidate or enter into any similar combination with any -65- 71 other Person or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution) except: (a) any Wholly-Owned Subsidiary of the Borrower may merge with any other Wholly-Owned Subsidiary of the Borrower; provided that the survivor of such merger is or becomes a Guarantor; (b) any Wholly-Owned Subsidiary of the Borrower may merge with the Borrower; provided that the survivor of such merger is the Borrower; and (c) any Wholly-Owned Subsidiary may merge into the Person such Wholly-Owned Subsidiary was formed to acquire in connection with an acquisition permitted by Section 10.4(c); provided that the survivor of such merger is or becomes a Guarantor. SECTION 10.6. Limitations on Sale of Assets. Convey, sell, lease, assign, transfer or otherwise dispose of any of its property, business or assets (including, without limitation, the sale of any receivables and leasehold interests and any sale-leaseback or similar transaction), whether now owned or hereafter acquired except: (a) the sale of inventory in the ordinary course of business; (b) the sale of obsolete assets no longer used or usable in the business of the Borrower or any of its Subsidiaries; and (c) the sale or discount without recourse of accounts receivable arising in the ordinary course of business in connection with the compromise or collection thereof. SECTION 10.7. Limitations on Dividends and Distributions. Declare or pay any dividends upon any of its capital stock; purchase, redeem, retire or otherwise acquire, directly or indirectly, any shares of its capital stock, or make any distribution of cash, property or assets among the holders of shares of its capital stock, or make any change in its capital structure that could reasonably be expected to have a Material Adverse Effect; provided that: (a) the Borrower or any Subsidiary may pay dividends in shares of its own capital stock; and (b) any Subsidiary may pay cash dividends to the Borrower. -66- 72 SECTION 10.8. Transactions with Affiliates. Directly or indirectly: (a) make any loan or advance to, or purchase or assume any note or other obligation to or from, any of its officers, directors, shareholders or Affiliates, or to or from any member of the immediate family of any of its officers, directors, shareholders or Affiliates, or subcontract any operations to any of its Affiliates, or (b) enter into, or be a party to, any transaction with any of its Affiliates, except pursuant to the reasonable requirements of its business and upon fair and reasonable terms that are no less favorable to it than it would obtain in a comparable arm's length transaction with a Person not its Affiliate. SECTION 10.9. Certain Accounting Changes. Change its Fiscal Year end, or make any change in its accounting treatment and reporting practices except as required by GAAP. SECTION 10.10. Amendments; Payments and Prepayments of Subordinated Debt. Amend or modify (or permit the modification or amendment of) any of the terms or provisions of any Subordinated Debt, or cancel or forgive, make any voluntary or optional payment or prepayment on, or redeem or acquire for value (including without limitation by way of depositing with any trustee with respect thereto money or securities before due for the purpose of paying when due) any Subordinated Debt. SECTION 10.11. Restrictive Agreements. Enter into any Debt which contains any negative pledge on assets or any covenants more restrictive than the provisions of Articles VIII, IX and X hereof, or which restricts, limits or otherwise encumbers its ability to incur Liens on or with respect to any of its assets or properties other than the assets or properties securing such Debt. ARTICLE XI DEFAULT AND REMEDIES SECTION 11.1. Events of Default. Each of the following shall constitute an Event of Default, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule or regulation of any Governmental Authority or otherwise: (a) Default in Payment of Principal of Loans and Reimbursement Obligations. The Borrower shall default in any payment of principal of any Loan, Note or Reimbursement -67- 73 Obligation when and as due (whether at maturity, by reason of acceleration or otherwise). (b) Other Payment Default. The Borrower shall default in the payment when and as due (whether at maturity, by reason of acceleration or otherwise) of interest on any Loan, Note or Reimbursement Obligation or the payment of any other Obligation, and such default shall continue unremedied for five (5) Business Days. (c) Misrepresentation. Any representation or warranty made (or deemed to be made pursuant to Section 5.3(a)) by the Borrower or any of its Subsidiaries under this Agreement, any Loan Document or any amendment hereto or thereto, shall at any time prove to have been incorrect or misleading in any material respect when made (or deemed made pursuant to Section 5.3(a)). (d) Default in Performance of Certain Covenants. The Borrower shall default in the performance or observance of any covenant or agreement contained in Sections 7.4(e) or Articles IX or X of this Agreement. (e) Default in Performance of Other Covenants and Conditions. The Borrower or any Subsidiary thereof shall default in the performance or observance of any term, covenant, condition or agreement contained in this Agreement (other than as specifically provided for otherwise in this Section 11.1) or any other Loan Document and such default shall continue for a period of thirty (30) days after written notice thereof has been given to the Borrower by the Administrative Agent. (f) Hedging Agreement. Any termination payment shall be due by the Borrower under any Hedging Agreement and such amount is not paid within five (5) Business Days of the due date thereof. (g) Debt Cross-Default. The Borrower or any of its Subsidiaries shall (i) default in the payment of any Debt (other than the Notes or any Reimbursement Obligation) the aggregate outstanding amount of which is in excess of $1,000,000 beyond the period of grace if any, provided in the instrument or agreement under which such Debt was created, or (ii) default in the observance or performance of any other agreement or condition relating to any Debt (other than the Notes or any Reimbursement Obligation) the aggregate outstanding amount of which is in excess of $1,000,000 or contained in any instrument or agreement evidencing, securing or relating thereto or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or -68- 74 holders of such Debt (or a trustee or agent on behalf of such holder or holders) to cause, with the giving of notice if required, any such Debt to become due prior to its stated maturity (any applicable grace period having expired). (h) Other Cross-Defaults. The Borrower or any of its Subsidiaries shall default in the payment when due, or in the performance or observance, of any obligation or condition of any Material Contract unless, but only as long as, the existence of any such default is being contested by the Borrower or such Subsidiary in good faith by appropriate proceedings and adequate reserves in respect thereof have been established on the books of the Borrower or such Subsidiary to the extent required by GAAP. (i) Change in Control. (a) Any person or group of persons (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) shall obtain ownership or control in one or more series of transactions of more than twenty-five percent (25%) of the voting power of the Borrower entitled to vote in the election of members of the board of directors of the Borrower or there shall have occurred under any indenture or other instrument evidencing any Debt in excess of $1,000,000 any "change in control" (as defined in such indenture or other evidence of Debt) obligating the Borrower to repurchase, redeem or repay all or any part of the Debt or capital stock provided for therein (any such event, a "Change in Control"). (j) Voluntary Bankruptcy Proceeding. The Borrower or any Subsidiary thereof shall (i) commence a voluntary case under the federal bankruptcy laws (as now or hereafter in effect), (ii) file a petition seeking to take advantage of any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding up or composition for adjustment of debts, (iii) consent to or fail to contest in a timely and appropriate manner any petition filed against it in an involuntary case under such bankruptcy laws or other laws, (iv) apply for or consent to, or fail to contest in a timely and appropriate manner, the appointment of, or the taking of possession by, a receiver, custodian, trustee, or liquidator of itself or of a substantial part of its property, domestic or foreign, (v) admit in writing its inability to pay its debts as they become due, (vi) make a general assignment for the benefit of creditors, or (vii) take any corporate action for the purpose of authorizing any of the foregoing. (k) Involuntary Bankruptcy Proceeding. A case or other proceeding shall be commenced against the Borrower or any Subsidiary thereof in any court of competent jurisdiction seeking (i) relief under the federal bankruptcy laws (as now or hereafter in effect) or under any other laws, domestic or foreign, relating -69- 75 to bankruptcy, insolvency, reorganization, winding up or adjustment of debts, or (ii) the appointment of a trustee, receiver, custodian, liquidator or the like for the Borrower or any Subsidiary thereof or for all or any substantial part of their respective assets, domestic or foreign, and such case or proceeding shall continue undismissed or unstayed for a period of sixty (60) consecutive days, or an order granting the relief requested in such case or proceeding (including, but not limited to, an order for relief under such federal bankruptcy laws) shall be entered. (l) Failure of Agreements. Any provision of any Loan Document (other than this Agreement) shall for any reason cease to be valid and binding on the Borrower or Subsidiary party thereto or any such Person shall so state in writing, or any Loan Document (other than this Agreement) shall for any reason cease to create a valid and perfected first priority Lien on, or security interest in, any of the collateral purported to be covered thereby, in each case other than in accordance with the express terms hereof or thereof. (m) Termination Event. The occurrence of any of the following events: (i) the Borrower or any ERISA Affiliate fails to make full payment when due of all amounts which, under the provisions of any Pension Plan or Section 412 of the Code, the Borrower or any ERISA Affiliate is required to pay as contributions thereto, (ii) an accumulated funding deficiency in excess of $1,000,000 occurs or exists, whether or not waived, with respect to any Pension Plan or (iii) the Borrower or any ERISA Affiliate as employers under one or more Multiemployer Plan makes a complete or partial withdrawal from any such Multi employer Plan and the plan sponsor of such Multiemployer Plans notifies such withdrawing employer that such employer has incurred a withdrawal liability requiring payments in an amount exceeding $1,000,000. (n) Judgment. A judgment or order for the payment of money which causes the aggregate amount of such judgments to exceed $1,000,000 in any Fiscal Year shall be entered against the Borrower or any of its Subsidiaries by any court and such judgment or order shall continue undischarged or unstayed for a period of thirty (30) days. SECTION 11.2. Remedies. Upon the occurrence of an Event of Default, with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower: -70- 76 (a) Acceleration; Termination of Facilities. Declare the principal of and interest on the Loans, the Notes and the Reimbursement Obligations at the time outstanding, and all other amounts owed to the Lenders and to the Administrative Agent under this Agreement or any of the other Loan Documents (including, without limitation, all L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) and all other Obligations, to be forthwith due and payable, whereupon the same shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived, anything in this Agreement or the other Loan Documents to the contrary notwithstanding, and terminate the Credit Facility and any right of the Borrower to request borrowings or Letters of Credit thereunder; provided, that upon the occurrence of an Event of Default specified in Section 11.1(j) or (k), the Credit Facility shall be automatically terminated and all Obligations shall automatically become due and payable. (b) Letters of Credit. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to the preceding paragraph, require the Borrower at such time to deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay the other Obligations. After all such Letters of Credit shall have expired or been fully drawn upon, the Reimbursement Obligation shall have been satisfied and all other Obligations shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower or such other Person which may be entitled thereto. (c) Rights of Collection. Exercise on behalf of the Lenders all of its other rights and remedies under this Agreement, the other Loan Documents and Applicable Law, in order to satisfy all of the Borrower's Obligations. SECTION 11.3. Rights and Remedies Cumulative; Non-Waiver; etc. The enumeration of the rights and remedies of the Administrative Agent and the Lenders set forth in this Agreement is not intended to be exhaustive and the exercise by the Administrative Agent and the Lenders of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other -71- 77 right or remedy given hereunder or under the Loan Documents or that may now or hereafter exist in law or in equity or by suit or otherwise. No delay or failure to take action on the part of the Administrative Agent or any Lender in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude other or further exercise thereof or the exercise of any other right, power or privilege or shall be construed to be a waiver of any Event of Default. No course of dealing between the Borrower, the Administrative Agent and the Lenders or their respective agents or employees shall be effective to change, modify or discharge any provision of this Agreement or any of the other Loan Documents or to constitute a waiver of any Event of Default. ARTICLE XII THE ADMINISTRATIVE AGENT SECTION 12.1. Appointment. Each of the Lenders hereby irrevocably designates and appoints First Union as Administrative Agent of such Lender under this Agreement and the other Loan Documents and each such Lender irrevocably authorizes First Union as Administrative Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents (with the consent of the Required Lenders or all of the Lenders as required pursuant to Section 13.10) and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and such other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement or such other Loan Documents, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein and therein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or the other Loan Documents or otherwise exist against the Administrative Agent. SECTION 12.2. Delegation of Duties. The Administrative Agent may execute any of its respective duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by the Administrative Agent with reasonable care. -72- 78 SECTION 12.3. Exculpatory Provisions. Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or Affiliates shall be (a) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or the other Loan Documents (except for actions occasioned solely by its or such Person's own gross negligence or willful misconduct), or (b) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any of its Subsidiaries or any officer thereof contained in this Agreement or the other Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or the other Loan Documents or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or the other Loan Documents or for any failure of the Borrower or any of its Subsidiaries to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement, or to inspect the properties, books or records of the Borrower or any of its Subsidiaries. SECTION 12.4. Reliance by the Administrative Agent. The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any note, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document or conversation reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless such Note shall have been transferred in accordance with Section 13.9 hereof. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement and the other Loan Documents unless it shall first receive such advice or concurrence of the Required Lenders (or, when expressly required hereby or by the relevant other Loan Document, all the Lenders) as it deems appropriate or 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 or continuing to take any such action except as a result of its own gross negligence or willful misconduct. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and -73- 79 the Notes in accordance with a request of the Required Lenders (or, when expressly required hereby, all the Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. SECTION 12.5. Notice of Default. The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless it has received notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, it shall promptly give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that unless and until the Administrative Agent shall have received such directions, the Administrative 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 interests of the Lenders. SECTION 12.6. Non-Reliance on the Administrative Agent and Other Lenders. Each Lender expressly acknowledges that neither the Administrative Agent nor any of its respective officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or Affiliates has made any representations or warranties to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of the Borrower or any of its Subsidiaries, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Borrower and its Subsidiaries and made its own decision to make its Loans and issue or participate in Letters of Credit hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Borrower and its Subsidiaries. Except for notices, reports -74- 80 and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder or by the other Loan Documents, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, financial and other condition or creditworthiness of the Borrower or any of its Subsidiaries which may come into the possession of the Administrative Agent or any of its respective officers, directors, employees, agents, attorneys-in-fact, Subsidiaries or Affiliates. SECTION 12.7. Indemnification. The Lenders agree to indemnify the Administrative Agent in its capacity as such and (to the extent not reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), ratably according to the respective amounts of their Commitment Percentages, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Notes or any Reimbursement Obligation) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of this Agreement or the other Loan Documents, or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the Administrative Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting solely from the Administrative Agent's bad faith, gross negligence or willful misconduct or collection of sums due pursuant to the Holdenville Letter of Credit. The agreements in this Section 12.7 shall survive the payment of the Notes, any Reimbursement Obligation and all other amounts payable hereunder and the termination of this Agreement. SECTION 12.8. The Administrative Agent in Its Individual Capacity. The Administrative Agent and its respective Subsidiaries and Affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower as though the Administrative Agent were not an Administrative Agent hereunder. With respect to any Loans made or renewed by it and any Note issued to it and with respect to any Letter of Credit issued by it or participated in by it, the Administrative Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not an Administrative Agent, -75- 81 and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. SECTION 12.9. Resignation of the Administrative Agent; Successor Administrative Agent. Subject to the appointment and acceptance of a successor as provided below, the Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders (and, so long as no Default or Event of Default has occurred and is continuing, with the consent of the Borrower, which consent shall not be unreasonably withheld or delayed) shall have the right to appoint a successor Administrative Agent, which successor shall have minimum capital and surplus of at least $500,000,000. If no successor Administrative Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the Administrative Agent's giving of notice of resignation, then the Administrative Agent may, on behalf of the Lenders (and, so long as no Default or Event of Default has occurred and is continuing, with the consent of the Borrower, which consent shall not be unreasonably withheld or delayed), appoint a successor Administrative Agent, which successor shall have minimum capital and surplus of at least $500,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Section 12.9 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 Administrative Agent. ARTICLE XIII MISCELLANEOUS SECTION 13.1. Notices. (a) Method of Communication. Except as otherwise provided in this Agreement, all notices and communications hereunder shall be in writing, or by telephone subsequently confirmed in writing. Any notice shall be effective if delivered by hand delivery or sent via telecopy, recognized overnight courier service or certified mail, return receipt requested, and shall be presumed to be received by a party hereto (i) on the date of delivery if delivered by hand or sent by telecopy, (ii) on the next Business Day if sent by recognized overnight courier service and (iii) on -76- 82 the third Business Day following the date sent by certified mail, return receipt requested. A telephonic notice to the Administrative Agent as understood by the Administrative Agent will be deemed to be the controlling and proper notice in the event of a discrepancy with or failure to receive a confirming written notice. (b) Addresses for Notices. Notices to any party shall be sent to it at the following addresses, or any other ad dress as to which all the other parties are notified in writing. If to the Borrower: Corrections Corporation of America 102 Woodmont Boulevard, Suite 800 Nashville, Tennessee 37205 Attention: Mr. Darrell K. Massengale Telephone No.: (615) 460-0345 Telecopy No.: (615) 269-8636 With copies to: Stokes and Bartholomew 424 Church Street, Suite 2800 Nashville, TN Attention: Elizabeth Moore Telephone No.: (615) 259-1450 Telecopy No.: (615) 259-1470 If to First Union as Administrative Agent: First Union National Bank of North Carolina One First Union Center, TW-10 301 South College Street Charlotte, North Carolina 28288-0735 Attention: Syndication Agency Services -77- 83 Telephone No.: (704) 383-0281 Telecopy No.: (704) 383-0288 and First Union National Bank of Tennessee 150 Fourth Avenue North Nashville, Tennessee 37219 Attention: Tim Fouts Telephone No.: (615) 251-9243 Telecopy No.: (615) 251-9461 If to any Lender: To the Address set forth on Schedule 1 hereto (c) Administrative Agent's Office. The Administrative Agent hereby designates its office located at the address set forth above for First Union National Bank of North Carolina, or any subsequent office which shall have been specified for such purpose by written notice to the Borrower and Lenders, as the Administrative Agent's Office referred to herein, to which payments due are to be made and at which Loans will be disbursed and Letters of Credit issued. SECTION 13.2. Expenses; Indemnity. The Borrower will (a) pay all out-of-pocket expenses of the Administrative Agent in connection with: (i) the preparation, execution and delivery of this Agreement and each other Loan Document, whenever the same shall be executed and delivered, including without limitation all out-of-pocket syndication and due diligence expenses and reasonable fees and disbursements of counsel for the Administrative Agent and (ii) the preparation, execution and delivery of any waiver, amendment or consent by the Administrative Agent or the Lenders relating to this Agreement or any other Loan Document, including without limitation reasonable fees and disbursements of counsel for the Administrative Agent, (b) pay all out-of-pocket expenses of the Administrative Agent and each Lender in connection with the administration and enforcement of any rights and remedies of the Administrative Agent and Lenders under the Credit Facility, including consulting with appraisers, accountants, engineers, attorneys and other Persons concerning the nature, scope or value of any right or remedy of the Administrative Agent or any Lender -78- 84 hereunder or under any other Loan Document or any factual matters in connection therewith, which expenses shall include without limitation the reasonable fees and disbursements of such Persons, and (c) defend, indemnify and hold harmless the Administrative Agent and the Lenders, and their respective parents, Subsidiaries, Affiliates, employees, agents, officers and directors, from and against any losses, penalties, fines, liabilities, settlements, damages, costs and expenses, suffered by any such Person in connection with any claim, investigation, litigation or other proceeding (whether or not the Administrative Agent or any Lender is a party thereto) and the prosecution and defense thereof, arising out of or in any way connected with the Agreement, any other Loan Document or the Loans, including without limitation reasonable attorney's and consultant's fees, except to the extent that any of the foregoing directly result from the gross negligence or willful misconduct of the party seeking indemnification therefor. SECTION 13.3. 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 and after the occurrence of any Event of Default and during the continuance thereof, the Lenders and any assignee or participant of a Lender in accordance with Section 13.9 are hereby authorized by the Borrower at any time or from time to time, without notice to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, time or demand, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness at any time held or owing by the Lenders, or any such assignee or participant to or for the credit or the account of the Borrower against and on account of the Obligations irrespective of whether or not (a) the Lenders shall have made any demand under this Agreement or any of the other Loan Documents or (b) the Administrative Agent shall have declared any or all of the Obligations to be due and payable as permitted by Section 11.2 and although such Obligations shall be contingent or unmatured. SECTION 13.4. Governing Law. This Agreement, the Notes and the other Loan Documents, unless otherwise expressly set forth therein, shall be governed by, construed and enforced in accordance with the laws of the State of North Carolina, without reference to the conflicts or choice of law principles thereof. SECTION 13.5. Consent to Jurisdiction. The Borrower hereby irrevocably consents to the personal jurisdiction of the state and federal courts located in Mecklenburg County, North Carolina, in any action, claim or other proceeding arising out of any dispute in connection with this Agreement, the Notes and the other Loan -79- 85 Documents, any rights or obligations hereunder or thereunder, or the performance of such rights and obligations. The Borrower hereby irrevocably consents to the service of a summons and complaint and other process in any action, claim or proceeding brought by the Administrative Agent or any Lender in connection with this Agreement, the Notes or the other Loan Documents, any rights or obligations hereunder or thereunder, or the performance of such rights and obligations, on behalf of itself or its property, in the manner specified in Section 13.1. Nothing in this Section 13.5 shall affect the right of the Administrative Agent or any Lender to serve legal process in any other manner permitted by Applicable Law or affect the right of the Administrative Agent or any Lender to bring any action or proceeding against the Borrower or its properties in the courts of any other jurisdictions. SECTION 13.6. Binding Arbitration; Waiver of Jury Trial. (a) Binding Arbitration. Upon demand of any party, whether made before or after institution of any judicial proceeding, any dispute, claim or controversy arising out of, connected with or relating to the Notes or any other Loan Documents ("Disputes"), between or among parties to the Notes or any other Loan Document shall be resolved by binding arbitration as provided herein. Institution of a judicial proceeding by a party does not waive the right of that party to demand arbitration hereunder. Disputes may include, without limitation, tort claims, counterclaims, claims brought as class actions, claims arising from Loan Documents executed in the future, or claims concerning any aspect of the past, present or future relationships arising out or connected with the Loan Documents. Arbitration shall be conducted under and governed by the Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association and Title 9 of the U.S. Code. All arbitration hearings shall be conducted in Charlotte, North Carolina. The expedited procedures set forth in Rule 51, et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000. All applicable statutes of limitation shall apply to any Dispute. A judgment upon the award may be entered in any court having jurisdiction. The panel from which all arbitrators are selected shall be comprised of licensed attorneys. The single arbitrator selected for expedited procedure shall be a retired judge from the highest court of general jurisdiction, state or federal, of the state where the hearing will be conducted. Notwithstanding the foregoing, this paragraph shall not apply to any Hedging Agreement that is a Loan Document. -80- 86 (b) JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE ADMINISTRATIVE AGENT, EACH LENDER AND THE BORROWER HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. (c) Preservation of Certain Remedies. Notwithstanding the preceding binding arbitration provisions, the parties hereto and the other Loan Documents preserve, without diminution, certain remedies that such Persons may employ or exercise freely, either alone, in conjunction with or during a Dispute. Each such Person shall have and hereby reserves the right to proceed in any court of proper jurisdiction or by self help to exercise or prosecute the following remedies: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale granted in the Loan Documents or under applicable law or by judicial foreclosure and sale, (ii) all rights of self help including peaceful occupation of property, collection of rents and set off, (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and in filing an involuntary bankruptcy proceeding, and (iv) when applicable, a judgment by confession of judgment. Preservation of these remedies does not limit the power of an arbitrator to grant similar remedies that may be requested by a party in a Dispute. SECTION 13.7. Reversal of Payments. To the extent the Borrower makes a payment or payments to the Administrative Agent for the ratable benefit of the Lenders or the Administrative Agent receives any payment or proceeds of the collateral which payments or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds repaid, the Obligations or part thereof intended to be satisfied shall be revived and continued in full force and effect as if such payment or proceeds had not been received by the Administrative Agent. SECTION 13.8. Accounting Matters. All financial and accounting calculations, measurements and computations made for any purpose relating to this Agreement, including, without limitation, all computations utilized by the Borrower or any Subsidiary thereof to determine compliance with any covenant contained herein, shall, except as otherwise expressly contemplated hereby or unless there -81- 87 is an express written direction by the Administrative Agent to the contrary agreed to by the Borrower, be performed in accordance with GAAP as in effect on the Closing Date. In the event that changes in GAAP shall be mandated by the Financial Accounting Standards Board, or any similar accounting body of comparable standing, or shall be recommended by the Borrower's certified public accountants, to the extent that such changes would modify such accounting terms or the interpretation or computation thereof, such changes shall be followed in defining such accounting terms only from and after the date the Borrower and the Lenders shall have amended this Agreement to the extent necessary to reflect any such changes in the financial covenants and other terms and conditions of this Agreement. SECTION 13.9. Successors and Assigns; Participations. (a) Benefit of Agreement. This Agreement shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent and the Lenders, all future holders of the Notes, and their respective successors and assigns, except that the Borrower shall not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender. (b) Assignment by Lenders. Each Lender may, with the consent of the Administrative Agent and, so long as no Default or Event of Default has occurred and is continuing, the Borrower, which consents shall not be unreasonably withheld, assign to one or more Eligible Assignees all or a portion of its interests, rights and obligations under this Agreement (including, without limitation, all or a portion of the Extensions of Credit at the time owing to it and the Notes held by it); provided that: (i) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Lender's rights and obligations under this Agreement; (ii) if less than all of the assigning Lender's Commitment is to be assigned, the Commitment so assigned shall not be less than $10,000,000; (iii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance in the form of Exhibit F attached hereto (an "Assignment and Acceptance"), together with any Note or Notes subject to such assignment; (iv) such assignment shall not, without the consent of the Borrower, require the Borrower to file a registration -82- 88 statement with the Securities and Exchange Commission or apply to or qualify the Loans or the Notes under the blue sky laws of any state; and (v) the assigning Lender shall pay to the Administrative Agent an assignment fee of $3,000 upon the execution by such Lender of the Assignment and Acceptance; provided that no such fee shall be payable upon any assignment by a Lender to an Affiliate thereof. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof, (A) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereby and (B) the Lender thereunder shall, to the extent provided in such assignment, be released from its obligations under this Agreement. (c) Rights and Duties Upon Assignment. By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as set forth in such Assignment and Acceptance. (d) Register. The Administrative Agent shall maintain a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders and the amount of the Extensions of Credit with respect to each Lender from time to time (the "Register"). The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Administrative 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 Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Issuance of New Notes. Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an Eligible Assignee together with any Note or Notes subject to such assignment and the written consent to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is substantially in the form of Exhibit F: (i) accept such Assignment and Acceptance; (ii) record the information contained therein in the Register; -83- 89 (iii) give prompt notice thereof to the Lenders and the Borrower; and (iv) promptly deliver a copy of such Assignment and Acceptance to the Borrower. Within five (5) Business Days after receipt of notice, the Borrower shall execute and deliver to the Administrative Agent, in exchange for the surrendered Note or Notes, a new Note or Notes to the order of such Eligible Assignee in amounts equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and a new Note or Notes to the order of the assigning Lender in an amount equal to the Commitment retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of the assigned Notes delivered to the assigning Lender. Each surrendered Note or Notes shall be canceled and returned to the Borrower. (f) Participations. Each Lender may sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Extensions of Credit and the Notes held by it); provided that: (i) each such participation shall be in an amount not less than $5,000,000; (ii) such Lender's obligations under this Agreement (including, without limitation, its Commitment) shall remain unchanged; (iii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations; (iv) such Lender shall remain the holder of the Notes held by it for all purposes of this Agreement; (v) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement; (vi) such Lender shall not permit such participant the right to approve any waivers, amendments or other modifications to this Agreement or any other Loan Document other than waivers, amendments or modifications which would reduce the principal of or the interest rate on any Loan or -84- 90 Reimbursement Obligation, extend the term or increase the amount of the Commitment, reduce the amount of any fees to which such participant is entitled, extend any scheduled payment date for principal of any Loan or, except as expressly contemplated hereby or thereby, release substantially all of the Collateral; and (vii) any such disposition shall not, without the consent of the Borrower, require the Borrower to file a registration statement with the Securities and Exchange Commission to apply to qualify the Loans or the Notes under the blue sky law of any state. (g) Disclosure of Information; Confidentiality. The Administrative Agent and the Lenders shall hold all non-public information with respect to the Borrower obtained pursuant to the Loan Documents in accordance with their customary procedures for handling confidential information. Any Lender may, in connection with any assignment, proposed assignment, participation or proposed participation pursuant to this Section 13.9, disclose to the assignee, participant, proposed assignee or proposed participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided, that prior to any such disclosure, each such assignee, proposed assignee, participant or proposed participant shall agree with the Borrower or such Lender to preserve the confidentiality of any confidential information relating to the Borrower received from such Lender. (h) Certain Pledges or Assignments. Nothing herein shall prohibit any Lender from pledging or assigning any Note to any Federal Reserve Bank in accordance with Applicable Law. SECTION 13.10. Amendments, Waivers and Consents. Except as set forth below, any term, covenant, agreement or condition of this Agreement or any of the other Loan Documents may be amended or waived by the Lenders, and any consent given by the Lenders, if, but only if, such amendment, waiver or consent is in writing signed by the Required Lenders (or by the Administrative Agent with the consent of the Required Lenders) and delivered to the Administrative Agent and, in the case of an amendment, signed by the Borrower; provided, that no amendment, waiver or consent shall (a) increase the amount or extend the time of the obligation of the Lenders to make Loans or issue or participate in Letters of Credit (including without limitation pursuant to Section 2.7), (b) extend the originally scheduled time or times of payment of the principal of any Loan or Reimbursement Obligation or the time or times of payment of interest or any fee on any Loan, Letter of Credit or Reimbursement Obligation, (c) reduce the rate of interest or fees payable on any Loan or Reimbursement Obligation, (d) permit any subordination of the principal or interest on any Loan or -85- 91 Reimbursement Obligation, (e) extend the expiration date of any Letter of Credit beyond the Revolving Termination Date, (f) release any material portion of the Collateral or release any Guarantor or Security Document (other than as specifically permitted in this Agreement or the applicable Security Document) or (g) amend the provisions of this Section 13.10 or the definition of Required Lenders, without the prior written consent of each Lender. In addition, no amendment, waiver or consent to the provisions of (a) Article XII shall be made without the written consent of the Administrative Agent and (b) Article III without the written consent of the Issuing Lender. SECTION 13.11. Performance of Duties. The Borrower's obligations under this Agreement and each of the Loan Documents shall be performed by the Borrower at its sole cost and expense. SECTION 13.12. All Powers Coupled with Interest. All powers of attorney and other authorizations granted to the Lenders, the Administrative Agent and any Persons designated by the Administrative Agent or any Lender pursuant to any provisions of this Agreement or any of the other Loan Documents shall be deemed coupled with an interest and shall be irrevocable so long as any of the Obligations remain unpaid or unsatisfied or the Credit Facility has not been terminated. SECTION 13.13. Survival of Indemnities. Notwithstanding any termination of this Agreement, the indemnities to which the Administrative Agent and the Lenders are entitled under the provisions of this Article XIII and any other provision of this Agreement and the Loan Documents shall continue in full force and effect and shall protect the Administrative Agent and the Lenders against events arising after such termination as well as before. SECTION 13.14. Titles and Captions. Titles and captions of Articles, Sections and subsections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement. SECTION 13.15. Severability of Provisions. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unen forceability without invalidating the remainder of such provision or the remaining provisions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdic tion. SECTION 13.16. Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be -86- 92 deemed to be an original and shall be binding upon all parties, their successors and assigns, and all of which taken together shall constitute one and the same agreement. SECTION 13.17. Entire Agreement; Term of Agreement. This Agreement, together with the other Loan Documents, constitutes the entire agreement with respect to the subject matter hereof and supersedes all prior agreements with respect to the subject matter hereof. This Agreement shall remain in effect from the Closing Date through and including the date upon which all Obligations shall have been indefeasibly and irrevocably paid and satisfied in full and the Commitments terminated. No termination of this Agreement shall affect the rights and obligations of the parties hereto arising prior to such termination. -87- 93 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers, all as of the day and year first written above. [CORPORATE SEAL] CORRECTIONS CORPORATION OF AMERICA By: --------------------------------- Name: ------------------------------- Title: ------------------------------ [AGENT AND LENDER SIGNATURES TO FOLLOW] -88- 94 FIRST UNION NATIONAL BANK OF TENNESSEE, as Administrative Agent, Issuing Lender, Swingline Lender and Lender By: --------------------------------- Name: ------------------------------- Title: ------------------------------ FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Issuing Lender By: --------------------------------- Name: ------------------------------- Title: ------------------------------ CIBC INC. By: --------------------------------- Name: ------------------------------- Title: ------------------------------ THE SUMITOMO BANK, LIMITED By: --------------------------------- -89- 95 Name: ------------------------------- Title: ------------------------------ FUJI BANK, LIMITED, ATLANTA AGENCY By: --------------------------------- Name: ------------------------------- Title: ------------------------------ UNION BANK OF CALIFORNIA, N.A. By: --------------------------------- Name: ------------------------------- Title: ------------------------------ SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION By: --------------------------------- Name: ------------------------------- Title: ------------------------------ MERCANTILE BANK OF ST. LOUIS, N.A. By: --------------------------------- Name: ------------------------------- Title: ------------------------------ -90- 96 FIRST TENNESSEE BANK NATIONAL ASSOCIATION By: --------------------------------- Name: ------------------------------- Title: ------------------------------ -91- 97 SCHEDULE 1.1: LENDERS AND COMMITMENTS
LENDER COMMITMENT ADDRESS - ------ ---------- ------- First Union $50,000,000 First Union National Bank National Bank of Tennessee of Tennessee 150 Fourth Avenue North Nashville, Tennessee 37219 Attention: Tim Fouts Telephone No.: (615) 251-9243 Telecopy No.: (615) 251-9461 and First Union National Bank of North Carolina One First Union Center, TW-10 301 South College Street Charlotte, North Carolina 28288-0735 Attention: Syndication Agency Services CIBC Inc. $25,000,000 Two Paces West 2727 Paces Ferry Road, Ste. 1200 Atlanta, GA 30339 Attn:Kathryn W. Sax Telephone:(770) 319-4903 Telecopy:(770) 319-4954 Fuji Bank, Limited, Atlanta Agency $15,000,000 Marquis One Tower 245 Peachtree Center Avenue, N.E.
-92- 98 Suite 2100 Atlanta, Ga 30303 Attn:David Hart Telephone:(404) 215-3314 Telecopy:(404) 653-2119 Union Bank of California, N.A. $15,000,000 445 South Figueroa Street, 16th Floor Los Angeles, CA 90071 Attn:Kurt M. Hocker Telephone:(213) 236-7767 Telecopy:(213) 236-7814 Mercantile Bank of St. Louis, N.A. $15,000,000 7th & Washington St. Louis, MO 63101 Attn:Donald A. Adam Telephone:(314) 425-2420 Telecopy:(314) 425-3859 The Sumitomo Bank, Limited $15,000,000 303 Peachtree Street Suite 4420 Atlanta, GA 30308 Attn:Terry Herron Telephone:(404) 524-6544 Telecopy:(404) 523-7983 SouthTrust Bank of Alabama, National Association $25,000,000 420 North 20th Street Birmingham, Al 35203 Attn:Hal Clemmer Telephone:(205) 254-5386 Telecopy:(205) 254-5022
-93- 99 First Tennessee Bank National Association $10,000,000 Lynn B. Spencer 511 Union Street 2nd Floor Nashville, TN 37219 Attn:Lynn Spencer Telephone:(615) 734-6300 Telecopy:(615) 734-6148
-94- 100 Schedule 1.2 First Union Letters of Credit
Beneficiary Amount Expiration Date - ----------- ------ --------------- Northfield Insurance Co. $300,000.00 3/31/97 Lonestar Gas Co. $ 9,200.00 9/30/96 Electric Power Board of Chattanooga $ 20,000.00 7/19/97 Chattanooga Gas Co. $ 21,000.00 7/19/97 Louisiana Power & Light Co. $ 40,000.00 5/31/97 National Union Fire Ins. Co. of Pittsburgh, PA. $224,000.00 3/31/97 National Union Fire Ins. Co. of Pittsburgh, PA $697,000.00 3/31/97 District of Columbia $ 50,000.00 8/05/97 Elizabeth Gas Co. $ 4,274.00 7/31/97
-95- EX-10.158 9 LETTER OF CREDIT FACILITY AGREEMENT 1 EXHIBIT 10.158 ================================================================================ LETTER OF CREDIT FACILITY AGREEMENT dated as of September 6, 1996, by and among Corrections Corporation of America, as Borrower and FIRST UNION NATIONAL BANK OF TENNESSEE and FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as Issuing Lender ================================================================================ 2 TABLE OF CONTENTS
PAGE ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . 1 SECTION 1.2. Miscellaneous . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II LETTER OF CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 2.1. L/C Commitment . . . . . . . . . . . . . . . . . . . . . 3 SECTION 2.2. Procedure for Issuance of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 2.3. Commissions and Other Charges . . . . . . . . . . . . . 4 SECTION 2.4. Reimbursement Obligation of the Borrower . . . . . . . . 4 SECTION 2.5. Obligations Absolute . . . . . . . . . . . . . . . . . . 4 SECTION 2.6. Effect of Application . . . . . . . . . . . . . . . . . 5 SECTION 2.7. Existing Letter of Credit. . . . . . . . . . . . . . . . 5 ARTICLE III GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 3.1. Manner of Payment . . . . . . . . . . . . . . . . . . . 5 SECTION 3.2. Increased Costs . . . . . . . . . . . . . . . . . . . . 5 SECTION 3.3. Capital Requirements . . . . . . . . . . . . . . . . . . 6 SECTION 3.4. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 3.5. Collateral. . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE IV CLOSING; CONDITIONS OF CLOSING AND ISSUING LETTERS OF CREDIT . . . . . . . 8 SECTION 4.1. Closing . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 4.2. Conditions to Closing and Initial Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 4.3. Conditions to All Letters of Credit. . . . . . . . . . . 8 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BORROWER . . . . . . . . . . . . . . 9 SECTION 5.1. Representations and Warranties . . . . . . . . . . . . . 9 SECTION 5.2. Survival of Representations and Warranties, Etc . . . . . . . . . . . . . . . . . . . . 9
i 3 ARTICLE VI FINANCIAL INFORMATION AND NOTICES . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE VII COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 ARTICLE VIII DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 8.1. Events of Default . . . . . . . . . . . . . . . . . . . 10 SECTION 8.2. Remedies . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 8.3. Rights and Remedies Cumulative; Non- Waiver; etc. . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 9.1. Notices . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 9.2. Expenses; Indemnity . . . . . . . . . . . . . . . . . . 14 SECTION 9.3. Set-off . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 9.4. Governing Law. . . . . . . . . . . . . . . . . . . . . 15 SECTION 9.5. Consent to Jurisdiction. . . . . . . . . . . . . . . . 15 SECTION 9.6. Binding Arbitration; Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 9.7. Reversal of Payments . . . . . . . . . . . . . . . . . 17 SECTION 9.8. Injunctive Relief . . . . . . . . . . . . . . . . . . . 17 SECTION 9.9. Accounting Matters . . . . . . . . . . . . . . . . . . 17 SECTION 9.10. Successors and Assigns . . . . . . . . . . . . . . . . 18 SECTION 9.11. Amendments, Waivers and Consents . . . . . . . . . . . 18 SECTION 9.12. Performance of Duties . . . . . . . . . . . . . . . . . 18 SECTION 9.13. All Powers Coupled with Interest . . . . . . . . . . . 18 SECTION 9.14. Survival of Indemnities . . . . . . . . . . . . . . . . 18 SECTION 9.15. Titles and Captions . . . . . . . . . . . . . . . . . . 18 SECTION 9.16. Severability of Provisions . . . . . . . . . . . . . . 19 SECTION 9.17. Counterparts . . . . . . . . . . . . . . . . . . . . . 19 SECTION 9.18. Term of Agreement . . . . . . . . . . . . . . . . . . . 19
ii 4 LETTER OF CREDIT FACILITY AGREEMENT, dated as of the 6th day of September, 1996, by and among Corrections Corporation of America, a corporation organized under the laws of Delaware (the "Borrower"), FIRST UNION NATIONAL BANK OF TENNESSEE and FIRST UNION NATIONAL BANK OF NORTH CAROLINA (collectively, the "Issuing Lender"). STATEMENT OF PURPOSE The Borrower has entered into the Credit Agreement of even date (as amended or supplemented from time to time, the "Revolving Credit Agreement") by and among the Borrower, the lenders who are or may become party thereto (the "Revolving Credit Lenders") and First Union National Bank of Tennessee, as Administrative Agent for the Revolving Credit Lenders, pursuant to which the Revolving Credit Lenders have agreed to extend certain credit facilities to the Borrower in the aggregate principal amount of up to $170,000,000. The Borrower has requested, and the Issuing Lender has agreed, to extend a letter of credit facility to the Borrower on the terms and conditions of this Agreement. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, such parties hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Definitions. Capitalized terms used herein and not defined herein shall have the meanings assigned thereto in the Revolving Credit Agreement. In addition, the following terms when used in this Agreement shall have the meanings assigned to them below: "Agreement" means this Letter of Credit Agreement, as amended or supplemented from time to time. "Application" means an application, in the form specified by the Issuing Lender from time to time, requesting the Issuing Lender to issue a Letter of Credit. "Borrower" means Corrections Corporation of America in its capacity as borrower hereunder. "Closing Date" means the date of this Agreement. "Default" means any of the events specified in Section 8.1 which with the passage of time, the giving of notice or any other condition, would constitute an Event of Default. 5 "Event of Default" means any of the events specified in Section 8.1, provided that any requirement for passage of time, giving of notice, or any other condition, has been satisfied. "Existing Letters of Credit" means the First Union Letters of Credit as defined in the Revolving Credit Agreement. "Issuing Lender" means First Union National Bank of Tennessee or First Union National Bank of North Carolina, each in its capacity as issuer of any Letter of Credit, or any successor thereto. "L/C Facility" means the letter of credit facility established pursuant to Article II hereof. "L/C Obligations" means at any time, an amount equal to the sum of (a) the aggregate undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed pursuant to Section 2.4. "Letter of Credit Termination Date" shall mean August __, 1999 or such earlier date upon which the Credit Facility under the Revolving Credit Agreement has been terminated. "Letters of Credit" shall have the meaning assigned thereto in Section 2.1. "Other Taxes" shall have the meaning assigned thereto in Section 3.4(b). "Reimbursement Obligation" means the obligation of the Borrower to reimburse the Issuing Lender pursuant to Section 2.4 for amounts drawn under Letters of Credit. "Taxes" shall have the meaning assigned thereto in Section 3.4(a). "Uniform Customs" the Uniform Customs and Practice for Documentary Credits (1994 Revision), International Chamber of Commerce Publication No. 500. "UCC" means the Uniform Commercial Code as in effect in the State of North Carolina. SECTION 1.2. Miscellaneous (a) General. Unless otherwise specified, a reference in this Agreement to a particular section, subsection, Schedule or Exhibit is a reference to that section, subsection, Schedule or Exhibit of this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. Any reference herein to "Nashville time" shall refer to 2 6 the applicable time of day in Nashville, Tennessee. The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. (b) Revolving Credit Agreement. The terms and conditions of the Revolving Credit Agreement, a copy of which is attached hereto as Exhibit A, are hereby incorporated herein by this reference as if fully set forth herein and such terms and conditions shall continue irrespective of any termination thereof. ARTICLE II LETTER OF CREDIT FACILITY SECTION 2.1. L/C Commitment. Subject to the terms and conditions hereof, the Issuing Lender agrees to issue standby letters of credit ("Letters of Credit") for the account of the Borrower on any Business Day from the Closing Date through but not including the Letter of Credit Termination Date in such form as may be approved from time to time by the Issuing Lender; provided, that the Issuing Lender shall have no obligation to issue any Letter of Credit if, after giving effect to such issuance, the L/C Obligations (exluding the L/C Obligations with respect to the Existing Letters of Credit) would exceed $2,500,000. Each Letter of Credit shall (i) be denominated in Dollars in an amount less than $1,000,000, (ii) be a standby letter of credit issued to support obligations of the Borrower or any of its Subsidiaries, contingent or otherwise, incurred in the ordinary course of business, (iii) expire on a date satisfactory to the Issuing Lender, which date shall be no later than the Letter of Credit Termination Date and (iv) be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of North Carolina. The Issuing Lender shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Lender to exceed any limits imposed by, any Applicable Law. References herein to "issue" and derivations thereof with respect to Letters of Credit shall also include extensions or modifications of any existing Letters of Credit, unless the context otherwise requires. SECTION 2.2. Procedure for Issuance of Letters of Credit. The Borrower may from time to time request that the Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender an Application therefor, completed to the satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may request. Upon receipt of any Application, the Issuing Lender shall process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall, subject to Section 2.1 and Article IV hereof, promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than three Business Days after its receipt 3 7 of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed by the Issuing Lender and the Borrower. The Issuing Lender shall furnish to the Borrower a copy of such Letter of Credit promptly following the issuance of such Letter of Credit. SECTION 2.3. Commissions and Other Charges. (a) The Borrower shall pay to the Issuing Lender, a letter of credit fee with respect to each Letter of Credit in an amount equal to the greater of (i) the product of (A) a per annum fee equal to the Applicable Margin in effect with respect to LIBOR Rate Loans as set forth in Section 4.1(c) of the Revolving Credit Agreement and (B) the face amount of such Letter of Credit or (ii) the minimum fee required in accordance the Issuing Lender's standard policy in connection with standby letters of credit. Such fee shall be payable quarterly in arrears on the last Business Day of each fiscal quarter of the Borrower and on the Letter of Credit Termination Date. (b) In addition to the foregoing fees, the Borrower shall pay or reimburse the Issuing Lender for such normal and customary costs and expenses as are incurred or charged by the Issuing Lender in issuing, effecting payment under, amending or otherwise administering any Letter of Credit. SECTION 2.4. Reimbursement Obligation of the Borrower. The Borrower agrees to reimburse the Issuing Lender on each date on which the Issuing Lender notifies the Borrower of the date and amount of a draft paid under any Letter of Credit for the amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs or expenses incurred by the Issuing Lender in connection with such payment. Each such payment shall be made to the Issuing Lender in lawful money of the United States and in immediately available funds. Interest shall be payable on any and all amounts remaining unpaid by the Borrower under this Article II from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full at the rate which would be payable on any outstanding Base Rate Loans which were then overdue under the Revolving Credit Agreement. SECTION 2.5. Obligations Absolute. The Borrower's obligations under this Article II (including without limitation the Reimbursement Obligation) shall be absolute and unconditional under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Borrower may have or have had against the Issuing Lender or any beneficiary of a Letter of Credit. The Borrower also agrees with the Issuing Lender that the Issuing Lender shall not be responsible for, and the Borrower's Reimbursement Obligation under Section 2.4 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute vi 8 between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee. The Issuing Lender shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions caused by the Issuing Lender's gross negligence or willful misconduct. The Borrower agrees that any action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards of care specified in the Uniform Customs and, to the extent not inconsistent therewith, the UCC shall be binding on the Borrower and shall not result in any liability of the Issuing Lender to the Borrower. The responsibility of the Issuing Lender to the Borrower in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are in conformity with such Letter of Credit. SECTION 2.6. Effect of Application. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Article II, the provisions of this Article II shall apply. SECTION 2.7. Existing Letters of Credit. As of the Closing Date, the Existing Letters of Credit shall be deemed to be a Letters of Credit issued pursuant to and subject to the terms and conditions of this Agreement. ARTICLE III GENERAL PROVISIONS SECTION 3.1. Manner of Payment. Each payment by the Borrower on account of any fee, commission or other amounts (including the Reimbursement Obligation) payable to the Issuing Lender under this Agreement shall be made not later than 2:00 p.m. (Nashville time) on the date specified for payment under this Agreement to the Lender in Dollars, in immediately available funds and shall be made without any set-off, counterclaim or deduction whatsoever. Any payment received after such time but before 3:00 p.m. (Nashville time) on such day shall be deemed a payment on such date for the purposes of Section 8.1, but for all other purposes shall be deemed to have been made on the next succeeding Business Day. Any payment received after 3:00 p.m. (Nashville time) shall be deemed to have been made on the next succeeding Business Day for all purposes. SECTION 3.2. Increased Costs. If, after the date hereof, the introduction of, or any change in, any Applicable Law, or in the interpretation or administration thereof by any Governmental 5 9 Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Issuing Lender with any request or directive (whether or not having the force of law) of such Governmental Authority, central bank or comparable agency: (i) shall subject the Issuing Lender to any tax, duty or other charge with respect to any Letter of Credit or Application or shall change the basis of taxation of payments to the Issuing Lender of the principal of or interest on any Letter of Credit or Application or any other amounts due under this Agreement in respect thereof (except for changes in the rate of tax on the overall net income of the Lender imposed by the jurisdiction in which the Issuing Lender is organized or is or should be qualified to do business); or (ii) shall impose, modify or deem applicable any reserve (including, without limitation, any imposed by the Board of Governors of the Federal Reserve System), special deposit, insurance or capital or similar requirement against assets of, deposits with or for the account of, or credit extended by the Issuing Lender or shall impose on the Issuing Lender any other condition affecting any Letter of Credit or Application; and the result of any of the foregoing is to increase the costs to the Issuing Lender of issuing Letters of Credit or to reduce the yield or amount of any sum received or receivable by the Issuing Lender under this Agreement, then the Issuing Lender shall promptly notify the Borrower of such fact and demand compensation therefor and, within fifteen (15) days after such notice by the Issuing Lender, the Borrower shall pay to the Issuing Lender such additional amount or amounts as will compensate the Issuing Lender for such increased cost or reduction. The Issuing Lender will promptly notify the Borrower of any event of which it has knowledge which will entitle the Issuing Lender to compensation pursuant to this Section 3.2; provided, that the Issuing Lender shall incur no liability whatsoever to the Borrower in the event it fails to do so. A certificate of the Issuing Lender setting forth the basis for determining such amount or amounts necessary to compensate the Issuing Lender shall be forwarded to the Borrower and shall be conclusively presumed to be correct save for manifest error. SECTION 3.3. Capital Requirements. If either (a) the introduction of, or any change in, or in the interpretation of, any Applicable Law or (b) compliance with any guideline or request from any central bank or comparable agency or other Governmental Authority (whether or not having the force of law), has or would have the effect of reducing the rate of return on the capital of, or has affected or would affect the amount of capital required to be maintained by, the Issuing Lender or any corporation controlling the Issuing Lender as a consequence of, or with reference to the commitments of this type, below the rate which the Issuing Lender or such other corporation could have achieved but for such introduction, change or compliance, then within five (5) Business Days after written demand by the Issuing Lender, the Borrower shall 6 10 pay to the Lender from time to time as specified by the Issuing Lender additional amounts sufficient to compensate the Issuing Lender or other corporation for such reduction. A certificate as to such amounts submitted to the Borrower by the Issuing Lender, shall, in the absence of manifest error, be presumed to be correct and binding for all purposes. SECTION 3.4. Taxes. (a) Payments Free and Clear. Any and all payments by the Borrower hereunder or under the Letters of Credit shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholding, and all liabilities with respect thereto excluding, income and franchise taxes imposed by the jurisdiction under the laws of which the Issuing Lender is organized or is or should be qualified to do business or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being herein after referred to as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Letter of Credit, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.4) the Issuing Lender receives an amount equal to the amount such party 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 taxing authority or other authority in accordance with Applicable Law, and (iv) the Borrower shall deliver to the Issuing Lender evidence of such payment to the relevant taxing authority or other authority in the manner provided in Section 3.4(d). (b) Stamp and Other Taxes. In addition, the Borrower shall pay any present or future stamp, registration, recordation or documentary taxes or any other similar fees or charges or excise or property taxes, levies of the United States or any state or political subdivision thereof or any applicable foreign jurisdiction which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the Letters of Credit or the perfection of any rights or security interest in respect thereto (hereinafter referred to as "Other Taxes"). (c) Indemnity. The Borrower shall indemnify the Issuing Lender for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this Section 3.4) paid by the Issuing Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Such indemnification shall be made within thirty (30) days from the date the Issuing Lender makes written demand therefor. 7 11 (d) Evidence of Payment. Within thirty (30) days after the date of any payment of Taxes or Other Taxes, the Borrower shall furnish to the Issuing Lender the original or a certified copy of a receipt evidencing payment thereof or other evidence of payment satisfactory to the Issuing Lender. (e) Survival. Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 3.4 shall survive the payment in full of the L/C Obligations and the termination of the L/C Facility. SECTION 3.5. Collateral. The L/C Obligations shall be guaranteed and secured by the Loan Documents executed in connection with the Revolving Credit Agreement. ARTICLE IV CLOSING; CONDITIONS OF CLOSING AND ISSUING LETTERS OF CREDIT SECTION 4.1. Closing. The closing shall take place at the offices of Kennedy Covington Lobdell & Hickman, L.L.P., 100 North Tryon Street, Charlotte, North Carolina at 10:00 a.m. on September 6, 1996, or on such other date as the parties hereto shall mutually agree. SECTION 4.2. Conditions to Closing and Initial Letters of Credit. The obligation of the Issuing Lender to close this Agreement and to issue the initial Letter of Credit is subject to the satisfaction of each of the conditions set forth in Section 5.2 of the Revolving Credit Agreement. SECTION 4.3. Conditions to All Letters of Credit. The obligations of the Issuing Lender to issue any Letter of Credit is subject to the satisfaction of the following conditions precedent on the relevant issuance date: (a) Continuation of Representations and Warranties. The representations and warranties contained in Article V shall be true and correct on and as of such issuance date with the same effect as if made on and as of such date. (b) No Existing Default. No Default or Event of Default shall have occurred and be continuing hereunder on the issuance date with respect to such Letter of Credit or after giving affect to such Letters of Credit on such date. (c) Officer's Compliance Certificate; Additional Documents. The Issuing Lender shall have received the financial statements and Officer's Compliance Certificate required pursuant to Sections 7.1 and 7.2 respectively of the Revolving Credit Agreement and each additional document, instrument, legal opinion or other item of information reasonably requested by it. 8 12 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE BORROWER SECTION 5.1. Representations and Warranties. To induce the Issuing Lender to enter into this Agreement and to issue the Letters of Credit, the Borrower hereby represents and warrants to the Issuing Lender that each and every representation and warranty of the Borrower set forth in Article VI of the Revolving Credit Agreement is true, correct and complete. SECTION 5.2. Survival of Representations and Warranties, Etc. All representations and warranties set forth in this Article V and all representations and warranties contained in any certificate, or any of the Loan Documents (including but not limited to any such representation or warranty made in or in connection with any amendment thereto) shall constitute representations and warranties made under this Agreement. All representations and warranties made under this Agreement shall be made or deemed to be made at and as of the Closing Date, shall survive the Closing Date and shall not be waived by the execution and delivery of this Agreement, any investigation made by or on behalf of the Issuing Lender or any issuance hereunder. ARTICLE VI FINANCIAL INFORMATION AND NOTICES Until all the L/C Obligations have been finally and indefeasibly paid and satisfied in full and the L/C Facility terminated, the Borrower will furnish or cause to be furnished to the Issuing Lender each and every financial statement, certificate or other document or instrument required to be delivered to the Lenders pursuant to Article VII of the Revolving Credit Agreement. ARTICLE VII COVENANTS Until all of the L/C Obligations have been finally and indefeasibly paid and satisfied in full and the L/C Facility terminated, the Borrower will, and will cause each of its Subsidiaries to comply with each and every covenant and agreement set forth in Articles VIII, IX and X of the Revolving Credit Agreement. ARTICLE VIII 9 13 DEFAULT AND REMEDIES SECTION 8.1. Events of Default. Each of the following shall constitute an Event of Default, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule or regulation of any Governmental Authority or otherwise: (a) Default in Payment of Principal of Loans and Reimbursement Obligations. The Borrower shall default in any payment of the principal of the Reimbursement Obligation when and as due (whether at maturity, by reason of acceleration or otherwise). (b) Other Payment Default. The Borrower shall default in the payment when and as due (whether at maturity, by reason of acceleration or otherwise) of interest on the Reimbursement Obligation or the payment of any other obligation hereunder, and such default shall continue unremedied for five (5) Business Days. (c) Misrepresentation. Any representation or warranty made or deemed to be made by the Borrower or any of its Subsidiaries under this Agreement, any Loan Document or any amendment hereto or thereto, shall at any time prove to have been incorrect or misleading in any material respect when made or deemed made. (d) Default in Performance of Certain Covenants. The Borrower shall default in the performance or observance of any covenant or agreement contained in Sections 7.4(e) or Articles IX or X of the Revolving Credit Agreement, as incorporated herein. (e) Default in Performance of Other Covenants and Conditions. The Borrower or any Subsidiary thereof shall default in the performance or observance of any term, covenant, condition or agreement contained in this Agreement (other than as specifically provided for otherwise in this Section 8.1) or any other Loan Document and such default shall continue for a period of thirty (30) days after written notice thereof has been given to the Borrower by the Issuing Lender. (f) Hedging Agreement. Any termination payment shall be due by the Borrower under any Hedging Agreement and such amount is not paid within five (5) Business Days of the due date thereof. (g) Debt Cross-Default. The Borrower or any of its Subsidiaries shall (i) default in the payment of any Debt (other than the Reimbursement Obligation) the aggregate outstanding amount of which is in excess of $1,000,000 beyond the period of grace if any, provided in the instrument or agreement under which such Debt was created, or (ii) default in the observance or performance of any other agreement or condition relating to any Debt (other than the Reimbursement Obligation) the aggregate outstanding amount of which is in excess of $1,000,000 or contained in any instrument or agreement evidencing, securing or relating thereto or any other 10 14 event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Debt (or a trustee or agent on behalf of such holder or holders) to cause, with the giving of notice if required, any such Debt to become due prior to its stated maturity (any applicable grace period having expired). (h) Other Cross-Defaults. The Borrower or any of its Subsidiaries shall default in the payment when due, or in the performance or observance, of any obligation or condition of any Material Contract unless, but only as long as, the existence of any such default is being contested by the Borrower or such Subsidiary in good faith by appropriate proceedings and adequate reserves in respect thereof have been established on the books of the Borrower or such Subsidiary to the extent required by GAAP. (i) Change in Control. (a) Any person or group of persons (within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended) shall obtain ownership or control in one or more series of transactions of more than twenty-five percent (25%) of the voting power of the Borrower entitled to vote in the election of members of the board of directors of the Borrower or there shall have occurred under any indenture or other instrument evidencing any Debt in excess of $1,000,000 any "change in control" (as defined in such indenture or other evidence of Debt) obligating the Borrower to repurchase, redeem or repay all or any part of the Debt or capital stock provided for therein (any such event, a "Change in Control"). (j) Voluntary Bankruptcy Proceeding. The Borrower or any Subsidiary thereof shall (i) commence a voluntary case under the federal bankruptcy laws (as now or hereafter in effect), (ii) file a petition seeking to take advantage of any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding up or composition for adjustment of debts, (iii) consent to or fail to contest in a timely and appropriate manner any petition filed against it in an involuntary case under such bankruptcy laws or other laws, (iv) apply for or consent to, or fail to contest in a timely and appropriate manner, the appointment of, or the taking of possession by, a receiver, custodian, trustee, or liquidator of itself or of a substantial part of its property, domestic or foreign, (v) admit in writing its inability to pay its debts as they become due, (vi) make a general assignment for the benefit of creditors, or (vii) take any corporate action for the purpose of authorizing any of the foregoing. (k) Involuntary Bankruptcy Proceeding. A case or other proceeding shall be commenced against the Borrower or any Subsidiary thereof in any court of competent jurisdiction seeking (i) relief under the federal bankruptcy laws (as now or hereafter in effect) or under any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts, or (ii) the appointment of a trustee, receiver, custodian, liquidator or the like for the Borrower or any Subsidiary thereof or for all or any substantial part of their 11 15 respective assets, domestic or foreign, and such case or proceeding shall continue undismissed or unstayed for a period of sixty (60) consecutive days, or an order granting the relief requested in such case or proceeding (including, but not limited to, an order for relief under such federal bankruptcy laws) shall be entered. (l) Failure of Agreements. Any provision of this Agreement or of any other Loan Document shall for any reason cease to be valid and binding on the Borrower or Subsidiary party thereto or any such Person shall so state in writing, or this Agreement or any other Loan Document shall for any reason cease to create a valid and perfected first priority Lien on, or security interest in, any of the collateral purported to be covered thereby, in each case other than in accordance with the express terms hereof or thereof. (m) Termination Event. The occurrence of any of the following events: (i) the Borrower or any ERISA Affiliate fails to make full payment when due of all amounts which, under the provisions of any Pension Plan or Section 412 of the Code, the Borrower or any ERISA Affiliate is required to pay as contributions thereto, (ii) an accumulated funding deficiency in excess of $1,000,000 occurs or exists, whether or not waived, with respect to any Pension Plan, or (iii) the Borrower or any ERISA Affiliate as employers under one or more Multiemployer Plan makes a complete or partial withdrawal from any such Multiemployer Plan and the plan sponsor of such Multiemployer Plans notifies such withdrawing employer that such employer has incurred a withdrawal liability requiring payments in an amount exceeding $1,000,000. (n) Judgment. A judgment or order for the payment of money which causes the aggregate amount of such judgments to exceed $1,000,000 in any Fiscal Year shall be entered against the Borrower or any of its Subsidiaries by any court and such judgment or order shall continue undischarged or unstayed for a period of thirty (30) days. (o) Revolving Credit Agreement. An Event of Default shall have occurred and be continuing under the Revolving Credit Agreement. SECTION 8.2. Remedies. Upon the occurrence of an Event of Default, the Issuing Lender may, by notice to the Borrower: (a) Acceleration; Termination of Facilities. Declare the principal of and interest on the Reimbursement Obligations at the time outstanding, and all other amounts owed to the Issuing Lender under this Agreement or any of the other Loan Documents (including, without limitation, all L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder), to be forthwith due and payable, whereupon the same shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived, anything in this Agreement or the other Loan Documents to the contrary notwithstanding, and terminate the L/C Facility and any right of the Borrower to request 12 16 Letters of Credit hereunder; provided, that upon the occurrence of an Event of Default specified in Section 8.1(j) or (k), the L/C Facility shall be automatically terminated and all obligations hereunder shall automatically become due and payable. (b) Collateral Account. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to the preceding paragraph, require the Borrower at such time to deposit in a cash collateral account opened by the Issuing Lender an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts held in such cash collateral account shall be applied by the Issuing Lender to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay the other obligations due hereunder. After all such Letters of Credit shall have expired or been fully drawn upon, the Reimbursement Obligation shall have been satisfied and all other obligations hereunder shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower. (c) Rights of Collection. Exercise all of its other rights and remedies under this Agreement, the other Loan Documents and Applicable Law, in order to satisfy all of the Borrower's obligations hereunder. SECTION 8.3. Rights and Remedies Cumulative; Non-Waiver; etc. The enumeration of the rights and remedies of the Issuing Lender set forth in this Agreement is not intended to be exhaustive and the exercise by the Issuing Lender of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given hereunder or under the Loan Documents or that may now or hereafter exist in law or in equity or by suit or otherwise. No delay or failure to take action on the part of the Issuing Lender in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude other or further exercise thereof or the exercise of any other right, power or privilege or shall be construed to be a waiver of any Event of Default. No course of dealing between the Borrower, the Issuing Lender or their respective agents or employees shall be effective to change, modify or discharge any provision of this Agreement or any of the other Loan Documents or to constitute a waiver of any Event of Default. 13 17 ARTICLE IX MISCELLANEOUS SECTION 9.1. Notices. (a) Method of Communication. Except as otherwise provided in this Agreement, all notices and communications hereunder shall be in writing, or by telephone subsequently confirmed in writing. Any notice shall be effective if delivered by hand delivery or sent via telecopy, recognized overnight courier service or certified mail, return receipt requested, and shall be presumed to be received by a party hereto (i) on the date of delivery if delivered by hand or sent by telecopy, (ii) on the next Business Day if sent by recognized overnight courier service and (iii) on the third Business Day following the date sent by certified mail, return receipt requested. A telephonic notice to the Issuing Lender as understood by the Issuing Lender will be deemed to be the controlling and proper notice in the event of a discrepancy with or failure to receive a confirming written notice. (b) Addresses for Notices. Notices to any party shall be sent to it at the following addresses, or any other address as to which all the other parties are notified in writing. If to the Borrower: Corrections Corporation of America 102 Woodmont Boulevard, Suite 800 Nashville, Tennessee 37205 Attention:Mr. Darrell K. Massengale Telephone No.: (615) 460-0345 Telecopy No.: (615) 269-8636 With copies to: Stokes and Bartholemew 424 Church Street, Suite 2800 Nashville, TN Attention: Elizabeth Moore Telephone No.: (615) 259-1450 Telecopy No.: (615) 259-1470 If to the Issuing Lender:First Union National Bank of Tennessee 150 Fourth Avenue North Nashville, Tennessee 37219 Attention: Tim Fouts Telephone No.: (615) 251-9243 Telecopy No.: (615) 251-9461
SECTION 9.2. Expenses; Indemnity. The Borrower will pay all out-of-pocket expenses of the Issuing Lender in connection with: (a) the preparation, execution and delivery of this Agree- 14 18 ment and each other Loan Document, whenever the same shall be executed and delivered, including without limitation all out-of-pocket due diligence expenses and reasonable fees and disbursements of counsel for the Issuing Lender, (b) the preparation, execution and delivery of any waiver, amendment or consent by the Issuing Lender relating to this Agreement or any other Loan Document, including without limitation reasonable fees and disbursements of counsel for the Issuing Lender, (c) the administration and enforcement of any rights and remedies of the Issuing Lender under the L/C Facility, including consulting with appraisers, accountants, engineers, attorneys and other Persons concerning the nature, scope or value of any right or remedy of the Issuing Lender hereunder or under any other Loan Document or any factual matters in connection therewith, which expenses shall include without limitation the reasonable fees and disbursements of such Persons, and (d) defend, indemnify and hold harmless the Issuing Lender, and their respective parents, Subsidiaries, Affiliates, employees, agents, officers and directors, from and against any losses, penalties, fines, liabilities, settlements, damages, costs and expenses, suffered by any such Person in connection with any claim, investigation, litigation or other proceeding (whether or not the Issuing Lender is a party thereto) and the prosecution and defense thereof, arising out of or in any way connected with the Agreement, any other Loan Document or the Letters of Credit, including without limitation reasonable attorney's and consultant's fees, except to the extent that any of the foregoing directly result from the gross negligence or willful misconduct of the party seeking indemnification therefor. SECTION 9.3. 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 and after the occurrence of any Event of Default and during the continuance thereof, the Issuing Lender and any assignee or participant of the Issuing Lender are hereby authorized by the Borrower at any time or from time to time, without notice to the Borrower or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, time or demand, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured) and any other indebtedness at any time held or owing by the Issuing Lender, or any such assignee or participant to or for the credit or the account of the Borrower against and on account of the obligations due hereunder irrespective of whether or not (a) the Issuing Lender shall have made any demand under this Agreement or any of the other Loan Documents or (b) the Issuing Lender shall have declared any or all of the obligations hereunder to be due and payable as permitted by Section 8.2 and although such obligations shall be contingent or unmatured. SECTION 9.4. Governing Law. This Agreement, unless otherwise expressly set forth therein, shall be governed by, construed and enforced in accordance with the laws of the State of North Carolina, without reference to the conflicts or choice of law principles thereof. 15 19 SECTION 9.5. Consent to Jurisdiction. The Borrower hereby irrevocably consents to the personal jurisdiction of the state and federal courts located in Mecklenburg County, North Carolina, in any action, claim or other proceeding arising out of any dispute in connection with this Agreement or the Letters of Credit, any rights or obligations hereunder or thereunder, or the performance of such rights and obligations. The Borrower hereby irrevocably consents to the service of a summons and complaint and other process in any action, claim or proceeding brought by the Issuing Lender in connection with this Agreement or any Letter of Credit, any rights or obligations hereunder or thereunder, or the performance of such rights and obligations, on behalf of itself or its property, in the manner specified in Section 9.1. Nothing in this Section 9.5 shall affect the right of the Issuing Lender to serve legal process in any other manner permitted by Applicable Law or affect the right of the Issuing Lender to bring any action or proceeding against the Borrower or its properties in the courts of any other jurisdictions. SECTION 9.6. Binding Arbitration; Waiver of Jury Trial. (a) Binding Arbitration. Upon demand of any party, whether made before or after institution of any judicial proceeding, any dispute, claim or controversy arising out of, connected with or relating to the Letters of Credit or any other Loan Documents ("Disputes"), between or among parties to the Letters of Credit or any other Loan Document shall be resolved by binding arbitration as provided herein. Institution of a judicial proceeding by a party does not waive the right of that party to demand arbitration hereunder. Disputes may include, without limitation, tort claims, counterclaims, claims brought as class actions, claims arising from Loan Documents executed in the future, or claims concerning any aspect of the past, present or future relationships arising out or connected with the Loan Documents. Arbitration shall be conducted under and governed by the Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association and Title 9 of the U.S. Code. All arbitration hearings shall be conducted in Charlotte, North Carolina. The expedited procedures set forth in Rule 51, et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000. All applicable statutes of limitation shall apply to any Dispute. A judgment upon the award may be entered in any court having jurisdiction. The panel from which all arbitrators are selected shall be comprised of licensed attorneys. The single arbitrator selected for expedited procedure shall be a retired judge from the highest court of general jurisdiction, state or federal, of the state where the hearing will be conducted. Notwithstanding the foregoing, this paragraph shall not apply to any Hedging Agreement that is a Loan Document. (B) JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE ISSUING LENDER AND THE BORROWER HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN 16 20 CONNECTION WITH THIS AGREEMENT, THE LETTERS OF CREDIT OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. (c) Preservation of Certain Remedies. Notwithstanding the preceding binding arbitration provisions, the parties hereto and the other Loan Documents preserve, without diminution, certain remedies that such Persons may employ or exercise freely, either alone, in conjunction with or during a Dispute. Each such Person shall have and hereby reserves the right to proceed in any court of proper jurisdiction or by self help to exercise or prosecute the following remedies: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale granted in the Loan Documents or under applicable law or by judicial foreclosure and sale, (ii) all rights of self help including peaceful occupation of property, collection of rents and set off, (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and in filing an involuntary bankruptcy proceeding, and (iv) when applicable, a judgment by confession of judgment. Preservation of these remedies does not limit the power of an arbitrator to grant similar remedies that may be requested by a party in a Dispute. SECTION 9.7. Reversal of Payments. To the extent the Borrower makes a payment or payments to the Issuing Lender or the Issuing Lender receives any payment or proceeds of the collateral which payments or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds repaid, the obligations hereunder or part thereof intended to be satisfied shall be revived and continued in full force and effect as if such payment or proceeds had not been received by the Issuing Lender. SECTION 9.8. Accounting Matters. All financial and accounting calculations, measurements and computations made for any purpose relating to this Agreement, including, without limitation, all computations utilized by the Borrower or any Subsidiary thereof to determine compliance with any covenant contained herein, shall, except as otherwise expressly contemplated hereby or unless there is an express written direction by the Issuing Lender to the contrary agreed to by the Borrower, be performed in accordance with GAAP as in effect on the Closing Date. In the event that changes in GAAP shall be mandated by the Financial Accounting Standards Board, or any similar accounting body of comparable standing, or shall be recommended by the Borrower's certified public accountants, to the extent that such changes would modify such accounting terms or the interpretation or computation thereof, such changes shall be followed in defining such accounting terms only from and after the date the Borrower and the Issuing Lender shall have amended this Agreement to the extent necessary to reflect any such 17 21 changes in the financial covenants and other terms and conditions of this Agreement. SECTION 9.9. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Borrower, the Issuing Lender, and their respective successors and assigns, except that the Borrower shall not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Issuing Lender. SECTION 9.10. Amendments, Waivers and Consents. Any term, covenant, agreement or condition of this Agreement or any of the other Loan Documents may be amended or waived by the Issuing Lender, and any consent given by the Issuing Lender, if, but only if, such amendment, waiver or consent is in writing signed by the Issuing Lender and, in the case of an amendment, signed by the Borrower. SECTION 9.11. Performance of Duties. The Borrower's obligations under this Agreement and each of the Loan Documents shall be performed by the Borrower at its sole cost and expense. SECTION 9.12. All Powers Coupled with Interest. All powers of attorney and other authorizations granted to the Issuing Lender and any Persons designated by the Issuing Lender pursuant to any provisions of this Agreement or any of the other Loan Documents shall be deemed coupled with an interest and shall be irrevocable so long as any of the obligations hereunder remain unpaid or unsatisfied or the L/C Facility has not been terminated. SECTION 9.13. Survival of Indemnities. Notwithstanding any termination of this Agreement, the indemnities to which the Issuing Lender are entitled under the provisions of this Article IX and any other provision of this Agreement and the Loan Documents shall continue in full force and effect and shall protect the Issuing Lender against events arising after such termination as well as before. SECTION 9.14. Titles and Captions. Titles and captions of Articles, Sections and subsections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement. SECTION 9.15. Severability of Provisions. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remainder of such provision or the remaining provisions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. 18 22 SECTION 9.16. Counterparts. This Agreement 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 shall be binding upon all parties, their successors and assigns, and all of which taken together shall constitute one and the same agreement. SECTION 9.17. Term of Agreement. This Agreement shall remain in effect from the Closing Date through and including the date upon which all obligations hereunder shall have been indefeasibly and irrevocably paid and satisfied in full. No termination of this Agreement shall affect the rights and obligations of the parties hereto arising prior to such termination. 19 23 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers, all as of the day and year first written above. [CORPORATE SEAL] CORRECTIONS CORPORATION OF AMERICA By: -------------------------------- Name: --------------------------- Title: -------------------------- FIRST UNION NATIONAL BANK OF TENNESSEE By: -------------------------------- Name: --------------------------- Title: -------------------------- FIRST UNION NATIONAL BANK OF NORTH CAROLINA By: -------------------------------- Name: --------------------------- Title: -------------------------- 20 EX-10.159 10 INTERCOMPANY SUBORDINATION AGREEMENT 1 EXHIBIT 10.159 INTERCOMPANY SUBORDINATION AGREEMENT THIS INTERCOMPANY SUBORDINATION AGREEMENT, dated as of September 6, 1996 among CORRECTIONS CORPORATION OF AMERICA, a Delaware corporation ("CCA"), the several subsidiaries of CCA identified on the signature pages hereto (the "Subsidiaries" and together with CCA, the "Intercompany Loan Parties"), and FIRST UNION NATIONAL BANK OF TENNESSEE, as Administrative Agent for the Lenders party to the Credit Agreement defined below (in such capacity, the "Administrative Agent"). Statement of Purpose Pursuant to the terms of the Credit Agreement of even date herewith (as modified, amended or supplemented from time to time, the "Credit Agreement"), by and among CCA, the financial institutions who are or may become party thereto (the "Lenders"), and the Administrative Agent, the Lenders agreed to extend certain credit facilities to CCA, upon the terms set forth in the Credit Agreement. Capitalized terms used herein and not defined herein shall have the meanings assigned thereto in the Credit Agreement. The Credit Agreement requires that the Intercompany Loan Parties agree to subordinate all intercompany obligations owing by any Intercompany Loan Party to any other Intercompany Loan Party to all obligations owed to the Administrative Agent, the Issuing Lender, any Lender or any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 9.1 of the Credit Agreement, under the Credit Agreement or any other Loan Document (the "Senior Indebtedness") by any of the Intercompany Loan Parties. To induce the Lenders to enter into the Credit Agreement, the Intercompany Loan Parties have agreed to enter into this Intercompany Subordination Agreement with respect to all such intercompany obligations. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. SUBORDINATION. 1.01. Subordination to Senior Indebtedness. Each Intercompany Loan Party for itself and its successors agrees that, to the extent it is from time to time entitled to receive payment in respect of any intercompany loan, advance or other account from any other Intercompany Loan Party (a "Subordinated Obligation"), the payment of the principal of, premium, if any, interest on (including all interest accruing thereon subsequent to a Bankruptcy Event ("post-petition 2 interest")) or other fees, costs, expenses and any other amounts accrued, incurred or otherwise due in connection with all such Subordinated Obligations from time to time, is subordinated in right of payment, to the extent and in the manner provided herein, to the payment in full of all Senior Indebtedness. 1.02. No Payment on the Subordinated Obligations in Certain Circumstances. (a) No payment shall be made, either directly or indirectly, by or on behalf of any Intercompany Loan Party, in cash, property or securities on account of the principal of, premium, if any, and interest (including post- petition interest) on any Subordinated Obligation at the time outstanding, or other fees, costs, expenses and any other amounts accrued, incurred or otherwise due in respect of any such Subordinated Obligation, or to prepay, purchase, redeem, retire, exchange, defease or otherwise acquire any Subordinated Obligation or any instrument evidencing a Subordinated Obligation for cash or property (collectively, "Subordinated Payments"), (i) upon the maturity of any Senior Indebtedness by acceleration or otherwise, unless and until all principal of, interest (including post-petition interest) and premium, if any, on and all other fees, costs, expenses and other amounts accrued or incurred pursuant to the terms of the Senior Indebtedness then due, shall have first been indefeasibly paid in full or waived, or (ii) upon the occurrence of any Event of Default with respect to any Senior Indebtedness (unless and until such Event of Default shall have been cured or waived in accordance with the terms of the Credit Agreement). (b) In furtherance of the provisions of Section 1.01, in the event that, notwithstanding the foregoing provisions of subsection 1.02, any Subordinated Payment, either directly or indirectly, shall be made by or on behalf of any Intercompany Loan Party, and received by another Intercompany Loan Party at a time when such payment was prohibited by the provisions of this subsection 1.02, then, unless and until such payment is no longer prohibited by this subsection 1.02, such payment shall be segregated and held in trust for the benefit of and shall be immediately paid over to, the Administrative Agent, for the benefit of the Issuing Lender, Lenders and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 9.1 of the Credit Agreement. (c) CCA shall give prompt written notice to each other Intercompany Loan Party of any default for failure to make payments on such Senior Indebtedness or any other Event of Default under the Credit Agreement. Failure to give such notice shall not affect the subordination of the Subordinated Obligations to the Senior Indebtedness provided in this Intercompany Subordination Agreement. 2 3 1.03. Subordination of Intercompany Obligations on Dissolution, Liquidation or Reorganization of an Intercompany Loan Party. Upon any distribution by any Intercompany Loan Party of assets of any kind or character, whether in cash, property or securities, to creditors upon any dissolution, winding up, liquidation or reorganization of such Intercompany Loan Party (the "Liquidating Loan Party") (whether in a voluntary or involuntary bankruptcy, insolvency or receivership proceedings or upon any assignment for the benefit of creditors or otherwise): (a) the Lenders shall first receive payment in full in cash, to the extent then presently available for payment, of the principal, interest (including all interest accruing on the Senior Indebtedness subsequent to a Bankruptcy Event ("post-petition interest on Senior Indebtedness")) and premium, if any, due thereon and all other fees, costs, expenses, or other amounts accrued or incurred pursuant to the terms thereof (or have such payments duly provided for in a manner satisfactory to holders of Senior Indebtedness or their representative) before any other Intercompany Loan Party is entitled to receive any Subordinated Payment on account of or accrued or incurred in connection with any Subordinated Obligation; (b) any payment or distribution of assets of the Liquidating Loan Party of any kind or character, whether in cash, property or securities to which such other Intercompany Loan Party would be entitled except for the provisions of this Intercompany Subordination Agreement shall be paid by the Liquidating Loan Party, the liquidating trustee or agent or other person making such a payment or distribution, directly to the Administrative Agent, for the benefit of the Issuing Lender, the Lenders and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 9.1 of the Credit Agreement, to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid; and (c) in the event that, notwithstanding the foregoing, any payment or distribution of assets of the Liquidating Loan Party of any kind or character, whether in cash, property or securities, shall be received by any such other Intercompany Loan Party on account of, or accrued or incurred in connection with, any Subordinated Obligation before all Senior Indebtedness is paid in full in cash, or effective provision (in a manner satisfactory to the Lenders) made for its payment, then such payment or distribution shall be segregated and received and held in trust for the benefit of and shall be immediately paid over to the Administrative Agent, for the benefit of the Issuing Lender, the Lenders and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 9.1 3 4 of the Credit Agreement, for application to the payment of all Senior Indebtedness until such Senior Indebtedness shall have been paid in full (including post-petition interest on the Senior Indebtedness). CCA shall give prompt written notice to the Administrative Agent and each Intercompany Loan Party of any dissolution, winding up, liquidation or reorganization of any Intercompany Loan Party, but failure to give such notice shall not affect the subordination of the Subordinated Obligations to the Senior Indebtedness provided in this Intercompany Subordination Agreement. 1.04. Subrogation. Subject to the payment in full of all Senior Indebtedness, the holder of, or obligee with respect to, any Subordinated Obligation shall be subrogated to the rights of the Lenders to receive payments or distributions of assets of an Intercompany Loan Party applicable to the Senior Indebtedness to the extent that distributions were paid to the Lenders that otherwise would have been paid to such obligee, until all amounts owing on such Subordinated Obligation shall be paid in full, and for the purpose of such subrogation no such payments or distributions to the Lenders by virtue of this Intercompany Subordination Agreement, which otherwise would have been made to such obligee, shall, as between the obligor on such Subordinated Obligation and such obligee, be deemed to be payment on account of such Subordinated Obligation, it being understood that the provisions of this Intercompany Subordination Agreement are and are intended solely for the purpose of defining the relative rights of the Intercompany Loan Parties, on the one hand, and the Lenders, on the other hand. 1.05. Subordination Rights Not Impaired. (a) No right of the Administrative Agent or any Lender to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Intercompany Loan Party or by any act or failure to act, in good faith, by the Administrative Agent or any such Lender, or by any noncompliance by any Intercompany Loan Party with the terms of any Subordinated Obligation, regardless of any knowledge thereof which any such Lender may have or be otherwise charged with. The Administrative Agent and the Lenders may extend, renew, modify or amend the terms of Senior Indebtedness or any security therefor and release, sell or exchange such security and otherwise deal freely with any Intercompany Loan Party, all without affecting the liabilities and obligations of any other Intercompany Loan Party or the rights of the Administrative Agent and the Lenders hereunder. (b) All rights and interests hereunder or under any Subordinated Obligation of the Administrative Agent and the 4 5 Lenders, and all agreements and obligations of the Intercompany Loan Parties under this Intercompany Subordination Agreement, shall remain in full force and effect irrespective of (i) any lack of validity or enforceability of the Credit Agreement or any other Loan Document, or of any provision of any thereof or (ii) any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Intercompany Loan Party in respect of the Senior Indebtedness. 1.06. Authorization to Effect Subordination. Each Intercompany Loan Party, by its acceptance hereof, solely in its capacity as obligee with respect to Subordinated Obligations, upon the occurrence and during the continuation of an Event of Default under the Credit Agreement, (a) irrevocably authorizes and empowers (but without imposing any obligation on) the Administrative Agent (through its authorized representatives), on behalf of itself and the Lenders, to demand, sue for, collect and receive such obligee's ratable share of payments or distributions with respect to Subordinated Obligations which are required to be paid or delivered to the Lenders as provided herein, and take all such other action, in the name of such obligee or otherwise, as such authorized representatives may determine to be necessary or appropriate for the enforcement of the provisions of this Intercompany Subordination Agreement, including, without limitation, that (i) such representatives shall have the right to vote such obligee's interest in any proceeding under the Bankruptcy Law as such vote relates to any Subordinated Obligation or Subordinated Payment and (ii) in any such proceeding such representatives may, as attorney-in-fact for such obligee, file any claim, proof of claim or such other instrument of similar character, in each case, solely to the extent such proof of claim or such other instrument relates to any Subordinated Obligation or Subordinated Payment; and (b) agrees to execute and deliver to such representatives, all such further instruments confirming the authorization hereinabove set forth, and all such powers of attorney, proofs of claim, assignments of claim and other instruments. 1.07. Definitions. "Bankruptcy Event" means (a) any Intercompany Loan Party, pursuant to or within the meaning of any Bankruptcy Law (i) fails generally to pay its debts as they become due, (ii) admits in writing its inability to pay its debts generally as they become due, (iii) commences a voluntary case or proceeding under any Bankruptcy Law with respect to itself, (iv) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding under any Bankruptcy Law, (v) consents to the appointment of a Custodian of it or for any part of its property, (vi) consents to or acquiesces in the institution of bankruptcy or insolvency proceedings against it, (vii) applies for, 5 6 consents to or acquiesces in the appointment of or taking possession by a Custodian of any other Intercompany Loan Party for any part of their properties, (viii) makes a general assignment for the benefit of its creditors or (ix) takes any corporate act to authorize any of the foregoing; or (b) a court of competent jurisdiction enters a judgment, decree or order for relief in respect of any Intercompany Loan Party in an involuntary case or proceeding under any Bankruptcy Law which shall (i) approve as properly filed a petition seeking reorganization, arrangement, adjustment or composition in respect of any Intercompany Loan Party, (ii) appoint a Custodian of any Intercompany Loan Party for any part of their respective properties or (iii) order the winding-up or liquidation of the affairs of any Intercompany Loan Party; and such judgment, decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or any bank- ruptcy or insolvency petition or application is filed, or any bankruptcy or insolvency proceeding is commenced against any Intercompany Loan Party and such petition, application or proceeding is not dismissed within 60 days. "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or state law for the relief of debtors. "Custodian" means any receiver, trustee, assignee, liquidator, sequestrator or similar official under any Bankruptcy Law. 2. COUNTERPARTS. This Intercompany Subordination Agreement may be executed in any number of counterparts, which may be originals or copies sent by facsimile transmission, each of which shall be an original and all of which shall constitute one and the same agreement. 3. BINDING EFFECT. This Intercompany Subordination Agreement shall be binding on the parties hereto and their respective successors and assigns. 4. FILING AND EVIDENCE OF SUBORDINATION. (a) This Intercompany Subordination Agreement may be filed and recorded in the appropriate filing place(s). (b) To the extent that any of the Subordinated Obligations is evidenced by a promissory note or other instrument, the Intercompany Loan Party obligated thereunder shall cause to be placed thereon a legend stating that the payment thereof is subordinate to payment of all Senior Indebtedness pursuant to this Agreement and such Intercompany Loan Party shall mark all books of account in such manner to indicate that payment thereof is subordinated pursuant to this Agreement. 6 7 5. GOVERNING LAW. This Intercompany Subordination Agreement shall be governed by, and construed in accordance with, the laws of the State of North Carolina, without regard to principles of conflicts of law. 6. FURTHER ASSURANCES. The parties hereto agree to execute such other documents and take such other actions as may be reasonably necessary to implement the terms hereof. 7 8 IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement as of the date hereinabove first written. Intercompany Loan Parties: [CORPORATE SEAL] CORRECTIONS CORPORATION OF AMERICA By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- [CORPORATE SEAL] CCA INTERNATIONAL, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- [CORPORATE SEAL] TRANSCOR AMERICA, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- [CORPORATE SEAL] CONCEPT INCORPORATED By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- [CORPORATE SEAL] CORRECTION MANAGEMENT AFFILIATES, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- [CORPORATE SEAL] CORRECTIONAL SERVICES GROUP, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 8 9 [CORPORATE SEAL] MINERAL WELLS R.E. HOLDING CORP. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- [CORPORATE SEAL] CORRECTIONS PARTNERS, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 9 10 Administrative Agent: [CORPORATE SEAL] FIRST UNION NATIONAL BANK OF TENNESSEE, as Administrative Agent for the Lenders By: ------------------------------------- Name: ----------------------------- Title: ----------------------- 10 EX-10.160 11 UNCONDITIONAL GUARANTY AGREEMENT 1 EXHIBIT 10.160 UNCONDITIONAL GUARANTY AGREEMENT THIS UNCONDITIONAL GUARANTY AGREEMENT (this "Guaranty"), dated as of September 6, 1996, made by each of the Guarantors listed on the signature pages hereto (the "Guarantors"), in favor of FIRST UNION NATIONAL BANK OF TENNESSEE, a national banking association, as Administrative Agent (the "Administrative Agent") for the ratable benefit of itself, the Lenders (the "Lenders") party to the Credit Agreement of even date between Corrections Corporation of America, a Delaware corporation, as Borrower, the Lenders, and the Administrative Agent (as amended or supplemented from time to time, the "Credit Agreement"), the Issuing Lender (as defined in the Credit Agreement) and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement. STATEMENT OF PURPOSE Pursuant to the terms of the Credit Agreement, the Lenders have agreed to extend certain credit facilities to the Borrower in the aggregate principal amount of up to $170,000,000. The Borrower and the Guarantors comprise one integrated financial enterprise, and all Loans to the Borrower will inure, directly or indirectly, to the benefit of each of the Guarantors. In connection with the transactions contemplated by the Credit Agreement, the Lenders have requested, and each of the Guarantors has agreed to execute and deliver, this Guaranty. NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth herein, and to induce the Lenders to continue to make available Loans pursuant to the Credit Agreement, it is agreed as follows: SECTION 1. Definitions. Capitalized terms used herein (including the preamble hereof) shall have the meanings assigned to them in the Credit Agreement, unless the context otherwise requires or unless otherwise defined herein. References in the Credit Agreement to a "Guaranty Agreement" or herein to this "Guaranty" shall include and mean this Guaranty, including all amendments and supplements hereto now or hereafter in effect. SECTION 2. Guaranty of Obligations of Borrower. Each Guarantor hereby, jointly and severally with the other Guarantors, unconditionally guarantees to the Administrative Agent for the ratable benefit of itself, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement, and their respective successors, endorsees, transferees and assigns, the prompt payment and performance of all Obligations of the Borrower, 2 whether primary or secondary (whether by way of endorsement or otherwise), whether now existing or hereafter arising, whether or not from time to time reduced or extinguished (except by payment thereof) or hereafter increased or incurred, whether or not recovery may be or hereafter become barred by the statute of limitations, whether enforceable or unenforceable as against the Borrower, whether or not discharged, stayed or otherwise affected by any bankruptcy, insolvency or other similar law or proceeding, whether created directly with the Administrative Agent or any Lender or acquired by the Administrative Agent or any Lender through assignment, endorsement or otherwise, whether matured or unmatured, whether joint or several, as and when the same become due and payable (whether at maturity or earlier, by reason of acceleration, mandatory repayment or otherwise), in accordance with the terms of any such instruments evidencing any such obligations, including all renewals, extensions or modifications thereof (all Obligations of the Borrower to the Administrative Agent or any Lender, including all of the foregoing, being hereinafter collectively referred to as the "Guaranteed Obligations"); provided, that notwithstanding anything to the contrary contained herein, it is the intention of each Guarantor and the Lenders that, in any proceeding involving the bankruptcy, reorganization, arrangement, adjustment of debts, relief of debtors, dissolution or insolvency or any similar proceeding with respect to any Guarantor or its assets or in any proceeding to determine whether the execution and delivery of this Guaranty by any Guarantor constitutes a dividend or distribution to the Borrower under Applicable Law, the amount of such Guarantor's obligations with respect to the Guaranteed Obligations shall be in, but not in excess of, the maximum amount thereof not subject to avoidance or recovery by operation of applicable law governing bankruptcy, reorganization, arrangement, adjustment of debts, relief of debtors, dissolution, insolvency, fraudulent transfers or conveyances or other similar laws (including, without limitation, 11 U.S.C. Section 547, Section 548, Section 550 and other "avoidance" provisions of Title 11 of the United States Code) or governing the legality of dividends or distributions by a corporation to its shareholders, applicable in any such proceeding to such Guarantor and this Guaranty (collectively, "Applicable Insolvency Laws"). To that end, but only in the event and to the extent that such Guarantor's obligations with respect to the Guaranteed Obligations or any payment made pursuant to the Guaranteed Obligations would, but for the operation of the foregoing proviso, be subject to avoidance or recovery in any such proceeding under Applicable Insolvency Laws, the amount of such Guarantor's obligations with respect to the Guaranteed Obligations shall be limited to the largest amount which, after giving effect thereto, would not, under Applicable Insolvency Laws, render such Guarantor's obligations with respect to such Guaranteed Obligations unenforceable or avoidable or otherwise subject to recovery under Applicable Insolvency Laws. To the extent any payment actually made pursuant to the Guaranteed Obligations exceeds the limitation of the foregoing proviso and is otherwise subject to avoidance and 2 3 recovery in any such proceeding under Applicable Insolvency Laws, the amount subject to avoidance shall in all events be limited to the amount by which such actual payment exceeds such limitation and the Guaranteed Obligations as limited by the foregoing proviso shall in all events remain in full force and effect and be fully enforceable against such Guarantor. The foregoing proviso is intended solely to preserve the rights of the Administrative Agent hereunder against such Guarantor in such proceeding to the maximum extent permitted by Applicable Insolvency Laws and neither such Guarantor, the Borrower, any other Guarantor nor any other Person shall have any right or claim under such proviso that would not otherwise be available under Applicable Insolvency Laws in such proceeding. SECTION 3. Nature of Guaranty. Each Guarantor agrees that this Guaranty is a continuing, unconditional guaranty of payment and performance and not of collection, and that its obligations under this Guaranty shall be primary, absolute and unconditional, irrespective of, and unaffected by: (a) the genuineness, validity, regularity, enforceability or any future amendment of, or change in, the Credit Agreement or any other Loan Document or any other agreement, document or instrument to which the Borrower or any Subsidiary thereof is or may become a party; (b) the absence of any action to enforce this Guaranty, the Credit Agreement or any other Loan Document or the waiver or consent by the Administrative Agent or any Lender with respect to any of the provisions of this Guaranty, the Credit Agreement or any other Loan Document; (c) the existence, value or condition of, or failure to perfect its Lien against, any security for or other guaranty of the Guaranteed Obligations or any action, or the absence of any action, by the Administrative Agent or any Lender in respect of such security or guaranty (including, without limitation, the release of any such security or guaranty); or (d) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor; it being agreed by each Guarantor that, subject to the proviso in Section 2 hereof, its obligations under this Guaranty shall not be discharged until the final and indefeasible payment and performance, in full, of the Guaranteed Obligations and the termination of the Commitments. To the extent permitted by law, each Guarantor expressly waives all rights it may now or in the future have under any statute, or at law or in equity, or otherwise, to compel the Administrative Agent or any Lender to proceed in respect of the Guaranteed Obligations against the Borrower or any other party or 3 4 against any security for or other guaranty of the payment and performance of the Guaranteed Obligations before proceeding against, or as a condition to proceeding against, such Guarantor. To the extent permitted by law, each Guarantor further expressly waives and agrees not to assert or take advantage of any defense based upon the failure of the Administrative Agent or any Lender to commence an action in respect of the Guaranteed Obligations against the Borrower, such Guarantor, any other guarantor or any other party or any security for the payment and performance of the Guaranteed Obligations. Each Guarantor agrees that any notice or directive given at any time to the Administrative Agent or any Lender which is inconsistent with the waivers in the preceding two sentences shall be null and void and may be ignored by the Administrative Agent or Lender, and, in addition, may not be pleaded or introduced as evidence in any litigation relating to this Guaranty for the reason that such pleading or introduction would be at variance with the written terms of this Guaranty, unless the Administrative Agent and the Required Lenders have specifically agreed otherwise in writing. The foregoing waivers are of the essence of the transaction contemplated by the Loan Documents and, but for this Guaranty and such waivers, the Administrative Agent and Lenders would decline to enter into the Credit Agreement. SECTION 4. Demand by the Administrative Agent. In addition to the terms set forth in Section 3, and in no manner imposing any limitation on such terms, if all or any portion of the then outstanding Guaranteed Obligations under the Credit Agreement are declared to be immediately due and payable, then the Guarantors shall, upon demand in writing therefor by the Administrative Agent to the Guarantors, pay all or such portion of the outstanding Guaranteed Obligations then declared due and payable. Payment by the Guarantors shall be made to the Administrative Agent, to be credited and applied upon the Guaranteed Obligations, in immediately available Dollars to an account designated by the Administrative Agent or at the address referenced herein for the giving of notice to the Administrative Agent or at any other address that may be specified in writing from time to time by the Administrative Agent. SECTION 5. Waivers. In addition to the waivers contained in Section 3, each Guarantor, to the extent permitted by law, waives and agrees that it shall not at any time insist upon, plead or in any manner whatever claim or take the benefit or advantage of, any appraisal, valuation, stay, extension, marshalling of assets or redemption laws, or exemption, whether now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance by such Guarantor of its obligations under, or the enforcement by the Administrative Agent or the Lenders of, this Guaranty. Each Guarantor further hereby waives diligence, presentment, demand, protest and notice of whatever kind or nature with respect to any of the Guaranteed Obligations and waives the 4 5 benefit of all provisions of law which are or might be in conflict with the terms of this Guaranty. Each Guarantor represents, warrants and agrees that its obligations under this Guaranty are not and shall not be subject to any counterclaims, offsets or defenses of any kind against the Administrative Agent, the Lenders or the Borrower whether now existing or which may arise in the future. SECTION 6. Benefits of Guaranty. The provisions of this Guaranty are for the benefit of the Administrative Agent, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement, and their respective successors, transferees, endorsees and assigns, and nothing herein contained shall impair, as between the Borrower, the Administrative Agent and the Lenders, the obligations of the Borrower under the Loan Documents. In the event all or any part of the Guaranteed Obligations are transferred, endorsed or assigned by the Administrative Agent or any Lender to any Person or Persons, any reference to an "Administrative Agent", or "Lender" herein shall be deemed to refer equally to such Person or Persons. SECTION 7. Modification of Loan Documents etc. If the Administrative Agent or the Lenders shall at any time or from time to time, with or without the consent of, or notice to, the Guarantors: (a) change or extend the manner, place or terms of payment of, or renew or alter all or any portion of, the Guaranteed Obligations; (b) take any action under or in respect of the Loan Documents in the exercise of any remedy, power or privilege contained therein or available to it at law, in equity or otherwise, or waive or refrain from exercising any such remedies, powers or privileges; (c) amend or modify, in any manner whatsoever, the Loan Documents; (d) extend or waive the time for performance by any Guarantor, any other guarantor, the Borrower or any other Person of, or compliance with, any term, covenant or agreement on its part to be performed or observed under a Loan Document (other than this Guaranty), or waive such performance or compliance or consent to a failure of, or departure from, such performance or compliance; (e) take and hold security or collateral for the payment of the Guaranteed Obligations or sell, exchange, release, dispose of, or otherwise deal with, any property pledged, mortgaged or conveyed, or in which the Administrative Agent or 5 6 the Lenders have been granted a Lien, to secure any Debt of any Guarantor, any other guarantor or the Borrower to the Administrative Agent or the Lenders; (f) release anyone who may be liable in any manner for the payment of any amounts owed by any Guarantor, any other guarantor or the Borrower to the Administrative Agent or any Lender; (g) modify or terminate the terms of any intercreditor or subordination agreement pursuant to which claims of other creditors of any Guarantor, any other guarantor or the Borrower are subordinated to the claims of the Administrative Agent or any Lender; or (h) apply any sums by whomever paid or however realized to any amounts owing by any Guarantor, any other guarantor or the Borrower to the Administrative Agent or any Lender in such manner as the Administrative Agent or any Lender shall determine in its reasonable discretion; then neither the Administrative Agent nor any Lender shall incur any liability to any Guarantor as a result thereof, and no such action shall impair or release the obligations of any Guarantor under this Guaranty. SECTION 8. Reinstatement. Each Guarantor agrees that, if any payment made by the Borrower or any other Person applied to the Obligations is at any time annulled, set aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be refunded or repaid or the proceeds of any collateral are required to be refunded by the Administrative Agent or any Lender to the Borrower, its estate, trustee, receiver or any other party, including, without limitation, any Guarantor, under any Applicable Law or equitable cause, then, to the extent of such payment or repayment, each Guarantor's liability hereunder (and any Lien securing such liability) shall be and remain in full force and effect, as fully as if such payment had never been made, and, if prior thereto, this Guaranty shall have been canceled or surrendered (and if any Lien or collateral securing such Guarantor's liability hereunder shall have been released or terminated by virtue of such cancellation or surrender), this Guaranty (and such Lien) shall be reinstated in full force and effect, and such prior cancellation or surrender shall not diminish, release, discharge, impair or otherwise affect the obligations of such Guarantor in respect of the amount of such payment (or any Lien securing such obligation). SECTION 9. Representations and Warranties. To induce the Lenders to make any Loans, each Guarantor hereby represents and warrants that: 6 7 (a) such Guarantor has the corporate right, power and authority to execute, deliver and perform this Guaranty and has taken all necessary corporate action to authorize its execution, delivery and performance of, this Guaranty; (b) this Guaranty constitutes the legal, valid and binding obligation of such Guarantor enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by the availability of equitable remedies; (c) the execution, delivery and performance of this Guaranty will not violate any provision of any Applicable Law or material contractual obligation of such Guarantor and will not result in the creation or imposition of any Lien upon or with respect to any property or revenues of such Guarantor; (d) no consent or authorization of, filing with, or other act by or in respect of, any arbitrator or Governmental Authority and no consent of any other Person (including, without limitation, any stockholder or creditor of such Guarantor), is required in connection with the execution, delivery, performance, validity or enforceability of this Guaranty; (e) no actions, suits or proceedings before any arbitrator or Governmental Authority are pending or, to the knowledge of such Guarantor, threatened by or against such Guarantor or against any of its properties with respect to this Guaranty or any of the transactions contemplated hereby; (f) such Guarantor has such title to the real property owned by it and a valid leasehold interest in the real property leased by it, and has good and marketable title to all of its personal property sufficient to carry on its business free of any and all Liens of any type whatsoever, except those permitted by Section 10.3 of the Credit Agreement; and (g) as of the Closing Date, such Guarantor (a) has capital sufficient to carry on its business and transactions and all business and transactions in which it engages and is able to pay its debts as they mature, (b) owns property having a value, both at fair valuation and at present fair saleable value, greater than the amount required to pay its probable liabilities (including contingencies) and (c) does not believe that 7 8 it will incur debts or liabilities beyond its ability to pay such debts or liabilities as they mature. SECTION 10. Remedies. (a) Upon the occurrence of any Event of Default, with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, enforce against the Guarantors their respective obligations and liabilities hereunder and exercise such other rights and remedies as may be available to the Administrative Agent hereunder, under the Loan Documents or otherwise. (b) No right or remedy herein conferred upon the Administrative Agent is intended to be exclusive of any other right or remedy contained herein or in any other Loan Document or otherwise, and every such right or remedy contained herein and therein or now or hereafter existing at law, or in equity, or by statute, or otherwise shall be cumulative. The Required Lenders may instruct the Administrative Agent to pursue, or refrain from pursuing, any remedy available to the Administrative Agent at such times and in such order as the Required Lenders shall determine, and the Required Lenders' election as to such remedies shall not impair any remedies against any Guarantor not then exercised. In addition, any election of remedies which results in the denial or impairment of the right of the Administrative Agent to seek a deficiency judgment against the Borrower shall not impair any Guarantor's obligation to pay the full amount of the Guaranteed Obligations. SECTION 11. No Subrogation. Notwithstanding any payment or payments by any of the Guarantors hereunder, or any set-off or application of funds of any of the Guarantors by the Administrative Agent or any Lender, or the receipt of any amounts by the Administrative Agent or any Lender with respect to any of the Guaranteed Obligations, none of the Guarantors shall be entitled to be subrogated to any of the rights of the Administrative Agent or any Lender against the Borrower or the other Guarantors or against any collateral security held by the Administrative Agent or any Lender for the payment of the Guaranteed Obligations nor shall any of the Guarantors seek any reimbursement from the Borrower or any of the other Guarantors in respect of payments made by such Guarantor in connection with the Guaranteed Obligations, until all amounts owing to the Administrative Agent and the Lenders on account of the Guaranteed Obligations are paid in full and the Commitments are terminated. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Guaranteed Obligations shall not have been paid in full, such amount shall be held by such Guarantor in trust for the Administrative Agent, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Administrative Agent in the exact form received 8 9 by such Guarantor (duly endorsed by such Guarantor to the Administrative Agent, if required) to be applied against the Guaranteed Obligations, whether matured or unmatured, in such order as set forth in the Credit Agreement. SECTION 12. Miscellaneous. (a) Entire Agreement; Amendments. This Guaranty, together with the other Loan Documents, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements with respect to the subject matter hereof and may not be amended or supplemented except by a writing signed by each Guarantor and the Administrative Agent, consented to by such Lenders as required by Section 13.11 of the Credit Agreement. (b) Headings. Titles and captions of sections and subsections in this Guaranty are for convenience of reference only, and neither limit or amplify the provisions of this Guaranty. (c) Notices. All notices and communications hereunder shall be given in accordance with Section 13.1 of the Credit Agreement. (d) Binding Effect. This Guaranty shall bind each Guarantor and shall inure to the benefit of the Administrative Agent, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement, and their respective successors and assigns. No Guarantor may assign this Guaranty or delegate any of its duties hereunder, other than in connection with the merger of such Guarantor into such other Person as permitted by Section 10.5 of the Credit Agreement. (e) Non-Waiver. The failure of the Administrative Agent or any Lender to enforce any right or remedy hereunder, or promptly to enforce any such right or remedy, shall not constitute a waiver thereof, nor give rise to any estoppel against the Administrative Agent or any Lender, nor excuse any Guarantor from its obligations hereunder. Any waiver of any such right or remedy by the Lenders must be in writing and signed by the Required Lenders. (f) Termination. This Guaranty shall terminate and be of no further force or effect on the date when the Guaranteed Obligations have been indefeasibly paid in full and the Commitments terminated. (g) Governing Law. This Guaranty shall be governed by and construed and enforced in accordance with the laws of the State of North Carolina, without reference to the conflicts or choice of law principles thereof. (h) Consent to Jurisdiction. Each Guarantor hereby irrevocably consents to the personal jurisdiction of the state and federal 9 10 courts located in Mecklenburg County, North Carolina, in any action, claim or other proceeding arising out of any dispute in connection with this Guaranty, any rights or obligations hereunder, or the performance of such rights and obligations. Each Guarantor hereby irrevocably consents to the service of a summons and complaint and other process in any action, claim or proceeding brought by the Administrative Agent or any Lender in connection with this Guaranty, any rights or obligations hereunder, or the performance of such rights and obligations, on behalf of itself or its property, in the manner referenced in Section 12(c). Nothing in this Section 12(h) shall affect the right of the Administrative Agent or any Lender to serve legal process in any other manner permitted by Applicable Law or affect the right of the Administrative Agent or any Lender to bring any action or proceeding against any Guarantor or its properties in the courts of any other jurisdictions. (i) Binding Arbitration; Waiver of Jury Trial. (i) Binding Arbitration. Upon demand of any party, whether made before or after institution of any judicial proceeding, any dispute, claim or controversy arising out of, connected with or relating to this Guaranty or any other Loan Documents ("Disputes"), between or among parties to this Guaranty or any other Loan Document shall be resolved by binding arbitration as provided herein. Institution of a judicial proceeding by a party does not waive the right of that party to demand arbitration hereunder. Disputes may include, without limitation, tort claims, counterclaims, claims brought as class actions, claims arising from Loan Documents executed in the future, or claims concerning any aspect of the past, present or future relationships arising out or connected with the Loan Documents. Arbitration shall be conducted under and governed by the Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration Association and Title 9 of the U.S. Code. All arbitration hearings shall be conducted in Charlotte, North Carolina. The expedited procedures set forth in Rule 51, et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000. All applicable statutes of limitation shall apply to any Dispute. A judgment upon the award may be entered in any court having jurisdiction. The panel from which all arbitrators are selected shall be comprised of licensed attorneys. The single arbitrator selected for expedited procedure shall be a retired judge from the highest court of general jurisdiction, state or federal, of the state where the hearing will be conducted. (II) JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE ADMINISTRATIVE AGENT, EACH LENDER AND EACH GUARANTOR HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING 10 11 ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS GUARANTY OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. (iii) Preservation of Certain Remedies. Notwithstanding the preceding binding arbitration provisions, the parties hereto and the Loan Documents preserve, without diminution, certain remedies that such Persons may employ or exercise freely, either alone, in conjunction with or during a Dispute. Each such Person shall have and hereby reserves the right to proceed in any court of proper jurisdiction or by self help to exercise or prosecute the following remedies: (A) all rights to foreclose against any real or personal property or other security by exercising a power of sale granted in the Loan Documents or under applicable law or by judicial foreclosure and sale, (B) all rights of self help including peaceful occupation of property and collection of rents, set off, and peaceful possession of property, (C) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and in filing an involuntary bankruptcy proceeding, and (D) when applicable, a judgment by confession of judgment. Preservation of these remedies does not limit the power of an arbitrator to grant similar remedies that may be requested by a party in a Dispute. (j) Limitation of Liability. Neither the Administrative Agent, the Lenders nor any Affiliate thereof shall have any liability with respect to, and each Guarantor hereby waives, releases and agrees not to sue upon, any claim for any special, indirect, punitive, exemplary or consequential damages suffered by such Guarantor in connection with, arising out of, or in any way related to this Guaranty and the other Loan Documents, the transactions contemplated herein or therein, or any act, omission or event occurring in connection herewith or therewith. (k) Expenses. The Guarantors agree that they will reimburse the Administrative Agent and each Lender for all reasonable out-of-pocket expenses (including reasonable attorneys' fees and expenses) incurred by such Administrative Agent or Lender in connection with the enforcement of the obligations of the Guarantors under this Guaranty and any other Loan Documents and all reasonable out-of-pocket expenses (including reasonable attorneys' fees and expenses) incurred by the Administrative Agent in connection with the amendment or modification of this Guaranty. (l) Indemnities. Each Guarantor agrees to hold the Administrative Agent and the Lenders harmless from and against all losses suffered by the Administrative Agent and the Lenders in 11 322970.4 12 connection with (i) the exercise by the Administrative Agent or the Lenders of any right or remedy granted to them under this Guaranty, (ii) any claim, and the prosecution or defense thereof, arising out of or in any way connected with this Guaranty, and (iii) the collection or enforcement of the Obligations, the Guaranteed Obligations or any of them; provided, that such Guarantor shall not be obligated to reimburse the Administrative Agent or the Lenders for costs and expenses, or indemnify the Administrative Agent or the Lenders for any loss, resulting from the gross negligence or willful misconduct of the Administrative Agent or the Lenders. Notwithstanding any termination of this Guaranty, the indemnities to which the Administrative Agent and Lenders are entitled under this Guaranty shall continue in full force and effect and shall protect the Administrative Agent and the Lenders against events arising after such termination as well as before. 12 13 IN WITNESS WHEREOF, each of the Guarantors has executed and delivered this Guaranty under seal as of the date first above written. [CORPORATE SEAL] CCA INTERNATIONAL, INC. By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- [CORPORATE SEAL] TRANSCOR AMERICA, INC. By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- [CORPORATE SEAL] CONCEPT INCORPORATED By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- [CORPORATE SEAL] CORRECTION MANAGEMENT AFFILIATES, INC. By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- [CORPORATE SEAL] CORRECTIONAL SERVICES GROUP, INC. By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- [CORPORATE SEAL] MINERAL WELLS R.E. HOLDING CORP. By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- 13 14 [CORPORATE SEAL] CORRECTIONS PARTNERS, INC. By: ---------------------------------- Name: -------------------------------- Title: ------------------------------- 14 15 UNCONDITIONAL GUARANTY AGREEMENT SUPPLEMENT UNCONDITIONAL GUARANTY AGREEMENT SUPPLEMENT, dated as of _____________________, (the " Supplement"), made by [INSERT NAME OF NEW SUBSIDIARY], a __________________ (the "New Guarantor"), in favor of First Union National Bank of Tennessee, as agent (in such capacity, the "Administrative Agent") under the Credit Agreement (as defined in the Guaranty Agreement referred to below) for the ratable benefit of itself, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement. 1. Reference is hereby made to the Guaranty Agreement dated as of [___________], made by the certain Subsidiaries of Corrections Corporation of America, party thereto (the "Guarantors") as guarantors, in favor of the Administrative Agent (as amended, supplemented or otherwise modified as of the date hereof, the "Guaranty Agreement"). This Supplement supplements the Guaranty Agreement, forms a part thereof and is subject to the terms thereof. Capitalized terms used and not defined herein shall have the meanings given thereto or referenced in the Guaranty Agreement. 2. The New Guarantor hereby agrees to unconditionally guarantee to the Administrative Agent for the ratable benefit of itself, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement, and their respective successors, endorsees, transferees and assigns, the prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of all Obligations of the Borrower to the same extent and upon the same terms and conditions as are contained in the Guaranty Agreement. 3. The New Guarantor hereby agrees that by executing this Supplement it is a party to the Guaranty Agreement as if a signatory thereto on the Closing Date of the Credit Agreement, and the New Guarantor shall comply with all of the terms, covenants, conditions and agreements and hereby makes each representation and warranty, in each case set forth therein. The New Guarantor agrees that the "Guaranty Agreement" or "Guaranty" as used therein or in any other Loan Documents shall mean the Guaranty Agreement as supplemented hereby. 4. The New Grantor hereby acknowledges it has received a copy of the Guaranty Agreement and that it has read and understands the terms thereof. 15 16 IN WITNESS WHEREOF, the undersigned hereby causes this Supplement to be executed and delivered as of the date first above written. [CORPORATE SEAL] [INSERT NAME OF NEW SUBSIDIARY] By: ---------------------------------- Name: ----------------------------- Title: ---------------------------- 16 EX-10.161 12 FORM OF PLEDGE AGREEMENT 1 EXHIBIT 10.161 PLEDGE AGREEMENT THIS PLEDGE AGREEMENT (the "Pledge Agreement"), dated as of September 6, 1996, is made by CORRECTIONS CORPORATION OF AMERICA, a corporation organized under the laws of Delaware (the "Pledgor"), in favor of FIRST UNION NATIONAL BANK OF TENNESSEE, a national banking association, as Administrative Agent (the "Administrative Agent"), for the ratable benefit of itself and the financial institutions (the "Lenders") as are, or may from time to time become, parties to the Credit Agreement (as hereinafter defined), the Issuing Lender (as defined in the Credit Agreement) and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement. STATEMENT OF PURPOSE Pursuant to the terms of the Credit Agreement of even date among the Pledgor, as Borrower, the Lenders party thereto, and the Administrative Agent (as amended, restated, modified or otherwise supplemented from time to time, the "Credit Agreement"), the Lenders extended certain credit facilities to the Borrower as more particularly described therein. The Pledgor is the legal and beneficial owner of the shares of Pledged Stock (as hereinafter defined) issued by the certain corporations as specified on Schedule I attached hereto and incorporated herein by reference (collectively, the "Issuers") and (b) the Partnership Interests (as hereinafter defined) in the partnerships and limited liability companies listed on Schedule I hereto (collectively, the "Partnerships"). In connection with the transactions contemplated by the Credit Agreement and as a condition precedent thereto, the Lenders have requested, and the Pledgor has agreed to execute and deliver, this Pledge Agreement with the Pledged Stock to the Administrative Agent, for the ratable benefit of itself, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement. NOW, THEREFORE, in consideration of the premises and to induce the Administrative Agent and the Lenders to enter into and make available Loans pursuant to the Credit Agreement, the Pledgor hereby agrees with the Administrative Agent, for the ratable benefit of itself, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement, as follows: 1. Defined Terms. Unless otherwise defined herein, terms which are defined in the Credit Agreement and used herein are so used as so defined, and the following terms shall have the following meanings: 2 "Code" means the Uniform Commercial Code from time to time in effect in the State of North Carolina. "Collateral" means the Stock Collateral and the Partnership Collateral. "Partnership Collateral" means all of the Partnership Interests of the Pledgor in the Partnerships and all Proceeds therefrom. "Partnership Interests" means the entire partnership or membership interest of the Pledgor in each Partnership listed on Schedule I hereto, including, without limitation, Pledgor's capital account, its or his interest as a partner or member in the net cash flow, net profit and net loss, and items of income, gain, loss, deduction and credit of the Partnerships, its interest in all distributions made or to be made by the Partnerships to the Pledgor and all of the other economic rights, titles and interests of the Pledgor as a partner or member of the Partnerships, whether set forth in the partnership agreement or membership agreement of the Partnerships, by separate agreement or otherwise. "Pledge Agreement" means this Pledge Agreement, as amended or modified. "Pledged Stock" means the shares of capital stock of each Issuer listed on Schedule I hereto, together with all stock certificates, options or rights of any nature whatsoever that may be issued or granted by such Issuer to the Pledgor while this Pledge Agreement is in effect. "Proceeds" means all "proceeds" as such term is defined in Section 9-306(1) of the Code on the date hereof and, in any event, shall include, without limitation, all dividends or other income from the Pledged Stock and Partnership Interests, collections thereon, proceeds of sale thereof or distributions with respect thereto. "Stock Collateral" means the Pledged Stock and all Proceeds therefrom. 2. Pledge and Grant of Security Interest. The Pledgor hereby delivers to the Administrative Agent, for the ratable benefit of itself, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement, all the Pledged Stock and hereby grants to the Administrative Agent, for the ratable benefit of itself, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted 2 3 pursuant to Section 10.1 of the Credit Agreement, a first priority security interest in the Pledged Stock and all other Collateral, as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations. 3. Stock Powers. Concurrently with the delivery to the Administrative Agent of each certificate representing one or more shares of Pledged Stock, the Pledgor shall deliver an undated stock power covering such certificate, duly executed in blank by the Pledgor with, if the Administrative Agent so requests, signature guaranteed. 4. Pledgor Remains Liable. Anything herein to the contrary notwithstanding, (a) the Pledgor shall remain liable to perform all of its duties and obligations as a partner of the Partnerships to the same extent as if this Pledge Agreement had not been executed, (b) the exercise by the Administrative Agent or any Lender of any of its rights hereunder shall not release the Pledgor from any of its duties or obligations as a partner of the Partnerships, and (c) neither the Administrative Agent nor any Lender shall have any obligation or liability as a partner of the Partnerships by reason of this Pledge Agreement. 5. Representations and Warranties. To induce the Administrative Agent and the Lenders to execute the Credit Agreement and make any Loans and to accept the security contemplated hereby, the Pledgor hereby represents and warrants that: (a) the Pledgor has the corporate power, authority and legal right to execute and deliver, to perform its obligations under, and to grant the Lien on the Collateral pursuant to, this Pledge Agreement and has taken all necessary corporate action to authorize its execution, delivery and performance of, and grant of the Lien on the Collateral pursuant to, this Pledge Agreement; (b) this Pledge Agreement constitutes a legal, valid and binding obligation of the Pledgor enforceable against the Pledgor in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by the availability of equitable remedies; (c) the execution, delivery and performance of this Pledge Agreement will not violate any provision of any Applicable Law or contractual obligation of the Pledgor and will not result in the creation or imposition of any Lien on any of the properties or revenues of the Pledgor pursuant to 3 4 any Applicable Law or contractual obligation, except as contemplated hereby and by the Credit Agreement; (d) no consent or authorization of, filing with, or other act by or in respect of, any arbitrator or Governmental Authority and no consent of any other Person (including, without limitation, any stockholder or creditor of the Pledgor or any Issuer or any general or limited partner of any Partnership), is required in connection with the execution, delivery, performance, validity or enforceability against the Pledgor of this Pledge Agreement, except (i) as may be required in connection with the disposition of the Pledged Stock and the Partnership Interests by laws affecting the offering and sale of securities generally, and (ii) filings under the Uniform Commercial Code; (e) no litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Pledgor, threatened by or against the Pledgor or against any of its properties or revenues with respect to this Pledge Agreement or any of the transactions contemplated hereby; (f) the shares of Pledged Stock listed on Schedule I constitute all the issued and outstanding shares owned by the Pledgor of all classes of the capital stock of each of the Issuers; (g) all the shares of the Pledged Stock have been duly and validly issued and are fully paid and nonassessable; (h) the Pledgor is the record and beneficial owner of, and has good and marketable title to, the Pledged Stock and Partnership Interests listed on Schedule I, free of any and all Liens or options in favor of, or claims of, any other Person, except the Credit Agreement and the Lien created by this Pledge Agreement; (i) upon delivery to the Administrative Agent of the stock certificates evidencing the Pledged Stock, the Lien granted pursuant to this Pledge Agreement will constitute a valid, perfected first priority Lien on the Collateral, enforceable as such against all creditors of the Pledgor and any Persons purporting to purchase any of the Collateral from the Pledgor; and (j) the Pledgor has delivered to the Administrative Agent true and complete copies of the partnership agreements for each of the Partnerships which partnership agreements are currently in full force and effect and have not been amended or modified except as disclosed to the Administrative Agent in writing. 4 5 6. Certain Covenants. The Pledgor covenants and agrees with the Administrative Agent, for the ratable benefit of itself, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement, that, from and after the date of this Pledge Agreement until the Obligations are paid in full and the Commitments are terminated: (a) On or before the date of execution of this Pledge Agreement, the Pledgor shall cause each of the partners of each of the Partnerships to execute a consent in the form attached hereto evidencing the consent of the partners to the pledge of the Partnership Interests pursuant to this Pledge Agreement. (b) The Pledgor agrees that as a partner in the Partnerships it will abide by, perform and discharge each and every obligation, covenant and agreement to be abided by, performed or discharged by Pledgor under the terms of the partnership agreements of the Partnerships, at no cost or expense to the Administrative Agent and the Lenders. (c) If the Pledgor shall, as a result of its ownership of the Collateral, become entitled to receive or shall receive any stock certificate (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights, whether in addition to, in substitution of, as a conversion of, or in exchange for any of the Collateral, or otherwise in respect thereof, the Pledgor shall accept the same as the agent of the Administrative Agent, hold the same in trust for the Administrative Agent and deliver the same forthwith to the Administrative Agent in the exact form received, duly indorsed by the Pledgor to the Administrative Agent, if required, together with an undated stock power covering such certificate duly executed in blank by the Pledgor and with, if the Administrative Agent so requests, signature guaranteed, to be held by the Administrative Agent, subject to the terms hereof, as additional collateral security for the Obligations. In addition, any sums paid upon or in respect of the Collateral upon the liquidation or dissolution of any Issuer or Partnership shall be held by the Administrative Agent as additional collateral security for the Obligations. (d) Without the prior written consent of the Administrative Agent, the Pledgor will not (i) vote to enable, or take any other action to permit, any Issuer or Partnership to issue any stock, partnership interests, limited liability company interests or other equity securities of any nature or to issue any other securities convertible into or granting the 5 6 right to purchase or exchange for any stock, partnership interests, limited liability company interests or other equity securities of any nature of such Issuer or Partnership, (ii) except as expressly provided to the contrary herein, consent to any modification, extension or alteration of the terms of any partnership agreement of the Partnerships, (iii) accept a surrender of any partnership agreement of any of the Partnerships or waive any breach of or default under any partnership agreement of any of the Partnerships by any other party thereto, (iv) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, the Collateral, or (v) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Collateral, or any interest therein, except for the Lien provided for by this Pledge Agreement. The Pledgor will defend the right, title and interest of the Administrative Agent in and to the Collateral against the claims and demands of all Persons whomsoever. (e) At any time and from time to time, upon the written request of the Administrative Agent, and at the sole expense of the Pledgor, the Pledgor will promptly and duly execute and deliver such further instruments and documents and take such further actions as the Administrative Agent may reasonably request for the purposes of obtaining or preserving the full benefits of this Pledge Agreement and of the rights and powers herein granted. If any amount payable under or in connection with any of the Collateral shall be or become evidenced by any promissory note, other instrument or chattel paper, such note, instrument or chattel paper shall be immediately delivered to the Administrative Agent, duly endorsed in a manner satisfactory to the Administrative Agent, to be held as Collateral pursuant to this Pledge Agreement. (f) The Pledgor agrees to pay, and to save the Administrative Agent and the Lenders harmless from, any and all liabilities with respect to, or resulting from any delay in paying, any and all stamp, excise, sales or other similar taxes which may be payable or determined to be payable with respect to any of the Collateral or in connection with any of the transactions contemplated by this Pledge Agreement. (g) On or prior to the formation or acquisition of any Subsidiary of the Pledgor, the Pledgor agrees to execute such amendments and supplements to this Pledge Agreement, including, without limitation, the Pledge Agreement Supplement attached hereto, and such other documents and instruments and to take any and all actions, all as shall be necessary, in the reasonable judgment of the Administrative Agent, to pledge the Pledgor's interest therein to the Administrative Agent, for the ratable benefit of itself, the Lenders, the Issuing Lender 6 7 and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement. 7. Cash Dividends and Distributions; Voting Rights. Unless an Event of Default shall have occurred and be continuing and the Administrative Agent shall have given notice to the Pledgor of the Administrative Agent's intent to exercise its rights pursuant to Paragraph 8 below, the Pledgor shall be permitted to receive all cash dividends and shareholder and partnership distributions paid in accordance with the terms of the Credit Agreement in respect of the Collateral and to exercise all voting and corporate or partnership rights, as applicable, with respect to the Collateral; provided, that no vote shall be cast or corporate or partnership right exercised or other action taken which, in the Administrative Agent's reasonable judgment, would be inconsistent with or result in any violation of any provision of the Credit Agreement, the Notes, any other Loan Documents or this Pledge Agreement. 8. Rights of the Administrative Agent. (a) If an Event of Default shall occur and be continuing and the Administrative Agent shall give notice of its intent to exercise such rights to the Pledgor, (i) the Administrative Agent shall have the right to receive any and all cash dividends paid in respect of the Pledged Stock and partnership distributions in respect of the Partnership Interests and make application thereof to the Obligations in the order set forth in Section 4.5 of the Credit Agreement and (ii) all shares of the Pledged Stock shall be registered in the name of the Administrative Agent or its nominee, and the Administrative Agent or its nominee may thereafter exercise (A) all voting, corporate and other rights pertaining to such shares of the Pledged Stock at any meeting of shareholders of the applicable Issuer or otherwise and (B) any and all rights of conversion, exchange, subscription and any other rights, privileges or options pertaining to such shares of the Pledged Stock as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Pledged Stock upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate structure of the applicable Issuer, or upon the exercise by the Pledgor or the Administrative Agent of any right, privilege or option pertaining to such shares of the Pledged Stock, and in connection therewith, the right to deposit and deliver any and all of the Pledged Stock with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine), all without liability except to account for property actually received by it, but the Administrative Agent shall have no duty to the Pledgor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing. 7 8 (b) The rights of the Administrative Agent and the Lenders hereunder shall not be conditioned or contingent upon the pursuit by the Administrative Agent or any Lender of any right or remedy against the Pledgor or against any other Person which may be or become liable in respect of all or any part of the Obligations or against any collateral security therefor, guarantee therefor or right of offset with respect thereto. Neither the Administrative Agent nor any Lender shall be liable for any failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so, nor shall the Administrative Agent be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Pledgor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof. 9. Remedies. If an Event of Default shall occur and be continuing, with the consent of the Required Lenders, the Administrative Agent may, and upon the request of the Required Lenders, the Administrative Agent shall, exercise on behalf of itself and the Lenders, all rights and remedies granted in this Pledge Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, and in addition thereto, all rights and remedies of a secured party under the Code. Without limiting the generality of the foregoing with regard to the scope of the Administrative Agent's remedies, the Administrative Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon the Pledgor, any Issuer, any Partnership or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, assign, give option or options to purchase or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, in the over-the-counter market, at any exchange, broker's board or office of the Administrative Agent or any Lender or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Administrative Agent or any Lender shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in the Pledgor, which right or equity is hereby waived or released. The Administrative Agent shall apply any Proceeds from time to time held by it and the net proceeds of any such collection, recovery, receipt, appropriation, realization or sale, after deducting all reasonable costs and expenses of every kind incurred in respect thereof or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Administrative Agent and the 8 9 Lenders hereunder, including, without limitation, reasonable attorneys' fees and disbursements of counsel thereto, to the payment in whole or in part of the Obligations, in the order set forth in Section 4.5 of the Credit Agreement, and only after such application and after the payment by the Administrative Agent of any other amount required by any provision of law, including, without limitation, Section 9-504(1)(c) of the Code, need the Administrative Agent account for the surplus, if any, to the Pledgor. To the extent permitted by applicable law, the Pledgor waives all claims, damages and demands it may acquire against the Administrative Agent or any Lender arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition. The Pledgor further waives and agrees not to assert any rights or privileges which it may acquire under Section 9-112 of the Code. 10. Private Sales. The Pledgor recognizes that the Administrative Agent may be unable to effect a public sale of any or all the Pledged Stock, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. The Pledgor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Administrative Agent shall be under no obligation to delay a sale of any of the Pledged Stock for the period of time necessary to permit the applicable Issuer to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if the applicable Issuer would agree to do so. 11. Amendments, etc. With Respect to the Obligations. The Pledgor shall remain obligated hereunder, and the Collateral shall remain subject to the Lien granted hereby, notwithstanding that, without any reservation of rights against the Pledgor, and without notice to or further assent by the Pledgor, any demand for payment of any of the Obligations made by the Administrative Agent or any Lender may be rescinded by the Administrative Agent or such Lender, and any of the Obligations continued, and the Obligations, or the liability of the Pledgor or any other Person upon or for any part thereof, or any collateral security or guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered, or released by the Administrative Agent or any Lender, and the Credit Agreement, the Notes, any other 9 10 Loan Documents and any other documents executed and delivered in connection therewith may be amended, modified, supplemented or terminated, in whole or part, as the Lenders (or the Required Lenders, as the case may be) may deem advisable from time to time, and any guarantee, right of offset or other collateral security at any time held by the Administrative Agent or any Lender for the payment of the Obligations may be sold, exchanged, waived, surrendered or released. Neither the Administrative Agent nor any Lender shall have any obligation to protect, secure, perfect or insure any other Lien at any time held by it as security for the Obligations or any property subject thereto. The Pledgor waives any and all notice of the creation, renewal, extension or accrual of any of the Obligations and notice of or proof of reliance by the Administrative Agent or any Lender upon this Pledge Agreement; the Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred in reliance upon this Pledge Agreement; and all dealings between the Pledgor, on the one hand, and the Administrative Agent and the Lenders, on the other, shall likewise be conclusively presumed to have been had or consummated in reliance upon this Pledge Agreement. The Pledgor waives diligence, presentment, protest, demand for payment and notice of default or nonpayment to or upon the Pledgor with respect to the Obligations. 12. Limitation on Duties Regarding Collateral. The Administrative Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the Code or otherwise, shall be to deal with it in the same manner as the Administrative Agent deals with similar securities and property for its own account. Neither the Administrative Agent, any Lender nor any of their respective directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Pledgor or otherwise. 13. Powers Coupled with an Interest. All authorizations and agencies herein contained with respect to the Collateral constitute irrevocable powers coupled with an interest. 14. Severability. Any provision of this Pledge Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 15. Paragraph Headings. The paragraph headings used in this Pledge Agreement are for convenience of reference only and are not 10 11 to affect the construction hereof or be taken into consideration in the interpretation hereof. 16. No Waiver; Cumulative Remedies. Neither the Administrative Agent nor any Lender shall by any act (except by a written instrument pursuant to Paragraph 17 hereof) be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Administrative Agent or any Lender, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Administrative Agent or any Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Administrative Agent or such Lender would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 17. Waivers and Amendments; Successors and Assigns; Governing Law. None of the terms or provisions of this Pledge Agreement may be amended, supplemented or otherwise modified except by a written instrument executed by the Pledgor and the Administrative Agent; provided that any consent by the Administrative Agent to any waiver, amendment, supplement or modification hereto shall be subject to approval thereof by the Lenders or Required Lenders, as applicable, in accordance with Section 13.10 of the Credit Agreement. This Pledge Agreement shall be binding upon the successors and assigns of the Pledgor and shall inure to the benefit of the Administrative Agent, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement, and their respective successors and assigns. This Pledge Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of North Carolina. 18. Notices. All notices and communications hereunder shall be given to the addresses and otherwise in accordance with Section 13.1 of the Credit Agreement. 19. Irrevocable Authorization and Instruction to Issuers. The Pledgor hereby authorizes and instructs each Issuer and Partnership to comply with any instruction received by it from the Administrative Agent in writing that (a) states that an Event of Default has occurred and is continuing and (b) is otherwise in accordance with the terms of this Pledge Agreement, without any other or further instructions from the Pledgor, and the Pledgor agrees that such Issuer and Partnership shall be fully protected in so complying. 11 12 20. Authority of Administrative Agent. The Pledgor acknowledges that the rights and responsibilities of the Administrative Agent under this Pledge Agreement with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Pledge Agreement shall, as between the Administrative Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the Pledgor, the Administrative Agent shall be conclusively presumed to be acting as agent for itself and the Lenders with full and valid authority so to act or refrain from acting, and neither the Pledgor nor any Issuer or Partnership shall be under any obligation, or entitlement, to make any inquiry respecting such authority. 21. Consent to Jurisdiction. The Pledgor hereby irrevocably consents to the personal jurisdiction of the state and federal courts located in Mecklenburg County, North Carolina, in any action, claim or other proceeding arising out of or any dispute in connection with this Pledge Agreement, any rights or obligations hereunder, or the performance of such rights and obligations. The Pledgor hereby irrevocably consents to the service of a summons and complaint and other process in any action, claim or proceeding brought by the Administrative Agent or any Lender in connection with this Pledge Agreement, any rights or obligations hereunder, or the performance of such rights and obligations, on behalf of itself or its property, in the manner provided in Section 13.1 of the Credit Agreement. Nothing in this Paragraph 21 shall affect the right of the Administrative Agent or any Lender to serve legal process in any other manner permitted by Applicable Law or affect the right of the Administrative Agent or any Lender to bring any action or proceeding against the Pledgor or its properties in the courts of any other jurisdictions. 22. Binding Arbitration; Waiver of Jury Trial. (a) Binding Arbitration. Upon demand of any party, whether made before or after institution of any judicial proceeding, any dispute, claim or controversy arising out of, connected with or relating to this Pledge Agreement or any other Loan Documents ("Disputes"), between or among parties to this Pledge Agreement or any other Loan Document shall be resolved by binding arbitration as provided herein. Institution of a judicial proceeding by a party does not waive the right of that party to demand arbitration hereunder. Disputes may include, without limitation, tort claims, counterclaims, claims brought as class actions, claims arising from Loan Documents executed in the future, or claims concerning any aspect of the past, present or future relationships arising out or connected with the Loan Documents. Arbitration shall be conducted under and governed by the Commercial Financial Disputes Arbitration 12 13 Rules (the "Arbitration Rules") of the American Arbitration Association and Title 9 of the U.S. Code. All arbitration hearings shall be conducted in Charlotte, North Carolina. The expedited procedures set forth in Rule 51, et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000. All applicable statutes of limitation shall apply to any Dispute. A judgment upon the award may be entered in any court having jurisdiction. The panel from which all arbitrators are selected shall be comprised of licensed attorneys. The single arbitrator selected for expedited procedure shall be a retired judge from the highest court of general jurisdiction, state or federal, of the state where the hearing will be conducted. (B) JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE ADMINISTRATIVE AGENT, EACH LENDER AND THE PLEDGOR HEREBY IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL WITH RESPECT TO ANY ACTION, CLAIM OR OTHER PROCEEDING ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS PLEDGE AGREEMENT OR THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER, OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. (c) Preservation of Certain Remedies. Notwithstanding the preceding binding arbitration provisions, the parties hereto and the Loan Documents preserve, without diminution, certain remedies that such Persons may employ or exercise freely, either alone, in conjunction with or during a Dispute. Each such Person shall have and hereby reserves the right to proceed in any court of proper jurisdiction or by self help to exercise or prosecute the following remedies: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale granted in the Loan Documents or under applicable law or by judicial foreclosure and sale, (ii) all rights of self help including peaceful occupation of property and collection of rents, set off, and peaceful possession of property, (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and in filing an involuntary bankruptcy proceeding, and (iv) when applicable, a judgment by confession of judgment. Preservation of these remedies does not limit the power of an arbitrator to grant similar remedies that may be requested by a party in a Dispute. 23. Entire Agreement; Term of Agreement. This Agreement, together with the other Loan Documents, constitutes the entire agreement with respect to the subject matter hereof and supersedes all prior agreements with respect to the subject matter hereof. This Agreement shall remain in effect from the Closing Date through and including the date upon which all Obligations shall have been indefeasibly and irrevocably paid and satisfied in full and the Commitments terminated. 13 14 IN WITNESS WHEREOF, the undersigned has caused this Pledge Agreement to be duly executed and delivered as of the date first above written. [CORPORATE SEAL] CORRECTIONS CORPORATION OF AMERICA By: ------------------------------- Name: -------------------------- Title: ------------------------- 14 15 ACKNOWLEDGEMENT AND CONSENT Each Issuer of Pledged Stock referred to in the foregoing Pledge Agreement hereby acknowledges receipt of a copy thereof and agrees to be bound thereby and to comply with the terms thereof insofar as such terms are applicable to it. Each Issuer agrees to notify the Administrative Agent promptly in writing of the occurrence of any of the events described in Paragraph 6(c) of the Pledge Agreement. CCA INTERNATIONAL, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- TECHNICAL AND BUSINESS INSTITUTE OF AMERICA, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- TRANSCOR AMERICA, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- CONCEPT INCORPORATED By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- CORRECTION MANAGEMENT AFFILIATES, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- CORRECTIONAL SERVICES GROUP, INC. By: ------------------------------------- Name: ----------------------------------- Title: ---------------------------------- 16 ACKNOWLEDGEMENT AND CONSENT BY EACH PARTNERSHIP The undersigned partners of the Partnership referred to in the foregoing Pledge Agreement (a) hereby acknowledge receipt of a copy thereof, (b) hereby acknowledge and consent to the pledge of the Pledgor's interest in the Partnership pursuant thereto and upon exercise by the Administrative Agent of its remedies thereunder and at the option of the Administrative Agent, the substitution of the Administrative Agent as a partner in the Partnership, and (c) agree that the Administrative Agent may freely assign its interest thereunder without further consent of the partners. - ----------------------------, ----------------------------, Partner of Partner of - ------------------ ------------------ - --------------------------- --------------------------- 17 SCHEDULE I To Pledge Agreement ---------- DESCRIPTION OF PLEDGED STOCK Subsidiaries ------------
Issuer Class of Stock Certificate No. No. of Shares - ------ -------------- --------------- ------------- CCA Inter- Common Stock national, Inc. $.01 per value 01 1,000 Concept Common Stock Incorporated $10.00 per value 100 20,882 Correction Management Common Stock Affiliates, Inc. no par value 006 100 Correctional Services Group, Common Stock Inc. $1.00 par value 003 100 Technical and Business Institute of Common Stock America, Inc. no par value 1 1,000 Transcor Common Stock America, Inc. $.01 par value 100 1,300,000
DESCRIPTION OF PARTNERSHIP INTEREST Partnerships ------------ Partnership Partnership Interest - ----------- -------------------- NONE 18 PLEDGE AGREEMENT SUPPLEMENT PLEDGE AGREEMENT SUPPLEMENT, dated as of _______________, 1996 (the "Supplement"), made by CORRECTIONS CORPORATION OF AMERICA, a corporation organized under the laws of Delaware (the "Pledgor"), in favor of FIRST UNION NATIONAL BANK OF TENNESSEE, a national banking corporation, as Administrative Agent (in such capacity, the "Administrative Agent"), under the Credit Agreement (as defined in the Pledge Agreement referred to below), for the benefit of itself, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement.. 1. Reference is hereby made to that Pledge Agreement, dated as of Septemeber 6, 1996, made by the Pledgor in favor of the Administrative Agent (as amended, supplemented or otherwise modified as of the date hereof, the "Pledge Agreement"). This Supplement supplements the Pledge Agreement, forms a part thereof and is subject to the terms thereof. Terms defined in the Pledge Agreement are used herein as therein defined. [2. The Pledgor hereby confirms and reaffirms the security interest in the Collateral granted to the Administrative Agent, for the ratable benefit of itself, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement, under the Pledge Agreement, and, as additional collateral security for the prompt and complete payment when due (whether at stated maturity, by acceleration or otherwise) of the Obligations and in order to induce the Lenders to make their Loans under the Credit Agreement, the Pledgor hereby delivers to the Administrative Agent, for the ratable benefit of itself, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement, all of the issued and outstanding shares of capital stock of [INSERT NAME OF NEW SUBSIDIARY] (the "New Issuer") listed below, together with all stock certificates, options, or rights of any nature whatsoever which may be issued or granted by the New Issuer in respect of such stock which the Pledge Agreement, as supplemented hereby, is in force (the "Additional Pledged Stock"; as used in the Pledge Agreement as supplemented by this Supplement, "Pledged Stock" shall be deemed to include the Additional Pledged Stock) and hereby grants to the Administrative Agent, for the ratable benefit of itself, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement, a first priority security interest in the Additional Pledged Stock and all Proceeds thereof.] or [2. The Pledgor hereby confirms and reaffirms the security interest in the Collateral granted to the Administrative Agent, for the ratable benefit of itself, the Lenders, the Issuing Lender and 19 any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement, under the Pledge Agreement, and, as additional collateral security for the prompt and complete payment when due (whether at stated maturity, by acceleration or otherwise) of the Obligations and in order to induce the Lenders to make their Loans under the Credit Agreement, the Pledgor hereby grants to the Administrative Agent, for the ratable benefit of itself, the Lenders, the Issuing Lender and any Affiliate of a Lender party to a Hedging Agreement permitted pursuant to Section 10.1 of the Credit Agreement, a first priority security interest in the entire partnership interest of Pledgor (the "Additional Partnership Interest") in [INSERT NAME OF NEW SUBSIDIARY] (the "New Partnership") listed below and all Proceeds thereof; as used in the Pledge Agreement as supplemented by this Supplement, "Partnership Interests" shall be deemed to include the Additional Partnership Interest).] 3. The Pledgor hereby represents and warrants that the representations and warranties contained in Paragraph 5 of the Pledge Agreement are true and correct on the date of this Supplement with references therein to the ["Pledged Stock" to include the Additional Pledged Stock] or ["Partnership Interests" to include the Additional Partnership Interest], with references therein to the ["Issuer" to include the New Issuer] or ["Partnership" to include the New Partnership], and with references to the "Pledge Agreement" to mean the Pledge Agreement as supplemented by this Supplement. 4. The Pledgor shall deliver to the Administrative Agent the Acknowledgement and Consent attached hereto duly executed by the [New Issuer] or [New Partnership]. The Additional [Pledged Stock or Partnership Interest] pledged hereby is as follows which [Pledged Stock or Partnership Interest] shall be deemed part of Schedule I thereto: DESCRIPTION OF PLEDGED STOCK Issuer Class of Stock Certificate No. No. of Shares - ------ -------------- --------------- ------------- New Issuer DESCRIPTION OF PARTNERSHIP INTEREST Partnership Partnership Interest - ----------- -------------------- New Partnership 5. The Pledgor hereby agrees to deliver to the Administrative Agent such certificates and other documents and take such other action as shall be reasonably requested by the 20 Administrative Agent in order to effectuate the terms hereof and the Pledge Agreement. IN WITNESS WHEREOF, the undersigned has caused this Supplement to be duly executed under seal and delivered as of the date first above written. [CORPORATE SEAL] CORRECTIONS CORPORATION OF AMERICA By: ---------------------------- Name: ----------------------- Title: ---------------------- 21 ACKNOWLEDGEMENT AND CONSENT OF NEW ISSUER The undersigned hereby acknowledges receipt of a copy of the foregoing Supplement and the Pledge Agreement referred to therein (the "Pledge Agreement"). The undersigned agrees for the benefit of the Administrative Agent and the Lenders as follows: 1. The undersigned will be bound by the terms of the Pledge Agreement and will comply with such terms insofar as such terms are applicable to the undersigned. 2. The undersigned will notify the Administrative Agent promptly in writing of the occurrence of any of the events described in Paragraph 6(c) of the Pledge Agreement. 3. The Issuer further agrees that the terms of Paragraph 10 of the Pledge Agreement shall apply to it with respect to all actions that may be required of it under or pursuant to or arising out of Paragraph 10 of the Pledge Agreement. [NAME OF NEW ISSUER] By: ---------------------------- Name: ----------------------- Title: ---------------------- 22 ACKNOWLEDGEMENT AND CONSENT OF PARTNERS OF NEW PARTNERSHIP The undersigned partners of _________________________ (the "New Partnership") (a) hereby acknowledge receipt of a copy of the foregoing Supplement and the Pledge Agreement referred to therein (the "Pledge Agreement"), (b) hereby acknowledge and consent to the pledge of the Pledgor's interest in the New Partnership pursuant thereto, and (c) agree that the Administrative Agent may freely assign its interest thereunder without further consent of the partners. - ----------------------------, ----------------------------, Partner of Partner of - ------------------ ------------------ - ---------------------------- ----------------------------- EX-10.162 13 AMM. NO. 2 1994 SECURITIES PURCHASE AGREEMENT 1 EXHIBIT 10.162 AMENDMENT NO. 2 TO CORRECTIONS CORPORATION OF AMERICA/SODEXHO S.A. 1994 SECURITIES PURCHASE AGREEMENT AND NOTE AND WARRANT MODIFICATION AGREEMENT This Amendment No. 2 to the 1994 Securities Purchase Agreement and Note and Warrant Modification Agreement, dated as of December 31, 1996 (the "Amendment"), is entered into by and between Sodexho S.A., a French corporation (the "Purchaser") and Corrections Corporation of America, a Delaware corporation (the "Corporation"). RECITALS: WHEREAS, the Corporation and the Purchaser are parties to that certain Securities Purchase Agreement, dated as of June 23, 1994 and as previously amended on July 11, 1995 (the "Agreement"), pursuant to which, among other things, the Corporation offered and sold to Purchaser its 8.5% Convertible Subordinated Note due November 7, 1999, in the aggregate principal amount of $7,000,000 (the "8.5% Note"), its warrants to purchase a total of 4,400,000 shares of the Corporation's common stock (exercisable at $3.95 per share and expiring on December 31, 1998) (the "Warrants"), and an option to purchase its Five-Year Floating Rate Convertible Subordinated Note in the aggregate principal amount of $20,000,000 (the "Floating Rate Note"); WHEREAS, on even date herewith, the Corporation and the Purchaser entered into that certain Purchase Agreement pursuant to which the Purchaser acquired shares of capital representing a twenty percent interest in UK Detention Service Limited, a company incorporated in England and Wales and a wholly owned subsidiary of the Corporation ("UKDS"); WHEREAS, on even date herewith, the Corporation and the Purchaser entered into that certain Option Agreement pursuant to which the Corporation granted to the Purchaser an option to purchaser shares representing an additional thirty percent interest in UKDS on the terms and conditions set forth therein; and WHEREAS, as an inducement for the Purchaser to acquire the above referenced securities, the Purchaser has requested, among other things, that the Corporation extend the expiration date of the Warrants and extend the nonconversion period on the 8.5% Note and the Floating Rate Note; NOW, THEREFORE, for and in consideration of the premises and the mutual promises, covenants and conditions set forth in this Amendment and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Corporation and the Purchaser hereby agree as follows: 1. Amendment of Agreement. Exhibit E of the Agreement is hereby amended by deleting such Exhibit in its entirety from the Agreement and by substituting in lieu thereof the new Exhibit E attached hereto. 2. Amendment of 8.5% Note. The first sentence of Section 9(a) of the 8.5% Note is hereby amended by deleting such sentence from the 8.5% Note in its entirety, and by substituting in lieu thereof the following new first sentence: 2 "On or after June 23, 1999, at such time as the Closing Price of the Common Stock has equalled or exceeded one hundred sixty percent (160%) of the Conversion Price (as it may from time to time be adjusted) for ten (10) trading days out of a twenty (20) consecutive trading day period, the Corporation may require the Holder to convert all or a portion of the principal amount of this Note into shares of Common Stock." 3. Amendment of Warrants. Section 1.E of the Warrants is hereby amended by deleting such Section 1.E from the Warrants in its entirety and substituting in lieu thereof the following new Section 1.E: "E. "Expiration Date" shall mean December 31, 1999." 4. Effectiveness of this Amendment. This Amendment shall become effective upon the execution and delivery of this Amendment by the Purchaser and the Corporation. The parties acknowledge and agree that within thirty (30) days of the date hereof, (i) a new Warrant Certificate reflecting the terms hereof will be issued and the existing Warrant Certificate cancelled and (ii) a new 8.5% Note reflecting the terms hereof will be issued and the existing 8.5% Note cancelled. 5. Representations and Warranties of the Corporation. In order to induce the Purchaser to enter into this Amendment, the Corporation hereby makes the following representations and warranties to the Purchaser: 5.1. Corporate Power and Authorization. The Corporation has the requisite corporate power and authority to execute, deliver and perform its obligations under this Amendment. 5.2. No Conflict. Neither the execution and delivery by the Corporation of this Amendment nor the consummation of the transactions contemplated or required hereby nor compliance by the Corporation with the terms, conditions and provisions hereof will conflict with or result in a breach of any of the terms, conditions or provisions of the Certificate of Incorporation or Bylaws of the Corporation or any law, regulation, order, writ, injunction or decree of any court or governmental instrumentality or any agreement or instrument to which the Corporation is a party or by which any of its properties is bound, or constitute a default thereunder or result in the creation or imposition of any lien. 5.3. Authorization; Governmental Approvals. The execution and delivery by the Corporation of this Amendment and the consummation of the transactions contemplated hereby (i) have been duly authorized by all necessary corporate action on the part of the Corporation and (ii) do not and will not require any authorization, consent, approval or license from or any registration, qualification, designation, declaration or filing with, any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign. 2 3 5.4. Valid and Binding Effect. This Amendment has been duly and validly executed and delivered by the Corporation and constitutes the legal, valid and binding obligation of the Corporation, enforceable in accordance with its terms. 5.5. Absence of Default. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default under the Agreement. 6. Miscellaneous. 6.1. Amendment to Agreement. The Agreement is hereby, and shall henceforth be deemed to be, amended, modified and supplemented in accordance with the provisions hereof, and the respective rights, duties and obligations under the Agreement shall hereafter be determined, exercised and enforced under the Agreement, as amended, subject in all respects to such amendments, modifications, and supplements and all terms and conditions of this Amendment. Initially capitalized terms used in this Amendment shall have the meanings ascribed thereto in the Agreement, as amended hereby, unless otherwise defined herein. 6.2. Ratification of the Agreement. Except as expressly set forth in this Amendment, all agreements, covenants, undertakings, provisions, stipulations, and promises contained in the Agreement and the Securities are hereby ratified, readopted, approved, and confirmed and remain in full force and effect. 6.3. No Implied Waiver. The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver or modification of any provision of, or operate as a waiver of any right, power or remedy of the Purchaser under, the Agreement or prejudice any right or remedy that the Purchaser may have or may have in the future under or in connection with the Agreement or any instrument or agreement referred to therein. The Corporation acknowledges and agrees that the representations and warranties of the Corporation contained in the Agreement and in this Amendment shall survive the execution and delivery of this Amendment and the effectiveness hereof. 6.4. Governing Law. This Amendment shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware. The English language version of all documents relating to the transactions contemplated hereby will govern. 6.5. Counterparts; Telecopy Execution. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Delivery of an executed counterpart of this Amendment by facsimile shall be equally as effective as delivery of a manually executed counterpart. Any party delivering an executed counterpart of this Amendment by facsimile shall also deliver a manually executed counterpart, but the failure to deliver a manually executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment. 3 4 IN WITNESS WHEREOF, the undersigned have caused this Amendment to be executed by their duly authorized officers as of the date first written above. SODEXHO S.A. By: /s/ --------------------------------------- Its: -------------------------------------- CORRECTIONS CORPORATION OF AMERICA By: /s/ --------------------------------------- Its: -------------------------------------- 4 EX-10.163 14 PURCHASE AGREEMENT BETWEEN CCA AND SODEXHO S.A. 1 EXHIBIT 10.163 PURCHASE AGREEMENT AMONG CORRECTIONS CORPORATION OF AMERICA, CORRECTIONS CORPORATION OF AMERICA (U.K.) LIMITED AND SODEXHO S.A. DATED AS OF DECEMBER 31, 1996 2 PURCHASE AGREEMENT This Agreement (the "Agreement") is made and entered into this 31st day of December, 1996, by and between Corrections Corporation of America, a Delaware corporation having its principal place of business in Nashville, Tennessee (USA) ("CCA"), Corrections Corporation of America (U.K.) Limited, a wholly-owned subsidiary of CCA and a company incorporated in England and Wales whose registered number is 2147489 and whose registered office is 9 Cheapside, London EC2V 6AD ("CCAUK") and Sodexho S.A., a French societe anonyme, having its principal place of business in France, or its designee (the "Buyer"). CCA and CCAUK are sometimes referred to herein collectively as the "Sellers". WHEREAS, CCAUK currently owns 5000 "A" Ordinary Shares, 5000 "B" Ordinary Shares and 5,000 "C" Ordinary Shares in the capital stock of U.K. Detention Services Limited, a company incorporated in England and Wales ("UKDS") whose registered number is 2147491 and whose registered office is 40 Bernard Street, London, WCIN 1LG (the "Company") which shares collectively represent one hundred percent (100%) of the issued shares of the Company; and WHEREAS, Buyer desires to acquire from CCAUK, and CCAUK desires to sell to Buyer, 3,000 "C" Ordinary Shares in the capital of the Company owned by CCAUK which shares collectively represent twenty percent (20%) of the issued shares of the Company, upon and subject to the terms and conditions contained in this Agreement; and WHEREAS, in connection with the purchase of the above described securities, Buyer has requested and CCA has agreed to extend the expiration date of warrants issued by CCA to Sodexho on June 23, 1994 and to extend the nonconversion periods on the CCA 8.5% Note previously issued to Buyer and the Floating Rate Note (as defined in that certain Securities Purchase Agreement dated June 23, 1994 and subsequently amended, by and between Buyer and CCA). NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements herein contained, the parties agree as follows: ARTICLE I PURCHASE AND SALE OF SHARES 1.01. TRANSFER OF SHARES. Subject to all of the terms and conditions of this Agreement, at the Closing, CCA and CCAUK hereby agree to sell, transfer and convey to Buyer, and Buyer agrees to purchase and acquire from CCA and CCAUK, collectively, free and clear of all liens, claims, charges, restrictions, security interests, equities, proxies, pledges and encumbrances of any kind, 3,000 "C" Ordinary Shares in the capital of the Company, which shares collectively constitute twenty percent (20%) of the issued shares in the capital of the Company (the foregoing shares of the Company are hereinafter collectively referred to as the "Shares"). 3 ARTICLE II CONSIDERATION 2.01. PURCHASE PRICE. The aggregate purchase price for the Shares shall be One Million Pounds (L.1,000,000) (the "Purchase Price"). The Purchase Price shall be paid by Buyer to CCAUK at the Closing (as defined herein), by bank wire transfer or such other method as may be mutually agreed upon by the parties. 2.02. COMPANY OBLIGATIONS. By entering into this Agreement, Buyer understands and agrees that from and after the Closing, Buyer shall discharge 20% of any liability incurred by CCAUK or CCA under the documents described in Schedule 2.02, shall cooperate with CCAUK and CCA in obtaining from the Home Office consent to the assumption by Buyer of such liability and shall indemnify CCA in respect thereof. ARTICLE III CLOSING; OBLIGATIONS OF THE PARTIES 3.01. CLOSING DATE. The closing (the "Closing") shall take place and be effective for all purposes at 10:00 a.m., local time, on December 31, 1996 at the offices of CCA or at such other time and place as the parties hereto mutually agree (the "Closing Date"). 3.02. OBLIGATIONS OF THE PARTIES AT THE CLOSING. (a) At the Closing, the events set out in clauses (i) through (vi) shall occur: (i) the Buyer shall pay the consideration as specified in Section 2.01. (ii) CCAUK shall deliver to the Buyer or to such person as Buyer may direct, the share certificate(s) issued by the Company representing the Shares. (iii) the Sellers shall procure the delivery to Buyer of duly executed transfers of all of the Shares in favor of the Buyer or its nominee(s). (iv) CCAUK shall deliver to the Buyer any waiver, consent or other document which the Buyer may require to obtain a good title to the Shares registered in the name of the Buyer or its nominee(s), including any Power of Attorney under which any document required to be delivered under this Agreement has been executed. (v) CCAUK shall cause a meeting of the Directors of the Company to be convened and shall procure that at the meeting: 2 4 (a) the Directors shall approve the transfer of the Shares to the Buyer or its nominee and, subject to the payment of stamp duty by the Buyer, direct the entries in the Company's share register be made, the existing share certificate(s) for the Shares be cancelled and a new certificate in the name of the Buyer or its nominee(s) be issued; (b) One (1) person nominated by Buyer shall be appointed as a director of the Company; (v) Buyer may by written notice to CCAUK waive compliance by CCAUK with the requirements of this Section 3.02. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLERS In order to induce Buyer to enter into this Agreement and consummate the transactions contemplated hereby, Sellers hereby represent and warrant as follows: 4.01. ORGANIZATION AND GOOD STANDING. CCA is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, United States and has full corporate power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. CCAUK is a corporation duly incorporated, validly existing and in good standing under the laws of England and has full power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. 4.02. OWNERSHIP OF SHARES; VALIDITY AND ENFORCEABILITY. Sellers represent and warrant that (i) CCAUK is the legal and beneficial owner of the Shares, free and clear of all liens, claims, charges, restrictions, security interests, equities, proxies, pledges or encumbrances of any kind; (ii) CCAUK has the full right, power, authority and capacity to sell and transfer the Shares owned by CCAUK; (iii) by virtue of the transfer of the Shares to Buyer at the Closing, Buyer will obtain full title to such Shares, free and clear of all liens, claims, charges, restrictions, security interests, equities, proxies, pledges, or encumbrances of any kind. 4.03. CORPORATE POWER AND AUTHORITY: DUE AUTHORIZATION. Each of CCA and CCAUK has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The board of directors of each of CCA and CCAUK has duly approved and authorized the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, and no other corporate proceedings on the part of CCA or CCAUK are necessary to approve and authorize the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. This Agreement and each of the documents to which CCA and/or CCAUK is a party constitutes, or will constitute when executed and 3 5 delivered, a valid and binding agreement of CCA and/or CCAUK, as applicable, in each case enforceable in accordance with its terms. 4.04. NO VIOLATION. The execution and delivery of this Agreement by each of CCA and CCAUK does not, and the consummation of the transactions contemplated hereby will not, (a) violate or be in conflict with, or constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) with, or result in the termination of, or accelerate the performance required by, or excuse performance by any person of any of its obligations under, or cause the performance required by, or excuse performance by any person of any of its liabilities under, any provision of, or result in the creation of any lien or security interest under, any agreement, indenture, instrument, lease, security agreement, mortgage or lien to which CCA or CCAUK is a party or by which any of CCA or CCAUK's assets or properties are bound; (b) violate or be in conflict with any provision of the Certificate of Incorporation or Bylaws of CCA or the Articles of Association of CCAUK; (c) violate any order, arbitration award, judgment, writ, injunction, decree, statute, rule, or regulation applicable to CCA or CCAUK; or (d) violate any other contractual or legal obligation or restriction to which CCA and/or CCAUK is subject. 4.05. ABSENCE OF QUESTIONABLE PAYMENTS. Neither CCA, CCAUK nor any other person acting on its behalf has at any time directly or indirectly used funds for any illegal purpose, including without limitation, the making of any improper political contribution, bribe or kickback. 4.06. ORGANIZATION AUTHORITY AND GOOD STANDING. The Company is a company duly incorporated, validly existing, and in good standing under the laws of England. The Company has full corporate power and authority to carry on its business as now conducted and possesses all governmental and other permits, licenses, and other authorization to own, lease, or operate its assets and properties as now owned, leased, and operated and to carry on its business as presently conducted. 4.07. NO CONFLICTS. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated hereby will not, (a)violate any provision, or result in the creation of any lien or security interest under, any agreement, indenture, instrument, lease, security agreement, mortgage, or lien to which Company is a party or by which it is bound; (b) violate any order, arbitration award, judgment, writ, injunction, decree, statute, rule, or regulation applicable to Company; (c) violate or be in conflict with any provision of the Articles of Association of the Company; or (d) violate any other contractual or legal obligation or restriction to which Company is subject. 4.08. SUBSIDIARIES. The Company does not own, directly or indirectly, any capital stock or other equity interest, or with respect to which the Company, alone or in combination with others, is in a control position. The Company has no subsidiaries within the meaning of Section 736 Companies Act, 1985. 4 6 4.09. LITIGATION. There are no claims, actions, suits, proceedings, inquiries, or investigations pending or threatened by or against, or otherwise affecting the Company, or by any state, municipal, or other governmental department, commission, board, agency, instrumentality, or authority which, if adversely decided, would have a material adverse effect on the condition (financial or otherwise), assets, liabilities, earnings, prospects, or business of the Company. There are no claims, action, or suits pending or threatened by or against or otherwise affecting the Company at law or in equity, questioning the validity of this Agreement or the transactions contemplated hereby. 4.10. TITLE TO ASSETS. The Company is the legal and beneficial owner of, and has good marketable title to, all the Assets (as defined herein), free and clear of all mortgages, security interests, liens, leases, covenants, assessments, easements, options, rights of refusal and set-off, restrictions, reservations, defects in the title, encroachments, and other encumbrances, direct, contingent, or otherwise. The Assets are all assets set forth in the financial statements of the Company and owned or leased by the Company or otherwise utilized in the operation of the Company's business, excluding those items disposed of and replaced since December 31, 1995, in the ordinary course of business, but including the replacements thereof. 4.11 TAX MATTERS. CCAUK and the Company have duly and timely filed all tax reports and returns required to be filed by the Company and have duly paid all taxes and other charges due or claimed to be due from the Company by foreign, federal, state, or local taxing authorities (including, without limitation, those due in respect of its properties, income, franchises, licenses, sales, and payrolls); and true and correct copies of all tax reports and returns relating to such taxes and other charges for the period since December 31, 1990, have been heretofore delivered to Buyer. Since January 1, 1991, the Company has not incurred tax liabilities other than in the ordinary course of business; there are no tax liens (other than liens for current taxes not yet due) upon any properties or assets of the Company (whether real, personal or mixed, tangible or intangible), and, except as reflected in the financial statements of the Company, there are no pending or threatened questions or examinations relating to, or claims asserted for, taxes or assessments against the Company, and there is no basis for such question or claim. 4.12. CAPITALIZATION. The authorized capital of the Company consists of 5,000 "A" Ordinary Shares (the "A Ordinary Shares"), 5,000 "B" Ordinary Shares (the "B Ordinary Shares") and 5,000 "C" Ordinary Shares (the "C Ordinary Shares"). The issued capital stock is 5,000 "A" Ordinary Shares, 5,000 "B" Ordinary Shares and 5,000 "C" Ordinary Shares. Except for the issued "A" Ordinary Shares, the "B" Ordinary Shares and the "C" Ordinary Shares, there are no shares or other securities of the Company in issue. There are no outstanding options, warrants, or rights to purchase or acquire from the Company, CCA or CCAUK, any securities of the Company, and there are no contracts, commitments, agreements, understandings, arrangements, or restrictions as to which the Company, CCA or CCAUK is a party or by which any of them is bound relating to any shares or other securities of the Company (including the Shares), whether or not those shares or other securities have been issued. 5 7 4.13. SHARES. The Shares are fully paid and constitute the whole of the issued and allotted share capital of the Company. All of the shares of issued capital stock of the Company are duly authorized, validly issued, and outstanding and fully paid and nonassessable, and except for preemptive rights set forth in the Company's Articles of Association (which have been waived) are free of preemptive rights. 4.14. CONTRACTS. Schedule 4.14 hereto sets forth a complete and accurate list of all contracts, agreements, consulting arrangements, purchase orders, leases, subleases, options, and commitments, oral or written, and all assignments, amendments, schedules, exhibits, and appendices thereof, affecting or relating to the Company's business, the Company's assets, or any interest therein to which the Company is a party or by which the Company or its business assets or the share capital of the Company is bound or affected, including, without limitation, service contracts, equipment leases, and leases of space and ground leases (collectively, the "Contracts"); provided there shall be no breach of this Section 4.14 if Immaterial Contracts as defined below, are omitted. "Immaterial Contracts" shall mean contracts having a remaining term of less than one (1) year and involving an expenditure of less than US$25,000 in the aggregate for all obligations under any one contract or $1,000,000 in the aggregate for all such contracts. 4.15. LICENSES AND PERMITS. The Company has all local and national licenses, permits, registrations, certificates, consents, accreditation, and approvals (collectively, the "Licenses and Permits") necessary to conduct its business in a manner currently conducted. There is no default under any of the Company's Licenses and Permits, no notices have been received by the Company or its employees, agents, or representatives with respect to threatened, pending, or possible revocation, termination, suspension, or limitation of any such License or Permit, and there exists no grounds for revocation, suspension, or limitation of any such License or Permit. 4.16. RELATED PARTY TRANSACTIONS. All transactions between CCA, CCAUK and their affiliates on the one hand and the Company and its affiliates on the other hand prior to the date hereof were conducted at arm's length and at fair value. 4.17. FINANCIAL STATEMENTS. CCA and CCAUK have delivered to Buyer: (a) audited balance sheet of the Company as at December 31, 1995, and the audited profit and loss account and cash flow statement for the fiscal year then ended, including the notes thereto, together with the report thereon of Deloitte & Touche, independent certified public accountants (the "Audited Financial Statements"), and (b) an unaudited consolidated balance sheet of the Company as of October 31, 1996 (the "Unaudited Balance Sheet") and the related unaudited consolidated statements of income, changes in shareholders' equity, and changes in financial position for the period then ended, including the notes thereto (the "Unaudited Financial Statements") (the Audited Financial Statements and the Unaudited Financial Statements are collectively referred to herein as the "Financial Statements"). The Financial Statements are true, complete, and correct, and fairly present the consolidated assets, liabilities, financial condition, and results of operations of the Company as of the respective dates thereof, and for the periods therein referred to, subject, in the case of the Unaudited Financial 6 8 Statements, to normal recurring year-end adjustments. The net asset value of the Company as of December 31, 1996 shall not be less than 150,000 Pounds. 4.18. NO UNDISCLOSED LIABILITY. The Company does not have any liabilities or obligations of any nature, whether absolute, accrued, contingent, or otherwise, and whether due or to become due (including, without limitation, liabilities for taxes and interest, penalties, and other charges payable with respect thereto) which are not reflected or reserved against in Financial Statements or disclosed in the notes thereto. The reserves reflected in the Financial Statements are adequate, appropriate, and reasonable in accordance with generally accepted accounting principles applied on a consistent basis. Furthermore, CCAUK does not have actual knowledge of or actual knowledge of any basis for the assertion against the Company of any such liability or obligation of any nature not fully reflected or reserved against in the Financial Statements. 4.19. PROFESSIONAL FEES. The Sellers have not done anything to cause or incur any liability or obligation of the Company for investment banking, brokerage, finders, agents or other fees, commissions, expenses or charges in connection with the negotiation, preparation, execution or performance of this Agreement or the consummation of the transactions contemplated hereby, and Sellers do not know of any claim by anyone for such a fee, commission, expense or charge. 4.20. OFFERING OF SHARES. The offer, sale and transfer of the Shares by CCAUK to Buyer will not require registration under United States securities laws or the securities laws of England. 4.21. CONSENTS AND APPROVALS. Subject to the provisions of Section 7.06, Sellers have obtained or will have obtained prior to Closing, all consents, approvals, authorizations or orders of third parties, including governmental authorities, necessary for the authorization, execution and performance of this Agreement by Sellers. 4.22. FULL DISCLOSURE. Neither the representations appearing in Article IV of this Agreement, nor any schedule, exhibit, list, certificate or other instrument and document furnished or to be furnished by Sellers to Buyer pursuant to this Agreement, contains any untrue statement of a material fact or omits to state any material fact required to be stated herein or therein or necessary to make the statements and information contained herein or therein not misleading. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER In order to induce Sellers to enter into this Agreement and consummate the transactions contemplated hereby, Buyer hereby represents and warrants to Sellers as follows: 7 9 5.01. ORGANIZATION AND GOOD STANDING. Buyer is a societe anonyme duly organized, validly existing and in good standing under the laws of France and has full corporate power and authority to enter into this Agreement and to carry out the transactions contemplated hereby. 5.02. AUTHORIZATION. The Board of Directors of Buyer has taken all action required to authorize the execution and delivery by Buyer of this Agreement and the consummation by Buyer of the transactions contemplated hereby. 5.03. VALID AND BINDING AGREEMENT. This Agreement constitutes a valid and binding agreement of Buyer, enforceable against Buyer in accordance with its terms. 5.04. NO VIOLATION. The execution and delivery of this Agreement by Buyer does not, and the consummation of the transactions contemplated hereby will not, (a) violate any provision, or result in the creation of any lien or security interest under, any agreement, indenture, instrument, lease, security agreement, mortgage or lien to which Buyer is a party or by which it is bound; (b) violate any order, arbitration award, judgment, writ, injunction, decree, statute, rule or regulation applicable to Buyer; or (c) violate any other contractual or legal obligation or restriction to which Buyer is subject. 5.05. PURCHASE FOR INVESTMENT. Buyer is acquiring the Shares for its own account and not with a view to, or present intention of, distribution thereof in violation of the federal securities laws of the United States or England or any state securities or blue sky laws, and the Shares will not be disposed of in contravention of such laws. 5.06. PROFESSIONAL FEES. Buyer has not done anything to cause or incur any liability for investment banking, brokerage, finders, agents or other fees, commissions, expenses or charges in connection with the negotiation, preparation, execution and performance of this Agreement or the consummation of the transactions contemplated hereby, and Buyer does not know of any claim by anyone for such a commission or fee. 5.07. CONSENTS AND APPROVALS. Buyer has obtained or will have obtained prior to Closing, all consents, approvals, authorizations or orders of third parties, including governmental authorities, necessary for the authorization, execution and performance of this Agreement by Buyer. 5.08. FULL DISCLOSURE. Neither the representations appearing in Article V of this Agreement, nor any certificate or other instrument or document furnished or to be furnished by Buyer to Seller pursuant to this Agreement, contains any untrue statement of a material fact or omits to state a material fact required to be stated herein or therein or necessary to make the statements and information contained herein or therein not misleading. 8 10 ARTICLE VI COVENANTS AND AGREEMENTS OF PARTIES The parties hereto agree that from the date hereof until the Closing, and thereafter if so specified, it will fulfill the following covenants and agreements unless otherwise consented to by Buyer in writing: 6.01. FURTHER ASSURANCES. At any time and from time to time after the Closing, at the request of the other party hereto and without further consideration, each of Sellers and Buyer will execute and deliver such other instruments of sale, transfer, conveyance, assignment, and delivery and confirmation and take such action as may reasonably be requested by another party hereto in order more effectively to transfer, convey and assign to Buyer and to place Buyer in possession and control of, and to confirm Buyer's title to, the Shares, and to assist Buyer in exercising all rights and enjoying all benefits with respect thereto. 6.02. CONSENTS AND APPROVALS. Each of Sellers and Buyer shall, in a timely, accurate and complete manner, take all necessary corporate and other action and use all reasonable efforts to obtain all consents, approvals, permits, licenses and amendments of agreements required to carry out the transactions contemplated in this Agreement. 6.03. NON-DISCLOSURE. Except as agreed to in writing by the other party hereto, neither Sellers nor Buyer will disclose to any other person not an employee of such entity (or a person otherwise involved in the carrying out of the transactions contemplated by this Agreement), nor make any public announcement of, the transactions contemplated by this Agreement prior to the Closing. Any such disclosure to employees will be made on a need-to-know basis and on the condition that such employees agree to be bound by the same confidentiality terms. ARTICLE VII CONDITIONS TO BUYER'S OBLIGATIONS All obligations of Buyer hereunder are subject to the fulfillment, prior to or at the Closing, of each of the following conditions: 7.01. REPRESENTATIONS AND WARRANTIES. The representations and warranties made by the Sellers in this Agreement shall be true when made and at and as of the time of the Closing as though such representations and warranties were made at and as of such date. 7.02. PERFORMANCE. Sellers shall have performed and complied with all agreements, obligations, and conditions required by this Agreement to be so complied with or performed. 9 11 7.03. DUE DILIGENCE. Buyer shall have completed to its satisfaction, a due diligence review of the Company. 7.04. OFFICER'S CERTIFICATE. Sellers shall have delivered to Buyer a Certificate of an officer of CCA and/or CCAUK dated the Closing Date, certifying as to the fulfillment of the conditions specified in Sections 7.01, 7.02, 7.06 and 7.07 hereof. 7.05. SHAREHOLDERS AGREEMENT. The parties hereto shall have entered into a Shareholders Agreement and, if necessary, an amendment to the Articles of Association which Agreement shall be in form and substance mutually agreeable to both parties. 7.06. CONSENTS. All third party consents, including governmental consents, shall have been obtained. 7.07. PURCHASE OF SHARES. CCAUK and/or CCA shall have acquired all shares of the Company owned by Sir Robert McAlpine (Trade Investments) Ltd. and that certain Shareholders Agreement dated 20 May 1993, made between Sir Robert McAlpine (Holdings) Limited (1), Mowlem Developments Limited (2), CCA (UK) Limited (3), Sir Robert McAlpine (Trade Investments) Limited (4), John Mowlem & Company PLC (5), Corrections Corporation of America (6) and the Company (7), as subsequently amended, shall have been terminated. 7.08. SECURITIES PURCHASE AGREEMENT AMENDMENT. CCA and Sodexho shall have entered into an amendment to that certain Securities Purchase Agreement dated June 23, 1994 to extend the expiration date of the Warrants referred to therein to December 31, 1999 and to extend the nonconversion period of the 8.5% Note and the Floating Rate Note (both as defined therein) to June 23, 1999. ARTICLE VIII CONDITIONS TO SELLER'S OBLIGATIONS All obligations of Sellers under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions: 8.01. REPRESENTATIONS AND WARRANTIES. The representations and warranties made by the Buyer in this Agreement shall be true when made and at and as of the time of the Closing as though such representations and warranties were made at and as of such date. 8.02. PERFORMANCE. Buyer shall have performed and complied with all agreements, obligations, and conditions required by this Agreement to be so complied with or performed. 10 12 8.03. OFFICER'S CERTIFICATE. Buyer shall have delivered to Seller a Certificate of an officer of Buyer, dated the Closing Date, certifying as to the fulfillment of the conditions specified in Sections 8.01 and 8.02 hereof. 8.04. CONSENTS. Sellers shall have received all consents required for the consummation of the transactions contemplated hereby, all of which consents shall be in form and substance satisfactory to Sellers. ARTICLE IX INDEMNIFICATION 9.01. INDEMNIFICATION BY SELLERS. The Sellers hereby agree to defend, indemnify and hold harmless Buyer, its directors, officers, employees, affiliates and agents, and shall reimburse Buyer for, from and against each claim, loss, diminution in value, damages, liability, cost and expense (including, without limitation, interest, penalties, costs of preparation and investigation, and the reasonable fees, disbursements and expenses of attorneys, accountants and other professional advisors) (collectively, "Losses"), directly or indirectly relating to, resulting from or arising out of: (a) Any untrue representation, misrepresentation, breach of warranty or nonfulfillment of any covenant, undertaking, agreement or other obligation by or of Sellers contained herein, or in any certificate, schedule, document or instrument delivered to Buyer pursuant hereto. (b) Any other Loss incidental to any of the foregoing. 9.02. INDEMNIFICATION BY BUYER. Buyer hereby agrees to defend, indemnify and hold harmless Sellers, its directors, officers, employees, affiliates and agents, and shall reimburse Sellers for, from and against Losses directly or indirectly relating to, resulting from or arising out of: (a) Any untrue representation, misrepresentation, breach of warranty or nonfulfillment of any covenant, undertaking, agreement or other obligation by Buyer contained herein or in any certificate, document or instrument delivered to Sellers pursuant hereto. (b) Any other Loss incidental to the foregoing. 9.03. PROCEDURE. (a) The indemnified party shall promptly notify the indemnifying party of any claim, demand, action or proceeding for which indemnification will be sought under Sections 9.01 or 9.02 of this Agreement (but the failure to so notify shall not relieve the indemnifying party from its obligations hereunder unless such failure irrevocably prejudices the indemnifying party), and, if such claim, demand, action or proceeding is a third party claim, demand, action or proceeding, the indemnifying party will have the right at its expense to assume the defense thereof using counsel reasonably acceptable to the indemnified party. The indemnified party shall have the right to 11 13 participate, at its own expense, with respect to any such third party claim, demand, action or proceeding. In connection with any such third party claim, demand, action or proceeding, Buyer and the Seller shall cooperate with each other and provide each other with access to relevant books and records in their possession. No such third party claim, demand, action or proceeding shall be settled without the prior written consent of the indemnified party. If a firm written offer is made to settle any such third party claim, demand, action or proceeding and the indemnifying party proposes to accept such settlement and the indemnified party refuses to consent to such settlement, then: (i) the indemnifying party shall be excused from, and the indemnified party shall be solely responsible for, all further defense of such third party claim, demand, action or proceeding; and (ii) the maximum liability of the indemnifying party relating to such third party claim, demand, action or proceeding shall be the amount of the proposed settlement if the amount thereafter recovered from the indemnified party on such third party claim, demand, action or proceeding is greater than the amount of the proposed settlement. (b) If the indemnified party reasonably determines (i) that there may be a conflict between the positions of the indemnifying party and the indemnified party in defending such claim or action, or (ii) that there may be legal defenses available to such indemnified party different from or in addition to those available to the indemnifying party, then separate counsel for the indemnified party shall be entitled to participate in and conduct the defense, or such different defenses, and the indemnifying party shall be liable for any reasonable legal or other expenses incurred by the indemnified party in connection with the defense. (c) Judgments against and settlements entered into by the indemnified party pursuant to Section 9.03(a) shall unconditionally release the indemnifying party from liability for the particular claim, demand, action, or proceeding for which indemnification was sought. ARTICLE X SURVIVAL OF REPRESENTATIONS 10.01. SURVIVAL OF REPRESENTATIONS. All representations, warranties, covenants, indemnities and agreements by the parties contained in this Agreement shall survive the Closing and any investigation at any time made by or on behalf of any party hereto, and shall expire on the third anniversary of the Closing. 10.02. STATEMENTS AS REPRESENTATIONS. All statements contained in any certificate, schedule, list, document or other writing delivered pursuant hereto or in connection with the transactions contemplated hereby shall be deemed representations and warranties for all purposes of this Agreement. 12 14 10.03. REMEDIES CUMULATIVE. The remedies provided herein shall be cumulative and shall not preclude the assertion by any party hereto of any other rights or the seeking of any other remedies against the other party hereto. ARTICLE XI TERMINATION OF AGREEMENT 11.01. TERMINATION. This Agreement may be terminated at any time prior to the Closing: (a) By Buyer, if there has been a material violation or breach by CCA or CCAUK of any of the agreements, representations or warranties contained in this Agreement which has not been waived in writing, or if any of the conditions set forth in Article VII hereof have not been satisfied by the Closing or have not been waived in writing by Buyer. (b) By CCAUK, if there has been a material violation or breach by the Buyer of any of the agreements, representations or warranties contained in this Agreement which has not been waived in writing, or if any of the conditions set forth in Article VIII hereof have not been satisfied by the Closing or have not been waived in writing by CCAUK. (c) By either Buyer or CCAUK if the transactions contemplated by this Agreement shall not have been consummated on or before December 31, 1996. (d) By either Buyer or CCAUK if the other makes an assignment for the benefit of creditors, files a voluntary petition in bankruptcy or seeks or consents to any reorganization or similar relief under any present or future bankruptcy act or similar law, or is adjudicated a bankrupt or insolvent, or if a third party commences any bankruptcy, insolvency, reorganization or similar proceeding involving the other. 11.02. EFFECT OF TERMINATION. In the absence of fraud or willful breach on the part of Seller, or on the part of Buyer, then CCAUK will not have any liability to Buyer, or Buyer will not have any liability to CCAUK, as the case may be, under this Agreement if CCAUK or Buyer terminates this Agreement pursuant to Section 11.01. ARTICLE XII MISCELLANEOUS 12.01. EXPENSES. All fees and expenses incurred by Sellers, including without limitation, legal fees and expenses, in connection with this Agreement will be borne by Sellers and all fees and 13 15 expenses incurred by Buyer, including, without limitation, legal fees and expenses, in connection with this Agreement will be borne by Buyer, provided, however, that Buyer shall be responsible for all stamp duty which may be due to any jurisdiction or governmental entity as a result of the purchase of the Shares. 12.02. ASSIGNABILITY; PARTIES IN INTEREST. (a) Buyer may assign any and all of its rights hereunder to any affiliate of or any direct or indirect subsidiary of Buyer, and Buyer shall advise Sellers of any such assignment and shall designate such party as the assignee of this Agreement and transferee of the shares. Any such assignee shall assume all of Buyer's duties, obligations and undertakings hereunder, but the Buyer shall remain liable hereunder. (b) Neither CCA nor CCAUK may assign, transfer or otherwise dispose of any of its rights hereunder without the prior written consent of Buyer. (c) All the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective transferees, heirs, successors, assigns and legal or personal representatives of the parties hereto. 12.03. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, including the exhibits, schedules, lists and other documents and writings referred to herein or delivered pursuant hereto, which form a part hereof, contains the entire understanding of the parties with respect to its subject matter. There are no restrictions, agreements, promises, warranties, covenants or undertakings other than those expressly set forth herein or therein. This Agreement supersedes all prior agreements and undertakings between the parties with respect to its subject matter. This Agreement may be amended only by a written instrument duly executed by all parties or their respective transferees, heirs, successors, assigns or legal personal representatives. Any condition to a party's obligations hereunder may be waived, but only by a written instrument signed by the party entitled to the benefits thereof. The failure or delay of any party at any time or times to require performance of any provision or to exercise its rights with respect to any provision hereof, shall in no manner operate as a waiver of or affect such party's right at a later time to enforce the same. 12.04. HEADINGS. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretations of this Agreement. 12.05. SEVERABILITY. The invalidity of any term or terms of this Agreement shall not affect any other term of this Agreement, which shall remain in full force and effect. 12.06. NOTICES. All notices, request, claims, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered or mailed (registered or certified mail, postage prepaid, return receipt requested) as follows: 14 16 If to Sellers: Corrections Corporation of America (U.K.) Limited Corrections Corporation of America 102 Woodmont Boulevard, Suite 800 Nashville, Tennessee 37205 Attn: Doctor R. Crants With a copy to: Elizabeth E. Moore, Esq. Stokes & Bartholomew, P.A. 424 Church Street, Suite 2800 Nashville, Tennessee 37219 If to Buyer: Sodexho S.A. 3, avenue Newton 78180 Montigny-le-Bretonneux FRANCE Attn: Jean-Pierre Cuny With a copy to: Ropes & Gray One International Place Boston, MA 02110 Attn: Jane Goldstein or to such other address as any party may have furnished to the others in writing in accordance herewith, except that notices of change of address shall only be effective upon receipt. 12.07. GOVERNING LAW. This Agreement shall be governed by and be interpreted under the laws of England without regard to the conflicts of law principles thereof. Subject to Section 12.09 hereof, each party hereby irrevocably submits to the non-exclusive jurisdiction of the English courts over any action or proceeding to enforce any right under this Agreement. The parties further acknowledge that irrevocable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, subject to Section 12.09 hereof, the parties shall be entitled to an injunction to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in the English courts. This being in addition to any other remedy to which they may be entitled at law or equity. 15 17 12.08. COUNTERPARTS. This Agreement may be executed simultaneously in one or more counterparts, with the same effect as if the signatories executing the several counterparts had executed one counterpart, provided, however, that the several executed counterparts shall together have been signed by Buyer and the Sellers. All such executed counterparts shall together constitute one and the same instrument. 12.09. DISPUTE RESOLUTION. (a) Any party to this Agreement claiming that a dispute has arisen in connection with the negotiation, execution, interpretation, performance or nonperformance of this Agreement between any of the parties to this Agreement shall give notice to the other party in dispute designating as its representative in negotiations relating to the dispute a person with authority to settle the dispute and the other party given written notice shall promptly give notice in writing to the first party designating as its representative in negotiations relating to the dispute a person with similar authority. (b) The designated persons shall within 10 days of the last designation required by subsection (a), following whatever investigations each deems appropriate, seek to resolve the dispute. (c) If the dispute is not resolved within the following 10 days (or within such further period as the representatives may agree is appropriate) the parties hereto agree that such dispute shall be solely and finally settled by arbitration in accordance with the international rules of the International Chamber of Commerce. All such proceedings shall be conducted in Geneva, Switzerland. (d) The parties acknowledge that the purpose of any exchange of information or documents or the making of any offer of settlement pursuant to this Section is to attempt to settle the dispute between the parties. No party may use any information or documents obtained through the dispute resolution process established by this Section for any purpose other than in an attempt to settle a dispute between that party and the other party to this Agreement. (e) After the expiration of the time established by this Section for agreement on a dispute resolution process, any party which has complied with the provisions of this Section may in writing terminate the dispute resolution process provided for in this Section and may then commence Court proceedings relating to the dispute. 16 18 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of Buyer and by the Seller on the date first above written. BUYER: SODEXHO S.A. By: /s/ ----------------------------------------- Title: -------------------------------------- SELLERS: CORRECTIONS CORPORATION OF AMERICA (U.K.) LIMITED By: /s/ ----------------------------------------- Title: -------------------------------------- CORRECTIONS CORPORATION OF AMERICA By: /s/ ----------------------------------------- Title: -------------------------------------- 17 19 SCHEDULES TO PURCHASE AGREEMENT AMONG CORRECTIONS CORPORATION OF AMERICA, CORRECTIONS CORPORATION OF AMERICA (U.K.) LIMITED AND CORRECTIONS CORPORATION OF AMERICA AND SODEXHO S.A. DATED AS OF DECEMBER 31, 1996 18 20 SCHEDULE 2.02 That certain Performance Bond dated 23rd December 1992 executed by UKDS and CCA in connection with the contract between UKDS and the Home Office for the operation of the Blackenhurst facility along with a related Deed of Counter Indemnity dated 2nd April 1993 19 21 SCHEDULE 4.14 MATERIAL CONTRACTS 1. Agreement, dated 3 December 1992, between UK Detention Services Limited and the Secretary of State for the Home Department with regard to the operation and management of the Blakenhurst Prison. 2. Agreement between UK Detention Services Limited and Worcester Royal Infirmary regarding medical department management and staffing. 3. Agreement between UK Detention Services Limited and John Mowlem regarding inmate education and industries management. 4. Agreement between UK Detention Services Limited and Robert O'Neill regarding maintenance. 20 EX-10.164 15 SHAREHOLDERS AGREEMENT 1 EXHIBIT 10.164 SHAREHOLDERS' AGREEMENT This Shareholders' Agreement (the "Agreement"), dated as of December 31, 1996, is by and among Corrections Corporation of America (U.K.) Limited, a company incorporated in England and Wales whose registered number is 2147489 and whose registered office is 9 Cheapside, London EC2V 6AD ("CCAUK"), Corrections Corporation of America, a Delaware corporation having its principal place of business in Nashville, Tennessee, United States ("CCA"), Sodexho S.A., a French societe anonyme having its principal place of business in France, or its designee ("Sodexho") and U.K. Detention Services Limited, a company incorporated in England and Wales whose registered number is 2147491 and whose registered office is 40 Bernard Street, WC1N 1LG (the "Company") (CCAUK and CCA are collectively referred to herein as "CCA" and CCA and Sodexho are sometimes referred to herein collectively as the "Shareholders"). W I T N E S S E T H: WHEREAS, CCAUK owns 2,000 "A" Ordinary Shares, 5,000 "B" Ordinary Shares and 5,000 "C" Ordinary Shares in the capital of the Company, representing in the aggregate eighty percent (80%) of the issued and outstanding share capital of the Company; WHEREAS, Sodexho (i) owns 3,000 "A" Ordinary Shares in the capital of the Company which shares represent in the aggregate twenty percent (20%) of the issued and outstanding share capital of the Company, and (ii) has an option (the "Option") to purchase an additional 2,000 "A" Ordinary Shares and 2,500 "B" Ordinary Shares (the "Option Shares") of the capital stock of the Company which shares represent thirty percent (30%) of the outstanding shares of the Company, pursuant to that certain Option Agreement of even date herewith by and among CCA, CCAUK and Sodexho; and WHEREAS, the parties believe it is in the best interest of the Company and its Shareholders to restrict Transfers of shares of capital of the Company, and desire to set forth the terms and conditions regarding any Transfers of shares and to set forth their agreements with respect to certain other matters. NOW, THEREFORE, in consideration of the premises and the mutual promises, covenants, representations, warranties, and conditions contained in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Shareholders hereby agree as follows: 1. Definitions. The following words and terms when used in this Agreement shall have the meanings set forth below. 2 (a) "Affiliate" means any person or entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, the person or entity specified. (b) "Holder" or "Holders" means one or more Holders of "A", "B" or "C" Ordinary Shares in the capital of the Company, whether legal or beneficial Holders, or whether parties to this Agreement or who are otherwise bound by its terms. (c) "Shares" means all "A", "B" or "C" Ordinary Shares in the capital of the Company held by the Holders and all other securities of the Company or any successor of the Company which (i) may be issued in exchange for or in respect of such Shares (whether by way of share split, dividend, combination, reclassification, share exchange, reorganization, exchange, conversion, or any other means), or (ii) may be hereafter acquired by any Holder or during the term of this Agreement. For purposes of Paragraphs 3 and 4 hereof, "Shares" shall also include all shares of capital stock of CCAUK owned by CCA. (d) "Transfer", "Transferred", or "Transferring" means any sale, assignment, transfer, conveyance, pledge, hypothecation, mortgage, encumbrance, gift, or other disposition of any Shares or any interest therein, whether direct or indirect, or any attempted sale, assignment, transfer, conveyance, pledge, hypothecation, mortgage, encumbrance, or other disposition of such Shares or interest, including, without limitation, any commitment or contract relating to the foregoing which is not expressly subject to this Agreement. 2. Conditions to Transfer. No Holder shall Transfer all or any of its Shares, except expressly in accordance with the terms and conditions of this Agreement. 3. Right of First Refusal on Dispositions by Shareholders. No Shareholder shall directly or indirectly Transfer any or all Shares owned by it to a third party unless (a) such Shareholder shall have received a bona-fide arm's length offer to purchase such Shares from such third party, and (b) the Shareholder first submits a written offer (the "Offer") to the other Shareholder (the "Remaining Shareholder") identifying the third party to whom such Shares are proposed to be sold and the terms of the proposed sale and offering the opportunity to purchase such Shares on terms and conditions, including price, not less favorable to the Remaining Shareholder or its designee than those on which the Shareholder proposes to sell such Shares to any other purchaser. The Remaining Shareholder shall act upon the Offer as soon as practicable after receipt thereof, and in any event within 20 days after receipt thereof. In the event that the Remaining Shareholder or its designee shall elect to purchase all or a part of the Shares covered by the Offer, the Remaining Shareholder shall communicate in writing such election to purchase to the Shareholder who submitted the Offer, which communication shall be delivered to such Shareholder as set forth in Section 14 hereof and shall, when taken in conjunction with the Offer, be deemed to constitute a 3 valid, legally binding and enforceable agreement for the sale and purchase of the Shares covered thereby. In the event that the Remaining Shareholder or its designee does not purchase all of the Shares offered by such Shareholder pursuant to the Offer, the unpurchased portion of such Shares may be sold by such Shareholder at any time within ninety (90) days after receipt of the Offer by the Remaining Shareholder. Any such sale shall be to the person originally named in the Offer as the proposed purchaser or transferee and shall be at not less than the price and upon other terms and conditions, if any, not more favorable to such purchaser than those specified in the Offer. Any Shares proposed to be sold after such ninety (90) day period, to a different purchaser or at a lower price or otherwise on more favorable terms shall be subject to the requirements of a prior offer to the Remaining Shareholder pursuant to this Section 3. If the purchase price specified in the Offer includes any property other than cash, such purchase price shall be deemed to be the amount of any cash included in the purchase price plus the value (as determined in good faith by the Company's regular investment banking firm) of such other property included in such price. If the Remaining Shareholder exercises its right of first refusal hereunder, the closing of the purchase of the Shares with respect to which such right has been exercised shall take place within thirty (30) calendar days (or if approval of such purchase by the Company's shareholders is required by law or pursuant to any stock exchange rule or policy, within ninety (90) calendar days) after the Remaining Shareholder gives notice of such exercise. Upon exercise of its right of first refusal, the Remaining Shareholder shall be legally obligated to consummate the purchase contemplated thereby and shall use its best efforts to secure all approvals required in connection therewith. 4. Right to Participate in Transfers. (a) If at any time any Remaining Shareholder receives an Offer pursuant to Section 3 hereof and does not elect to exercise the right of first refusal granted in Section 3 with respect to such Offer, such Remaining Shareholder may elect to Transfer a Pro Rata Share, as hereinafter defined, of the securities described in such Offer. As used in this Section 4, "Pro Rata Share" means the product of the number of Shares in the Offer and a fraction (i) the numerator of which is the number of Shares held by such Remaining Shareholder, and (ii) the denominator of which is the sum of the number of Shares held by all Remaining Shareholders who choose to exercise the rights granted in this Section 4, plus the number of Shares held by the Holder making the Offer. (b) Each Remaining Shareholder wishing so to participate in any Transfer under this Section 4 shall notify the Holder making the Offer in writing of such intention as soon as practicable after such Remaining Shareholder's receipt of the Offer pursuant to Section 3, and in any event within thirty (30) days after the date of the Offer. Such notification shall be delivered or mailed to such Holder in accordance with Section 15 below. 3 4 (c) The Holder and each Remaining Shareholder participating in the proposed Transfer pursuant to this Section 4 shall Transfer to the proposed transferee (the "Proposed Transferee") (and any Remaining Shareholders exercising rights of first refusal pursuant to Section 3 hereof) all, or, at the option of the Proposed Transferee (or any such Remaining Shareholder) any part of Shares in the Offer (the "Offered Shares") proposed to be Transferred at not less than the price and upon other terms and conditions, if any, not more favorable to the Proposed Transferee (or any such Remaining Shareholder) than those in the Offer provided by the Holder under Section 3 hereof; provided, however, that any purchase or other acquisition of less than all of such Offered Shares by the Proposed Transferee (and any Remaining Shareholders exercising rights of first refusal pursuant to Section 3 hereof) shall be made from the Holder and each participating Remaining Shareholder pro rata based upon the relative amount of the Offered Shares that the Holder and such participating Remaining Shareholder is otherwise entitled to Transfer pursuant to Section 4(a). (d) The Remaining Shareholders' right to participate in a Transfer pursuant to this Section 4 shall not apply with respect to Transfers of Shares to the Company. 5. Right of First Refusal to Purchase New Securities. (a) The Company shall, prior to any issuance by the Company of any of its securities (other than debt securities with no equity feature), offer to each Holder owning at least ten percent (10%) of the issued and outstanding Ordinary Shares of the Company by written notice the right, for a period of thirty (30) days, to purchase its Pro Rata Amount, as hereinafter defined, of such securities for cash at a per share amount equal to the per share price or other consideration for which such securities (the "New Securities") are to be issued. For purposes of this Section 5, "Pro Rata Amount" means the product of the New Securities to be issued and a fraction (i) the numerator of which is the number of Shares held by such Holder as of the date of the New Securities Notice, as hereinafter defined, and (ii) the denominator of which is the aggregate number of Shares held on such date by all Holders of Shares. The first refusal rights of the Holders pursuant to this Section 5 shall not apply to securities issued (i) as a dividend or upon any subdivision of Shares, provided that the securities issued are limited to additional Shares, or (ii) pursuant to the exercise of options to purchase shares of capital stock granted to employees of the Company, not to exceed in the aggregate ten percent (10%) of capital shares outstanding (appropriately adjusted in each case to reflect share splits, dividends, share exchanges, combinations of shares, and the like with respect to the Shares). The Company's written notice to the Shareholders (the "New Securities Notice") shall describe in reasonable detail the securities proposed to be issued by the Company and specify the number, price, and the terms of payment, and shall be deemed to be dated the date it is given to the Shareholders in accordance with Section 14 hereof. (b) Each Shareholder may accept the Company's offer as to the full number of New Securities offered to it in the New Securities Notice or as to any lesser number, by written notice thereof ("Notice of Acceptance") given by it to the Company prior to the expiration of the aforesaid thirty (30) day period. A Shareholder who accepts such offer as to any portion of its Pro Rata Amount of the New Securities shall be referred to herein as a Participating Shareholder. If any 4 5 Participating Shareholder shall subscribe for less than his Pro Rata Amount of the New Securities, the other Participating Shareholders shall be entitled to purchase the balance of that Participating Shareholder's Pro Rata Amount of the New Securities in the same proportion in which they were entitled to purchase the New Securities pursuant to Section 5(a). Within five (5) days following the expiration of the aforesaid thirty (30) day period, the Company shall notify each Participating Shareholder of the amount of New Securities which each Participating Shareholder may purchase pursuant to the foregoing provision and each Participating Shareholder shall then have fifteen (15) days from the receipt of such notice to indicate such additional amount of New Securities, if any, that such Participating Shareholder wishes to purchase. Promptly thereafter, the Company shall sell and each Participating Shareholder shall buy, upon the terms specified, the number of New Securities agreed to be purchased by each Participating Shareholder. (c) The Company shall be free at any time prior to one hundred twenty (120) days after the date of its New Securities Notice to the Shareholder, to offer and sell to any third party or parties the number of such New Securities not agreed by the Shareholder to be purchased by them (the "Refused Securities"), at a price and on payment terms no less favorable to the Company than those specified in such New Securities Notice to the Shareholders. However, if such third party sale or sales are not consummated within such one hundred twenty (120) day period, the Company shall not sell such New Securities as shall not have been purchased within such period without again complying with this Section 5. (d) In the event the Company shall propose to sell less than all the Refused Securities (any such sale to be in the manner and on the terms specified in this Section 5), the Shareholders may, at their sole option and in their sole discretion, reduce the number of, or other units of calculation of the amount of, the New Securities specified in their respective Notices of Acceptance to an amount which shall be not less than the product of: (i) the ratio of the amount of New Securities in respect of which Notices of Acceptance were delivered to the Company to the total amount of New Securities specified in the New Securities Notice multiplied by (ii) the total amount of New Securities proposed to be actually sold by the Company (calculated without regard to this provision). In the event that the Shareholders so elect to reduce the number or amount of New Securities specified in their respective Notices of Acceptance, the number or amount of New Securities by which such New Securities specified in the Notices of Acceptance are reduced shall not be sold or otherwise disposed of until they have again been offered to the Purchasers in accordance with this Section 5. 5 6 (b) In any case of a Deadlock under Section 8(a), each of the Shareholders shall within 10 days of a Deadlock Notice covering such Deadlock cause its members of the Board of Directors to prepare and circulate to the other Shareholders and the Board of Directors a memorandum setting out its position on the matter in dispute and its reason for adopting such position and each such memorandum shall be considered by each Shareholder who shall respectively use their reasonable endeavors in good faith to resolve such dispute. Any resolution of the matter by the Shareholders pursuant to this Section 8(b) shall be a final and binding determination of the matter. (c) In the event (x) a Deadlock arises under Section 8(a)(ii), or if no resolution has occurred in accordance with the provisions of Section 8(b) within 30 days after delivery of the memorandum mentioned therein; and (y) if any such Deadlock prevent the Board of Directors 6. Permitted Transfers. Anything herein to the contrary notwithstanding, the provisions of Sections 2,3,4 and 5 shall not apply to any Transfer by a Shareholder to any Affiliate of such Shareholder. In the event of any such Transfer, the transferee of the Shares shall be bound by the terms and conditions of this Agreement, and shall, as a condition of such transfer, the transferee shall execute and deliver to the other Shareholder and the Company a written agreement to that effect. 7. Call Option. (a) In the case of an Event of Default (as described below) by a Shareholder, the other Shareholder (the "Nondefaulting Shareholder") shall be granted the option to purchase the Shares held by the other Shareholder at a fair value price (the "Fair Price"), but in no case shall the Fair Price be less than the book value of such interest, to be determined by the Company's independent accountants (the "Accountant"). The costs of such Accountant shall be paid by the Company. Such option shall be exercisable for a period of 15 days following the delivery of the valuation report by the Accountant. (b) If the Non-Defaulting Shareholder has not exercised its option pursuant to Section 7(a), then the other Shareholder shall be granted the same option which will thereafter be exercisable from the 16th day until the 30th day after the delivery of the valuation report by the Accountant. (c) If after the 30th day following the delivery of the valuation report by the Accountant neither of the Shareholders has exercised its option pursuant to Sections 7(a) and (b) hereof, then the Non-Defaulting Shareholder shall have a new option to purchase the other Shareholder's interest in the Company at a price equal to 90% of the Fair Price. Such option shall be exercisable for a period of seven days. (d) If the Non-Defaulting Shareholder has not exercised its option pursuant to Section 7(c), then the other Shareholder shall have the same option which will thereafter be exercisable from the 38th day until the 45th day after the delivery of the valuation report by the Accountant. (e) The foregoing procedure shall be applied with successive seven-day options granted to the Non- Defaulting Shareholder and the other Shareholder at a price that shall be reduced by 10% of the Fair Price determined by the Accountant at the expiration of each party's option to purchase at the Fair Price, as so reduced, until any Shareholder decides to exercise its option. (f) For purposes of this Section 7, an Event of Default shall include: (i) a material default by either Shareholder in the observance or performance of any of the terms of this Agreement which default remains uncured for a period of sixty (60) days after receipt of reasonable notice thereof by the Defaulting Shareholder; 6 7 (ii) a "change in control" of either Shareholder resulting in control by any person or Company who is a competitor of the Shareholders. For purposes of this paragraph "change in control" shall mean (a) the acquisition of fifty-one percent (51%) or more of the voting capital stock of such Shareholder or (b) the ability to control the Board of Directors of such Shareholder; or (iii) a Shareholder shall file a petition seeking reorganization or relief under any applicable bankruptcy or similar law or consents to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) for it or a substantial part of its property. 8. Deadlock. In the event Sodexho exercises the Option for all of the Option Shares and as a result CCAUK and Sodexho each own fifty percent (50%) of the outstanding capital stock of the Company, the following provisions shall apply: (a) In the event all of the Sodexho designees to the board of directors of the Corporation (the "Board of Directors"), as a group, or all of the CCA designees to the Board of Directors, as a group, fail to consent to any material matter considered by the Board of Directors, the vote of any other member of the Board of Directors who is not considered a CCA designee or a Sodexho designee pursuant to Section 11 hereof shall not be counted in such vote. In the event (i) such disagreement between the Sodexho designees and the CCA designees referred to in the preceding sentence remains unresolved for a period of thirty (30) days after the date of such meeting; or (ii) two successive meetings of the Board of Directors (each of which is called pursuant to at least 14 days' prior notice to occur at a reasonable time and place) either fail to occur or are not attended by a majority of the members of the Board of Directors (each of the matters referred to in clauses (i) or (ii) above being hereinafter referred to as a "Deadlock"), either Shareholder may send to the other Shareholder a written notice identifying the Deadlock and invoking the following procedures (the "Deadlock Notice"). (b) In any case of a Deadlock under Section 8(a), each of the Shareholders shall within 10 days of a Deadlock Notice covering such Deadlock cause its members of the Board of Directors to prepare and circulate to the other Shareholders and the Board of Directors a memorandum setting out its position on the matter in dispute and its reason for adopting such position and each such memorandum shall be considered by each Shareholder who shall respectively use their reasonable endeavors in good faith to resolve such dispute. Any resolution of the matter by the Shareholders pursuant to this Section 8(b) shall be a final and binding determination of the matter. (c) In the event (x) a Deadlock arises under Section 8(a)(ii), or if no resolution has occurred in accordance with the provisions of Section 8(b) within 30 days after delivery of the memorandum mentioned therein; and (y) if any such Deadlock shall prevent the Board of Directors 7 8 from continuing to achieve its business purposes or its ability to honor its contractual commitments in any material respect, either of the Shareholders may by notice in writing to the Corporation cause the interests of the Shareholders in the Corporation to be transferred according to the procedure described in Section 7 above. (d) In no circumstances shall a Shareholder create an "artificial Deadlock" in order to invoke the provisions of this Section 8. For the purposes of this provision an "artificial Deadlock" shall be a Deadlock caused (other than in circumstances where the interests of the Shareholder conflicts with the interests of the Corporation) by a Shareholder or its appointees on the Board of Directors voting against a series of related issues or proposals in any case where the passage or approval of the same is required to enable the Corporation to carry on its business properly and efficiently. (e) The provisions of this Article 8 shall also apply in the event the Shareholders fail to agree to any material matter considered by the Shareholders and (i) such disagreement remains unresolved for a period of thirty (30) days after the date of such meeting; or (ii) two successive meetings of the Shareholders (each of which is called pursuant to at least 14 days prior notice to occur at a reasonable time and place) either fail to occur or are not attended by a majority of the Shareholders. 9. Confidentiality. (a) The Shareholders agree at all times during the term of this Agreement to hold in confidence and keep secret and inviolate all of the Company's confidential and proprietary information, including, without limitation, the Company's budgets, financial statements, development plans, and the information related thereto, and all unpublished matters relating to the business, property, trade secrets, proprietary rights, intellectual property, accounts, books, records, customers, and contracts of the Company which it may know or hereafter come to know; provided, however, that no such information, whether deemed confidential by the Company or not, shall be subject to the terms of this Section 9 if it is part of the public domain, through no fault of the Shareholder. (b) Each of the Shareholders covenant that the information described in 9(a) will be kept confidential by such Shareholder, the entities controlled by such Shareholder and the directors, employees, and representatives of any of them, using the same standard of care in safeguarding such information as such Shareholder employs in protecting its own proprietary information which it desires not to disseminate or publish and that such information shall only be used by the Shareholder in connection with the business of the Company. (c) No Shareholder shall at any time take, or cause to be taken any action, and shall not make, or cause to be made, any omission, which would be inconsistent with or impair in any way the rights of the Company in the information described in Section 9(a) above. The Shareholders acknowledge and agree that any unauthorized disclosure or use of the information described in Section 9(a) above would cause the Company irreparable injury or loss. Accordingly, each 8 9 Shareholder acknowledges and agrees that in the event of a breach, or threatened breach, by any of them of any provisions of this Section 9, the Company shall be entitled to an injunction restraining such Shareholder from the disclosure or unauthorized use of any such information. 10. Specific Performance. The Shareholders and the Company expressly agree that the Shareholders and the Company will be irreparably harmed and/or injured if this Agreement is not specifically enforced. Upon a breach or threatened breach of the terms, covenants, and/or conditions of this Agreement by any of the Shareholders or the Company, the other Shareholders and the Company shall, in addition to all other remedies, each be entitled to a temporary or permanent injunction, without showing any actual harm, injury, or damage to such other Shareholders or the Company, and/or a decree for specific performance, in accordance with the provisions of this Agreement. 11. Board of Directors. The Shareholders acknowledge and agree that Sodexho shall be entitled to one nominee to the Board of Directors of the Company and CCAUK shall be entitled to the remainder of the director nominees. In the event of the exercise of the Option by Sodexho, each shareholder shall have be entitled to an equal number of nominees to the Board of Directors. In the event of the exercise of the Option by Sodexho, each shareholder further agrees (i) that in all elections of directors during the term of this Agreement, such shareholder shall vote all shares owned by it for the nominees of the other shareholders and (ii) that any change in the number of directors shall require the unanimous written consent of all shareholders. 12. Management Fee. The Shareholders agree that each shall receive an annual management fee from the Company in the amount of #90,000 in consideration for the services performed by each for the Company. Such fee shall be payable quarterly. In the event the management fee for one Shareholder is increased/decreased, the management fee for the other Shareholder shall be increased/decreased in a like amount. 13. Amendment to Articles of Association, etc. The Shareholders agree that within ten days of the execution of this Agreement, the Company's Articles of Association shall be amended to reflect the agreements herein. The Shareholders further acknowledge and agree that the affirmative vote of seventy-five percent (75%) of the Holders of the Shares shall be required for (i) an amendment to the Company's Articles of Association, (ii) the issuance by the Company of any additional Ordinary Shares or other securities convertible into ordinary shares of the Company, or (iii) any merger or combination of the Company with or into any other entity. 14. Term. Unless otherwise specified, this Agreement, and the respective rights and obligations of the parties hereto, shall continue and be effective for so long as the parties hereto are shareholders in the Company. 15. Notices. (a) Any notices required or permitted to be sent hereunder shall be mailed, certified mail, return receipt requested, postage prepaid, or delivered by overnight courier service, or by facsimile transmission in the case of non-U.S. residents, to the following addresses, or such other 9 10 addresses as shall be given by notice delivered hereunder, and shall be deemed to have been given three days after mailing, if mailed, or one business day. If to the Company, to: Corrections Company of America (U.K.) Limited 9 Cheapside London EC2C6AD Attn: Gay Vick 10 11 With a copy to the Shareholders. If to CCA, to: Corrections Company of America 102 Woodmont Boulevard, Suite 800 Nashville, Tennessee 37205 Attn: Doctor R. Crants With a copy to: Elizabeth E. Moore, Esq. Stokes & Bartholomew, P.A. 424 Church Street, Suite 2800 Nashville, Tennessee 37219 If to Sodexho: Sodexho S.A. 3, avenue Newton 78180 Montigny-le-Bretonneux FRANCE Attn: Jean-Pierre Cuny With a copy to: Ropes & Gray One International Place Boston, MA 02110 Attn: Jane Goldstein, Esq. (b) Copies of any notices given, or required to be given to or by, any Shareholder under this Agreement shall also be furnished to the Company in accordance with the provisions of this Section 15. 16. Legend. Each certificate evidencing any of the Shares shall bear a legend substantially as follows: THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND MAY NOT BE SOLD, EXCHANGED, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED, 11 12 OR OTHERWISE DISPOSED OF, EXCEPT IN ACCORDANCE WITH AND SUBJECT TO ALL THE TERMS AND CONDITIONS OF THAT CERTAIN SHAREHOLDERS' AGREEMENT, DATED DECEMBER __, 1996, AMONG THE COMPANY AND ITS SHAREHOLDERS, A COPY OF WHICH THE COMPANY WILL FURNISH TO THE HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON REQUEST IN WRITING. 17. Entire Agreement and Amendments. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and neither this Agreement nor any provision hereof may be waived, modified, amended, or terminated except by a written agreement signed by the parties hereto and in accordance with the terms of the Articles of Association, as amended. 18. Governing Law. This Agreement shall be governed by and be interpreted under the laws of England without regard to the conflicts of law principles thereof. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the English courts over any action or proceeding to enforce any right under this Agreement. The parties further acknowledge that irrevocable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, the parties shall be entitled to an injunction to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any English court. This being in addition to any other remedy to which they may be entitled at law or equity. 19. Successors and Assigns. This Agreement shall be binding upon the heirs, transferees, personal representatives, executors, administrators, successors, and assigns of the parties. 20. Waivers. No waiver of any breach or default hereunder shall be considered valid unless in writing, and no such waiver shall be deemed a waiver of any subsequent breach or default of the same or similar nature. 21. Severability. If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, such illegality, invalidity or unenforceability shall attach only to such provision and shall not in any manner affect or render illegal, invalid or unenforceable any other provision of this Agreement, and 12 13 this Agreement shall be carried out as if any such illegal, invalid, or unenforceable provision were not contained herein. 22. Descriptive Headings. Descriptive headings are for convenience only and are not deemed to be part of this Agreement. 23. Counterparts. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement was executed as of the date first set forth above. CORRECTIONS CORPORATION OF AMERICA (U.K.) LIMITED By: /s/ ------------------------------------- Title: ---------------------------------- CORRECTIONS CORPORATION OF AMERICA By: /s/ ------------------------------------- Title: ---------------------------------- U.K. DETENTION SERVICES LIMITED By: /s/ ------------------------------------- Title: ---------------------------------- SODEXHO S.A. By: /s/ ------------------------------------- Title: ---------------------------------- 13 EX-10.165 16 OPTION AGREEMENT 1 EXHIBIT 10.165 OPTION AGREEMENT THIS OPTION AGREEMENT is made and entered into as of December 31, 1996, by and between Corrections Corporation of America, a Delaware corporation having its principal place of business in Nashville, Tennessee ("CCA"), Corrections Corporation of America (U.K.) Limited, a company incorporated in England and Wales whose registered number is 2147489 and whose registered office is at 9 Cheapside, London ECZC 6AD ("CCAUK") and Sodexho S.A., a French societe anonyme, or its designee ("Sodexho"). W I T N E S S E T H: WHEREAS, CCAUK is a wholly-owned subsidiary of CCA, and currently owns 5000 "A" Ordinary Shares, 5000 "B" Ordinary Shares and 5,000 "C" Ordinary Shares in the capital of U.K. Detention Services Limited, a company incorporated in England and Wales ("UKDS") whose registered number is 2147491 and whose registered office is 40 Bernard Street, London, WCIN 1LG (the "Company") which shares collectively represent one hundred percent (100%) percent of the issued share capital of the Company; and WHEREAS, on even date herewith Buyer acquired from CCAUK, and CCAUK sold to Buyer, 3,000 "C" Ordinary Shares in the capital of the Company owned by CCAUK which shares collectively represent twenty percent (20%) of the issued shares of the Company pursuant to that certain Purchase Agreement by and among CCA, CCAUK and Sodexho. WHEREAS, CCA, CCAUK and Sodexho have agreed that in consideration of the acquisition by Sodexho of the shares referred to above, CCA, CCAUK will grant Sodexho an option to purchase an additional 2,000 "C" Ordinary Shares and 2,500 "B" Ordinary Shares (the "Shares") of the capital stock of the Company which shares represent thirty percent (30%) of the outstanding shares of the Company, under the terms and conditions set forth herein. NOW, THEREFORE, for and in consideration of the premises and the mutual promises, covenants, agreements, and conditions in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, CCA, CCAUK and Sodexho hereby agree as follows: 1. Grant of Option. Subject to the terms and conditions of this Agreement and in reliance upon the representations, warranties, covenants, and agreements contained herein, CCA and CCAUK hereby grant to Sodexho the option to purchase all, but not less than all, of the Shares (the "Option"). 2 2. Purchase Price of Shares. The purchase price of the Shares shall be One Million Five Hundred Thousand Pounds ((pound)1,500,000). The purchase price shall be payable by bank wire transfer or such other form of payment as may be acceptable to CCA and CCAUK. 3. Term. Subject to the terms and conditions of this Agreement, including, without limitation, Section 8 hereof, the Option shall be exercisable by Sodexho on or before 11:59 p.m., Nashville, Tennessee time, on June 30, 1997, after which such right shall terminate. Provided, however, that in the event the Company is not notified on or before May 31, 1997 as to the renewal and/or extension by the Secretary of State for the Home Department (the "Authority") of that certain agreement dated December 3, 1992 by and between the Company and the Authority, the term of the Option shall be extended until the date which is thirty (30) days after the date of receipt of notice of renewal and/or extension or such later date as agreed in writing by the parties hereto. 4. Exercise of Option; Closing. Subject to the terms and conditions of this Agreement, the Option shall be exercised by Sodexho with respect to all, but not less than all, of the Shares by giving notice of exercise to CCA or CCAUK in accordance with Section 9 of this Agreement. Delivery of the Shares and payment therefor (the "Closing") shall take place at the offices of CCA, Nashville, Tennessee, at 10:00 a.m., Nashville, Tennessee time, on the tenth Business Day, as hereinafter defined, following the date such notice of exercise is given, or at such other date, time, and/or place as CCAUK and Sodexho may mutually agree. As used in this Agreement, "Business Day" means any Monday, Tuesday, Wednesday, Thursday, or Friday on which banking institutions in the City of Nashville, Tennessee are not authorized or obligated by law or executive order to close. 5. Representations and Warranties of Sodexho. Recognizing that each of CCA and CCAUK will be relying on the information and on the representations and warranties set forth herein, Sodexho hereby acknowledges, represents, and warrants to CCA and CCAUK as follows: (a) Sodexho has full power and authority to execute, enter into, and perform this Agreement and all agreements, instruments, and documents contemplated hereby and to carry out the transactions contemplated hereby. This Agreement is a valid and binding obligation of Sodexho, enforceable against it in accordance with its terms, subject to the limitations imposed by bankruptcy, insolvency, moratorium, or similar laws or provisions of general application, and to availability of equitable remedies (whether enforcement is sought in a court of law or equity). (b) Sodexho is the sole party in interest in acquiring the Option and if the Option is exercised, will be acquiring the Shares solely for its own investment and not with a view to the resale or distribution thereof. Sodexho has no present or contemplated agreement, understanding, intent, arrangement, or commitment providing for or which is likely to compel the transfer, pledge, sale, or disposition of the Shares. Sodexho will not attempt to sell, transfer, convey, or otherwise dispose of all or any part of the Shares except in accordance with applicable law. 2 3 (c) Neither the execution and delivery of this Agreement nor the carrying out of any of the transactions contemplated hereby or thereby, will in any material respect contravene, violate, or result in the breach of, any agreement or instrument to which Sodexho is a party or by which it is bound, or of any law or governmental order, rule, or regulation which is applicable to Sodexho or will result in the creation or imposition of any security interest, mortgage, lien, encumbrance, or charge upon any of the properties or assets of Sodexho. No consents or approvals of any persons or entities, governmental or otherwise, are required which have not been obtained in respect of the execution and delivery of this Agreement and the carrying out of the transactions contemplated hereby or thereby on the part of Sodexho. (d) Sodexho understands and agrees that the Shares have not been registered under the securities laws of any jurisdiction. Sodexho further understands and agrees that the Option and any exercise thereof must comply with all applicable securities laws, as such laws exist on such dates that the Option may be exercised. Sodexho also understands and agrees that the Option may never be exercisable if compliance with such securities laws may not be achieved. (e) Sodexho understands and agrees that CCA and CCAUK will rely upon the representations made in this Agreement and related documents and CCA and CCAUK are fully entitled to rely upon each and all of the same without further inquiry. 6. Representations and Warranties of CCA and CCAUK. Recognizing that Sodexho will be relying on the information and on the representations and warranties set forth herein, CCA and CCAUK hereby acknowledge, represent, and warrant to Sodexho as follows: (a) Each of CCA and CCAUK has full power and authority to execute, deliver, enter into, and perform this Agreement and all agreements, instruments, and documents contemplated hereby and to carry out the transactions contemplated thereby. This Agreement is a valid and binding obligation of each of CCA and CCAUK, enforceable against each in accordance with its terms, subject to the limitations imposed by bankruptcy, insolvency, moratorium, or similar laws or provisions of general application, and to the availability of equitable remedies (whether enforcement is sought in a court of law or equity). (b) CCAUK is the sole owner of the Shares, free and clear of any liens, claims, encumbrances, and charges, and has full power to sell, transfer, and convey the same to Sodexho. (c) Neither the execution and delivery of this Agreement, nor the carrying out of any of the transactions contemplated hereby, will in any material respect result in any violation of or be in conflict with any term of any material agreement or instrument to which either CCA or CCAUK is a party or by which either is bound, or of any law or governmental order, rule, or regulation which is applicable to either of CCA or CCAUK or will result in the creation or imposition of any security interest, mortgage, lien, encumbrance, or charge upon any of the properties or assets of CCA or CCAUK. No consents or approvals of any persons or entities, governmental or otherwise, are required which have not been obtained in respect of the execution and delivery of this Agreement or 3 4 the Shares and the carrying out of the transactions contemplated hereby on the part of CCA or CCAUK. (d) The representations, warranties, and agreements of CCA and CCAUK contained herein shall survive the execution and delivery of this Agreement and the purchase of the Shares by Sodexho. 7. Assignment. Neither the Option nor any interest therein may be transferred, assigned, pledged, hypothecated, or otherwise conveyed, except with the prior written consent of CCA and/or CCAUK. 8. Conditions to Closing. (a) The obligations of CCA and CCAUK to consummate the transactions contemplated by this Agreement are subject to the conditions that the representations and warranties set forth in Section 5 hereof and in Section 5 of the Purchase Agreement are true and correct on and as of the date hereof and shall be true and correct on and as of the date of Closing and that Sodexho shall have complied with all covenants and agreements and satisfied all conditions on its part to be performed or satisfied prior to the Closing, and CCA or CCAUK may request a certificate to that effect, dated as of the date of Closing, signed by Sodexho. (b) The obligations of Sodexho to consummate the transactions contemplated by this Agreement are subject to the conditions that the representations and warranties set forth in Section 6 hereof and in Section 4 of the Purchase Agreement are true and correct on and as of the date hereof and shall be true and correct as of the date of Closing, and that CCA and CCAUK shall have complied with all covenants and agreements and satisfied all conditions on their part to be performed or satisfied prior to Closing, and Sodexho may request a certificate to that effect, dated as of the date of Closing, signed by each of CCA and CCAUK. 9. Notices. Any notice required or permitted to be sent hereunder shall be mailed, certified mail, return receipt requested, postage prepaid, or delivered by overnight courier service, or by telex or facsimile transmission, to the following addresses, or such other address as either party hereto designates by written notice to the other party and shall be deemed to have been given upon delivery, three (3) days after mailing, if mailed, or one (1) Business Day after delivery to the courier if delivered by overnight courier service or after transmission, if sent by telex or facsimile transmission: If to CCAUK to: Corrections Corporation of America (U.K.) Limited Suite 800 102 Woodmont Boulevard Nashville, Tennessee 37205 Attn: Gay Vick 4 5 If to CCA to: Corrections Corporation of America Suite 800 102 Woodmont Boulevard Nashville, Tennessee 37205 Attn: Doctor R. Crants If to Sodexho to: Sodexho S.A. 3 avenue Newton 78180 Montigny-le-Bretonneux FRANCE Attn: Jean-Pierre Cuny 10. Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other term or provision hereof, and this Agreement in such event shall be construed in all respects as if any invalid or unenforceable provisions were not included in this Agreement. 11. Governing Law. This Agreement shall be governed by and be interpreted under the laws of England without regard to the conflicts of law principles thereof. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the English courts over any action or proceeding to enforce any right under this Agreement. The parties further acknowledge that irrevocable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, the parties shall be entitled to an injunction to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any English court. This being in addition to any other remedy to which they may be entitled at law or equity. 12. Board of Directors. Each of CCAUK and Sodexho acknowledge and agree that Sodexho shall be entitled to one nominee to the Board of Directors of the Company and CCAUK shall be entitled to the remainder of the director nominees. In the event of the exercise of the Option by Sodexho, each shareholder shall have be entitled to an equal number of nominees to the Board of Directors. In the event of the exercise of the Option by Sodexho, each shareholder further agrees (i) that in all elections of directors during the term of this Agreement, such shareholder shall vote all shares owned by it for the nominees of the other shareholders and (ii) that any change in the number of directors shall require the unanimous written consent of all shareholders. 13. Entire Agreement. This Agreement constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter hereof. 5 6 14. Amendment. No change or modification of this Agreement shall be valid unless the same is in writing and signed by the parties to this Agreement. This Agreement may be terminated at any time by an instrument in writing signed by the parties to this Agreement. 15. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original. 16. Section Headings. The section headings are for reference only and shall not limit or control the meaning of any provision of this Agreement. 17. Waiver. No delay or omission on the part of either party hereto in exercising any right hereunder shall operate as a waiver of such right or any other right under this Agreement; however, any of the terms or conditions of this Agreement may be waived in writing at any time by the party hereto which is entitled to the benefit thereof. [Signature Page to Follow] 6 7 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. CORRECTIONS CORPORATION OF AMERICA (U.K.) LIMITED By: /s/ --------------------------------------- Title: ------------------------------------ CORRECTIONS CORPORATION OF AMERICA By: /s/ --------------------------------------- Title: ------------------------------------ SODEXHO S.A. By: /s/ --------------------------------------- Title: ------------------------------------ 7 EX-23 17 CONSENT OF PUBLIC ACCOUNTANTS 1 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Annual Report on Form 10-K of Corrections Corporation of America and Subsidiaries into the Company's previously filed Registration Statement File Numbers 33-12503, 33-30825, 33-30826, 33-42068, 33-42614, 33-60590, 33-72496 and 33-61173. /s/ Arthur Andersen LLP ------------------------ ARTHUR ANDERSEN LLP Nashville, Tennessee March 26, 1997 EX-27 18 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 8,282 0 100,551 0 0 114,442 288,697 0 468,888 63,894 117,535 0 0 75,029 206,723 468,888 0 292,513 0 237,940 0 0 4,224 50,349 19,469 30,880 0 0 0 30,880 .38 .36
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