CORRECTIONAL SERVICES CORP, 10KSB, 1997-03-31

CORRECTIONAL SERVICES CORP
10KSB, 1997-03-31
FACILITIES SUPPORT MANAGEMENT SERVICES

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U.S. Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934

For fiscal year ended December 31, 1996

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

Commission File No.: 0-23038

CORRECTIONAL SERVICES CORPORATION
(Name of small business issuer in its charter)

Delaware 11-3182580
(State of other jurisdiction of (I.R.S. Employee
incorporation or organization) Identification No.)

1819 Main Street, Sarasota, Florida 34236
(Address of principal executive offices) (Zip Code)

Issuer's telephone number: (941) 953-9199

Securities registered under Section 12(b) of the Exchange Act: None.

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, par value $.01 per share
Warrants to Purchase Common Stock
(Title of Class)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [x] No [ ]

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [x]

Issuer's revenues for its most recent fiscal year are $31,501,658.

The aggregate market value of the 5,279,504 shares of Common Stock held by
non-affiliates of the Company as of March 14, 1997 is $56,754,668.

The number of shares of Common Stock, par value $.01 per share, outstanding
as of March 14, 1997 is

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7,670,879.

Transitional Small Business Disclosure Format. Yes [ ] No [x]

PART I

Item 1. Description of Business.

Corporate Structure

Correctional Services Corporation (the "Company") was incorporated in
Delaware on October 28, 1993 to acquire all of the outstanding capital stock of
a number of affiliated corporations engaged in the operation of corrections and
detention facilities. All references to the Company include the Company and all
wholly-owned subsidiaries on a consolidated basis.

Description

The Company is a leading developer and manager of privatized correctional
and detention facilities in the United States. Through its three divisions,
Adult, Juvenile and Community Corrections, the Company provides a diverse range
of services to local, state, and federal governmental correctional agencies. The
Company currently has agreements to operate 16 correctional and detention
facilities in New York, Florida, Arizona, Texas, New Mexico and the State of
Washington. Thirteen of these facilities, with a total of 2,461 beds, are
currently in operation, three, with a total of 900 beds, are anticipated to be
operational in the fourth quarter of 1997. In addition, the Company is currently
operating two facilities on an interim basis, while negotiating contracts, with
a total of 350 beds each. See "Business-Recent Events." The Company is also
aggressively pursuing other privatized correctional projects both at the request
for proposal ("RFP") stage and the pre-RFP development stage.

The Company manages both secure and non-secure facilities. The Company's
secure facilities include a detention and processing center for illegal aliens,
an adult prison, intermediate sanction facilities, driving while intoxicated
("DWI") facilities, and military-style boot camps for juvenile offenders. Its
non-secure facilities include residential programs, such as community
correctional facilities for federal and state offenders serving the last six
months of their sentences, and non-residential supervision programs.

In addition to providing fundamental residential services for adult and
juvenile inmates, the Company has developed a broad range of programs intended
to reduce recidivism, including basic and special education, substance abuse
treatment and counseling, vocational training, life skills training, and
behavioral modification counseling. The management services offered by the
Company range from project consulting to the design, development and management
of new correctional and detention facilities and the redesign, renovation and
management of older facilities. The Company believes its proven ability to
manage the full spectrum of correctional facilities and its wide variety of
programs and services will increase its marketing opportunities.

Growth Strategy

The Company's business strategy is to enhance its position as a leading
developer and manager of a diverse range of quality privatized correctional and
detention facilities, and to expand its operations, both internally and through
acquisitions, in order to capitalize on current growth trends in the industry.
Key elements of the Company's strategy are as follows:

Maintaining Quality Facility Operations: The Company recognizes the
importance of maintaining high quality management and operations at its
facilities. The Company seeks to operate all its facilities in accordance with
the guidelines of the American Correctional Association ("ACA"), an independent
organization comprised of professionals in the corrections industry, and uses
compliance audit teams to rigorously examine all aspects of the Company's
facilities and operations. The Company's senior level ethics and compliance
officer, who reports directly to the President and Board of Directors, provides
additional oversight and monitoring of facility operations. The Company also
promotes quality performance by its facility administrators and management

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teams and hold Company-wide conferences for facility administrators to
exchange information and enhance performance at all its facilities. The Company
encourages tours of its facilities for governmental representatives as it
believes the quality of its operations can best be demonstrated through on-site
visits.

Capitalizing on Diversity of Services. The diversified correctional
services provided by the Company include housing adult inmates or detained
persons in secure facilities, providing non-secure residential and management
services in community correctional facilities and managing and operating
juvenile offender facilities, both secure and non-secure, including
military-style boot camps. The Company believes that its proven ability to
manage the full spectrum of privatized correctional facilities will increase its
marketing opportunities and will be beneficial where particular governmental
policies favor certain types of programs or services over others.

Enhancing Proven Programs. In awarding management contracts, contracting
governmental agencies frequently give significant weight to the potential
effectiveness of the programs to be provided by the bidder. The Company's
programs include basic and special education, substance abuse treatment and
counseling, vocational training, job placement, life skills training and
behavioral modification counseling, all of which are intended to reduce
recidivism. The Company's staff of professionals seek to continually enhance and
improve these programs, monitor resident offender performance and develop new
programs to address perceived needs.

Developing New Business Opportunities. The growing demand for privatized
correctional facilities at all levels of government has enabled the Company to
pursue more projects meeting its criteria. The Company pursues projects based on
the probability of success, geographic location, size, potential profitability,
and political and community acceptability. This approach is intended to optimize
resource allocation, profitability and financial return. The Company (i)
currently owns a 400 bed correctional facility in Arizona, (ii) in January 1997
signed a contract to finance, construct, own and operate a 600 bed adult prison
in Arizona, (iii) has agreed to fund approximately $650,000 of construction and
related costs for a juvenile boot camp in Texas and (iv) has used its capital to
renovate and improve other facilities which it operates. The Company believes
its willingness to commit its capital to facility ownership and renovation
enhances its growth opportunities.

Strategic Acquisitions. Historically, the Company's growth has been
generated internally, primarily through the competitive bid process. However,
the Company continues to evaluate strategic acquisitions, particularly where an
acquisition would enhance the Company's capabilities or add to the services it
offers in the correctional services industry. At present, the Company has not
entered into any agreements or commitments for an acquisition.

Market

The continuing pressure to control costs and address increasing inmate
populations has generated strong growth in the privatization of correctional
services. According to the Private Adult Correctional Facility Census, Ninth
Edition, prepared by the Private Corrections Project, Center for Studies in
Criminology & Law, University of Florida, dated March 15, 1996, the rated
capacity of international privatized adult secure correctional facilities grew
from 2,620 beds in 1986 to 63,595 beds at year-end 1995 and, in a June 16, 1996
forecast prepared by the Project, is projected to grow to 197,503 beds by
year-end 2000. This population does not include any projected growth for
privatized juvenile offender and community correctional facilities, both of
which, the Company believes, are also growing rapidly. According to the United
States Department of Justice, Office of Juvenile Justice and Delinquency
Prevention, between 1988 and 1994 juvenile arrests for violent crimes grew by
more than 50%.

The Company believes the growth in demand for privatized correctional and
detention facilities is being fueled by a number of factors. First, the United
States continues to experience a shortage of correctional beds. According to the
United States Department of Justice, Bureau of Justice Statistics, the number of
adult inmates housed in federal and state facilities increased from 487,593 at
December 31, 1985, to 1,104,074 at June 30, 1995.

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Second, inmates convicted of violent crimes generally serve only one-third
of their sentences, and the public is demanding that a longer portion of their
sentences be served. Third, courts and various governmental agencies are
requiring overcrowded conditions to be remedied, outdated facilities to be
replaced, and services to be expanded. As a result of increasing fiscal
pressures, many governmental agencies are turning to the private sector to
deliver cost-effective correctional services to address these needs.

Recent Events

The Company, in November 1996, took over the management of the Frio County
Jail and Detention facility in Pearsall, Texas. The Company is currently
managing the facility on an interim basis and has the option to purchase the
right to operate the facility, under the terms of the existing Management and
Operations Agreement, from the former operator. This option expires the earlier
of May 24, 1997 or 30 days after the current outstanding debt associated with
the facility has been refinanced. The facility has recently received 250 inmates
from the State of Idaho under a one (1) year agreement.

In February 1997 the Company took over the management of the Judge Roger
Hashem Juvenile Justice Center in Rockdale, Texas. The Company currently
operates the facility on an interim basis and has entered into negotiations with
the Milam, Robertson and Falls Counties regarding a Management and Operations
Agreement. The facility has a capacity of 60 beds.

Due to substantially reduced occupancy levels and operating losses at the
Company's state contracted community-based halfway houses in New York, New York
and Fort Worth, Texas, the Company is in the process of winding down those
operations.

Operational Divisions

In January 1996, the Company organized its operations into three divisions:
Adult, Juvenile and Community Corrections.

Adult. The Adult Division operates five secure facilities located in
Seattle, Washington; Houston, Del Valle and Mansfield, Texas; and Phoenix,
Arizona, with a total of 1,216 beds. In addition, this Division will operate the
600-bed prison to be constructed and owned by the Company in Florence, Arizona,
anticipated to become operational in the fourth quarter of 1997 and the 200 bed
jail located in Gallup, New Mexico. Currently, the Division is operating on an
interim basis a 295 bed facility in Pearsall, Texas. In addition to providing
housing for adult inmates, the Company provides a variety of rehabilitation and
educational services intended to reduce recidivism. The Company also provides
health care, transportation, food services and work and recreational programs
for adult inmates.

Juvenile. The Juvenile Division operates (or upon completion of the
facility will operate) seven facilities located (or to be constructed) in
Bartow, Polk City and Pahokee, Florida; and Canadian, Mansfield, Eagle Lake and
Killeen, Texas, for convicted youths aged 12 to 24, with a total of 1,150 beds.
The Eagle Lake facility is anticipated to be operational in the fourth quarter
of 1997. In addition, the Division is operating on an interim basis the 60-bed
Judge Roger Hashem Juvenile Justice Facility in Rockdale, Texas. The Company
manages secure and non-secure juvenile offender facilities for low, medium, and
high risk youths in highly structured programs, including military-style boot
camps, wilderness programs, secure education and training centers, and detention
facilities. The Company believes these programs, by instilling the qualities of
self-respect, respect for others and their property, personal responsibility and
family values, can help reduce the recidivism rate of its program participants.

<PAGE>

Community Corrections. The Community Corrections Division operates
facilities, located in Brooklyn, Manhattan and the Bronx, New York with a total
of 195 beds. These are non-secure residential facilities for adult male and
female offenders transitioning from institutional to independent living.
Offenders are eligible for these programs based upon the type of offense
committed and behavior while incarcerated in prison. If qualified, offenders may
generally spend the last six months of their sentence in a community corrections
program, whose mission is to reduce the likelihood of an inmate committing an
offense after release by assisting in the reunification process with family and
the community. Normally, in order to remain in the program, offenders must be
employed, participate in substance abuse programs, submit to frequent random
drug testing, and pay a predetermined percentage of their earnings to the
government to offset the cost of the program. The Company supervises these
activities and also provides life skills training, case management, home
confinement supervision and family reunification programs at these facilities.
The Company believes that community correctional facilities help reduce
recidivism, result in prison beds being available for more violent offenders
and, in appropriate cases, represent cost-effective alternatives to prisons.

Contract Award Process

Most governmental procurement and purchasing activities are controlled by
procurement regulations take the form of RFPs, and most of the Company's new
business results from responding to these requests. Interested parties submit
proposals in response to an RFP within a time period of 15 to 120 days from the
time the RFP is issued. A typical RFP requires a bidder to provide detailed
information, including the services to be provided by the bidder, the bidder's
experience and qualifications and the price at which the bidder is willing to
provide the services. The Company engages independent consultants to assist in
responding to the RFPs. Approximately six to eighteen months is generally
required from the issuance of the RFP to the contract award. In some cases, the
Company has been asked to assist governmental agencies in developing their RFPs.

Before responding to an RFP, the Company researches and evaluates, among
other factors: (i) the current size and growth projections of the available
correctional and detention population; (ii) whether or not a minimum capacity
level is guaranteed; (iii) the willingness of the contracting authority to allow
the Company to house populations of similar classification within the proposed
facility for other governmental agencies; and (iv) the willingness of the
contracting authority to allow the Company to make adjustments in operating
activities, such as work force reductions in the event the actual population is
less than the contracted capacity.

Under the RFP, the bidder may be required to design and construct a new
facility or to redesign and renovate an existing facility at its own cost. In
such event, the Company's ability to obtain the contract award is dependent upon
its ability to obtain the necessary financing or fund such costs internally.

In addition to issuing formal RFPs, governmental agencies may use a
procedure known as Purchase of Services or Requests for Qualification ("RFQ").
In the case of an RFQ, the requesting agency selects a firm it believes is most
qualified to provide the necessary services and then negotiates the terms of the
contract, including the price at which the services are to be provided.

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Facilities

The Company operates both pre-disposition and post-disposition secure and
non-secure correctional and detention facilities and non-secure community
correctional facilities for federal, state and local correctional agencies.
Pre-disposition secure detention facilities provide secure residential detention
for individuals awaiting trial and/or the outcome of judicial proceedings, and
for aliens awaiting deportation or the disposition of deportation hearings.
Post-disposition secure facilities provide secure incarceration for individuals
who have been found guilty of a crime by a court of law. The Company operates
three types of post-disposition facilities: secure prisons, intermediate
sanction facilities and military-style boot camps. Secure prisons and
intermediate sanction facilities provide secure correctional services for
individuals who have been found guilty of one or more offenses. Offenders placed
in intermediate sanction facilities are typically persons who have committed a
technical violation of their parole conditions, but whose offense history or
current offense does not warrant incarceration in a prison. Both types of
facilities offer vocational training, substance abuse treatment and offense
specific treatment. Boot camps provide intensely structured and regimented
residential correctional services which emphasize disciplined activities modeled
after the training principles of military boot camps and stress physical
challenges, fitness, discipline and personal appearance.

The Company also operates non-secure residential and non-residential
community corrections programs. Non-secure residential facilities, known as
half-way houses, provide residential correctional services for offenders in need
of less supervision and monitoring than are provided in a secure environment.
Offenders in community corrections facilities are typically allowed to leave the
facility to work in the immediate community and/or participate in
community-based educational and vocational training programs during daytime
hours. Generally, persons in community correctional facilities are serving the
last six months of their sentence. Non-residential programs permit the offender
to reside at home or in some other approved setting under supervision and
monitoring by the Company. Supervision may take the form of either requiring the
offender to report to a correctional facility a specified number of times each
week and/or having Company employees monitor the offender on a case management
basis at his/her work site and home.

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The following information is provided with respect to the facilities for
which the Company has management contracts or has been selected to negotiate a
management contract:

Facility Name, Location and Year Contracting Owned,
Operations Commenced Type of Governmental Leased, or
Contracted Beds Facility Agency Managed (2)
(1)

Adult Division
Seattle INS Detention Center 150 Secure Detention INS Managed
Seattle, Washington (1989) Facility
South Texas Intermediate 400 Secure Intermediate State Managed
Sanction Facility Sanction Facility
Houston, Texas (1993)
Tarrant County Community 190 Secure Intermediate County Managed
Correctional Facility(3) Sanction Facility
Mansfield, Texas (1992)
Travis County Substance 76 Secure Intermediate County Managed
Abuse Treatment Facility Sanction Facility
Del Valle, Texas (1994)
Arizona State Prison, Phoenix West 400 State Prison State Owned
Phoenix, Arizona (1996 )
Arizona State Prison, Florence 600 State Prison State Owned
Florence, Arizona (est. 1997)
Gallup, New Mexico (est. 1997) 200 Jail County Managed

Juvenile Division
Tarrant County Community 120 Secure Boot Camp County Managed
Correctional Center(3) Facility
Mansfield, Texas (1992)
Hemphill County Juvenile Detention Center 60 Secure Boot Camp County Leased
Canadian Texas (1994) Facility
Bartow Youth Training Center 74 Secure & Residential State Managed
Bartow, Florida (1995) Correctional Facility
Pahokee Youth Training Center 350 Secure Correctional State Managed
Pahokee, Florida (1997) Facility
Polk City Youth Training Center 350 Secure Correctional State Managed
Polk City, Florida (1997) Facility
Colorado County Juvenile Residential Facility 100 Secure Boot Camp County Managed
Eagle Lake, Texas (est. 1997) Facility
Bell County Youth Training Center(4) 96 Secure Correctional County Managed
Killeen, Texas (1997) Facility

Community Corrections Division
Brooklyn Community Correctional Center 95 Residential Federal Bureau Leased
Brooklyn, New York (1989) Correctional Facility of Prisons
Manhattan Community Corrections Center 60 Residential Federal Bureau Leased
New York, New York (1990) Correctional Facility of Prisons
Bronx Community Corrections Center 40 Residential Federal Bureau Leased
Bronx, New York (1996) Correctional Facility of Prisons
New York State Community Corrections 150 Residential State Leased
Center (5) Brooklyn, New York (1992) Correctional Facility
Fort Worth Community Corrections Center(5) 200 Residential State Leased
Fort Worth, Texas (1994) Correctional Facility

</TABLE>

(1) The number of beds under contract generally is an estimate in the
contract by the contracting government agency of the number of offenders
expected to be assigned to the facility and not a guarantee of a minimum or
maximum number of offenders to be so assigned. Certain facilities have bed
capacity in excess of the number of beds under contract and therefore may be
occupied by a greater number of offenders than is estimated pursuant to the
contract.

(2) A managed facility is a facility for which the Company provides
management services pursuant to a management contract with the applicable
governmental agency but, unlike a leased or owned facility, the Company has no
property interest in the facility. The Company has granted NationsBank a first
priority security interest in all its assets, including a first real estate
mortgage on the land and building of the Phoenix, Arizona facility.

(3) This facility is listed both as part of the Company's Adult Division
and its Juvenile Division as the facility houses both adult and juvenile
offenders.

(4) Initially 64 beds; to be expanded to 96 beds.

(5) See "Recent Events" for a discussion on the status of this facility.

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Facility Management Contracts

Each facility is managed under an agreement with a federal, state or local
corrections agency which provides for fixed per diem payments to the Company for
each offender assigned to the facility or a fixed monthly payment irrespective
of the number of offenders so assigned. Some contracts also provide for minimum
revenue guarantees to the Company. As is standard in the industry, the Company's
contracts are short-term, generally one to three years, and contain multiple
renewal options in favor of the contracting governmental agency.

Operating Procedures

The Company is responsible for the overall operation of each facility under
its management, including staff recruitment, general administration of the
facility, security of inmates and employees, supervision of the offenders and
facility maintenance. The Company, either directly or through subcontractors,
also provides health care (including medical, dental and psychiatric services)
and food service. Certain facilities also offer special rehabilitation and
educational programs, such as academic or vocational education, job and life
skills training, counseling, substance abuse programs, and work and recreational
programs.

The Company's contracts generally require the Company to operate each
facility in accordance with all applicable local, state and federal laws, rules
and regulations and the standards and guidelines of the ACA The ACA establishes
guidelines and standards by which an adult correctional institution may gain
accreditation. The Company believes that the ACA, which currently only
recommends operating guidelines for but does not accredit juvenile correctional
facilities, will eventually accredit these kinds of facilities. The ACA
standards, designed to safeguard the life, health and safety of offenders and
personnel, describe specific objectives with respect to administration,
personnel and staff training, security, medical and health care, food service,
inmate supervision and physical plant requirements. The Company believes the
benefits of operating its facilities in accordance with ACA standards include
improved management, better defense against lawsuits by offenders alleging
violations of civil rights, a more humane environment for personnel and
offenders and measurable criteria for upgrading programs, personnel and the
physical plant on a continuous basis. The Company's Seattle INS Detention Center
and Tarrant County Community Correctional Facility are fully accredited by the
ACA and certain other facilities currently are being reviewed for accreditation.
The Company's goal is to obtain and maintain ACA accreditation for all of its
facilities. Mr. Richard P. Staley, the Company's Senior Vice President and
director, is a member of the ACA and a certified ACA standards auditor for jail
and detention facilities.

Employees

At March 17, 1997, the Company had approximately 1,265 full-time employees,
consisting of clerical and administrative personnel, security personnel, food
service personnel and facility administrators. The Company believes its
relationship with its employees is good.

Each of the Company's facilities is managed as a separate entity by an
experienced facility administrator. Other facility personnel include
administrative, security, medical, food service, counseling, classification and
educational and vocational training personnel. The Company conducts background
screening checks and drug testing on potential facility employees. Some of the
services rendered at certain facilities, such as medical services and education
or training, are provided by third-party contractors.

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Employee Training

All jurisdictions require corrections officers to complete a specified
amount of training prior to employment. In most cases, Company employees must
undergo at least 160 hours of training before being allowed to work in a
position that will bring them in contact with offenders or detainees. This
training consists of approximately 40 hours relating to Company policies,
operational procedures and management philosophy, and 120 hours relating to
legal issues, rights of offenders and detainees, techniques of communication and
supervision, improvement of interpersonal skills and job training relating to
the specific tasks to be held. Each Company employee having contact with
offenders receives a minimum of 40 hours of additional training each year, and
each management employee receives a minimum of 24 hours of training each year.

Insurance

Each management contract with a governmental agency requires the Company to
maintain certain levels of insurance coverage for general liability, workers'
compensation, vehicle liability and property loss or damage and to indemnify the
contracting agency for claims and costs arising out of the Company's operations.
The Company maintains general liability insurance in the amount of $5,000,000
and two umbrella policies in the amount of $5,000,000 and $20,000,000,
respectively, for itself and each of its subsidiaries. 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.
In addition, the Company is unable to secure insurance for some unique business
risks including, but not limited to, riot and civil commotion or the acts of an
escaped offender.

Regulation

The industry in which the Company operates is subject to federal, state and
local regulations which are administered by a variety of regulatory authorities.
Generally, providers of correctional services must comply with a variety of
applicable federal, state and local regulations, including education, health
care and safety regulations. Management contracts frequently include extensive
reporting requirements. In addition, many federal , state and local governments
are required to follow competitive bidding procedures before awarding a
contract. Certain jurisdictions may also require the successful bidder to award
subcontracts on a competitive bid basis and to subcontract to varying degrees
with businesses owned by women or minorities.

Litigation

The nature of the Company's business results in numerous claims or
litigation against the Company for damages arising from the conduct of its
employees or others. Under the rules of the Securities and Exchange Commission,
the Company is obligated to disclose lawsuits which involve a claim for damages
in excess of 10% of its current assets notwithstanding the Company's belief as
to the merit of the lawsuit and the existence of adequate insurance coverage.

In March 1996, former inmates at one of the Company's facilities filed suit
in the Supreme Court of the State of New York, County of Bronx on behalf of
themselves and others similarly situated, alleging personal injuries and
property damage purportedly caused by negligence and intentional acts of the
Company and claiming $500,000,000 each for compensatory and punitive damages,
which suit was transferred to the United States District Court, Southern
District of New York, in April 1996. In July 1996, seven detainees at one of the
Company's facilities (and certain of their spouses) filed suit in the Superior
Court of New Jersey, County of Union, seeking

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$10,000,000 each in damages arising from alleged mistreatment of the
detainees, which suit was transferred to the United States District Court,
District of New Jersey, in August 1996.

The Company believes the claims made in each of the foregoing actions to be
without merit and will vigorously defend such actions. The Company further
believes the outcome of these actions and all other current legal proceedings to
which it is a party will not have a material adverse effect upon its results of
operations, financial condition or liquidity. However, there is an inherent risk
in any litigation and a decision adverse to the Company could be rendered.

Risks Associated with Company's Business

Risks Associated with Internal Expansion

The Company's growth is generally dependent upon its ability to obtain
contracts to develop and manage new correctional and detention facilities. The
rate of such development depends on a number of factors, including crime rates
and sentencing patterns in various jurisdictions and the Company's ability to
integrate new facilities into its management structure. Certain jurisdictions
recently have required the successful bidders to make a significant capital
investment in connection with the financing of a particular project, a trend
which will require the Company to have sufficient capital resources in order to
compete effectively. In some cases, the Company may decide to construct and own
a facility without a contract award when it believes there is significant
shortage of beds and a strong likelihood it will be awarded a contract; however,
there can be no assurance that any contract will, in fact, be awarded. Further,
there can be no assurance that the Company will be able to obtain contracts to
construct and/or manage new facilities or retain existing contracts upon their
expiration.

Risks Associated with Acquisitions

The Company intends to grow through internal expansion and through
selective acquisitions. There can be no assurance that the Company will be able
to identify, acquire or profitably manage acquired operations or that operations
acquired will be profitable or achieve levels of profitability that justify the
related investment. Acquisitions involve a number of special risks, including
possible adverse short-term effects on the Company's operating results,
diversion of management's attention from existing business, dependence on
retaining, hiring and training key personnel, risks associated with
unanticipated problems or legal liabilities, and amortization of acquired
intangible assets, any of which could have a material adverse effect on the
Company's financial condition, results of operations and liquidity.

Resistance to Privatization of 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. The movement toward privatization of correctional and
detention facilities has also 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 be conducted by
governmental agencies. In addition, changes in the dominant political party in
any market in which the Company operates could result in significant changes to
the previous acceptance of privatization in such market. Further, some sectors
of the federal government and some state and local governments are not legally
permitted to delegate their traditional management responsibilities for
correctional and detention facilities to private companies.

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Contracts Subject to Governmental Funding

The Company's facility management contracts are subject to either annual or
bi-annual governmental appropriations. A failure by a governmental agency to
receive such appropriations could result in termination of the contract by such
agency or a reduction of the management fee payable to the Company. In addition,
even if funds are appropriated, delays in payments may occur which could have a
material adverse effect on the Company's financial condition, results of
operations and liquidity. See "Business - Facility Management Contracts."

Uncertain Occupancy Levels

The Company is dependent upon the governmental agency with which it has a
management contract to provide inmates for, and maintain the occupancy level of,
the managed facility. A substantial portion of the Company's revenues is
generated under facility management contracts that specify a net rate per day
per inmate ("per diem rate"), with no minimum guaranteed occupancy levels, while
most of the Company's facilities cost structures are relatively fixed. Under
such a per diem rate structure, a decrease in occupancy levels may have a
material adverse effect on the Company's financial condition, results of
operations and liquidity. See "Business Facility Management Contracts" and
"Business-Recent Events."

Regulation

The industry in which the Company operates is subject to a variety of
federal, state and local regulations, including education, health care and
safety regulations, which are administered by various regulatory authorities.
The Company's contracts typically include extensive reporting requirements, and
supervision and on-site monitoring by representatives of the contracting
governmental agencies. Corrections officers customarily are required to meet
certain training standards and, in some instances, facility personnel are
required to be licensed and subject to background investigation. Certain
jurisdictions 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, results of operations and liquidity. Further, current and
future operations of the Company may be subject to additional regulation as a
result of new statues and regulations or changes in the manner in which existing
statutes and regulations are or may be interpreted or applied, which could have
a material adverse effect on the Company's financial condition, results of
operations and liquidity.

Competition

The Company competes on the basis of cost, 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. Some of the
Company's competitors have greater resources than the Company. There are few
barriers for companies seeking to enter into the management of correctional or
detention facilities. The Company also competes in some markets with local
companies that may have a better understanding of local conditions and a better
ability to gain political and public acceptance. In addition, the Company's
Community Corrections and Juvenile Divisions compete with governmental and
not-for-profit entities.

Item 2. Description of Property.

Brooklyn, New York Lease

The Company leases this building, located at 988 Myrtle Avenue, Brooklyn,
New York, from Myrtle Avenue Family Center, Inc. ("MAFC") pursuant to a lease
which commenced January 1, 1994 and expires

12
<PAGE>

December 31, 1998. The lease establishes a monthly rental of $40,000 and
contains three five-year renewal options. The monthly rental for the first
option period, which runs from January 1, 1999 through December 31, 2003, is
$40,000. The monthly rental for the second option period, which runs from
January 1, 2004 through December 31, 2008, is $45,000, and the monthly rental
for the third option period, which runs from January 1, 2009 through December
31, 2013, is $50,000. In addition, the Company pays taxes, insurance, repairs
and maintenance on the building. MAFC is a corporation owned by Esther Horn
(27.5%), James F. Slattery (8%) and Aaron Speisman (27.5%), significant
stockholders of the Company. The terms of the lease were not negotiated at arms
length due to their relationship with both the Company and MAFC.

Bronx, New York Lease

The Company leases a building located at 2534 Creston Avenue, Bronx, New
York from Creston Realty Associates, L.P. ("CRA"), which is owned 10% by Esther
Horn, a significant stockholder of the Company.. The lease term is two years
commencing October 1, 1996 and has three additional one year option periods. The
Company also pays a base rent of $180,000 per year which will escalate five
percent per year for each of the three year options if they are exercised. The
Company pays taxes, insurance, repairs and maintenance on this building which
will be used to house a community correctional center. The terms of this lease
were not negotiated at arms length due to the relationship between the Company,
Ms. Horn and CRA. However, pursuant to the terms of a Board of Directors
resolution adopted in connection with the Company's initial public offering, all
transactions between the Company and any of its officers, directors or
affiliates (except for wholly-owned subsidiaries) must be approved by a majority
of the unaffiliated members of the Board of Directors and be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties
and be in connection with bona fide business purposes of the Company.

Manhattan, New York Lease

The Company subleases the building located at 12-16 East 31st Street, New
York, New York as well as an annex located at 11 East 30th Street, New York, New
York from LeMarquis Operating Corp. ("LMOC"). The Company currently utilizes
approximately fifty percent of the building for the LeMarquis Correctional
Center and for the New York Community Correctional Program. LMOC is a
corporation owned 25% by Ms. Horn and 8% by Mr. Slattery. LMOC leases this
building from an unaffiliated party at a current base monthly rental of
approximately $15,456 (the "Base Rent"), plus taxes and other charges in the
approximate current amount of $17,346 for a total monthly rental of
approximately $32,802. The Company has the right to use as much of the building
as it requires for its business subject to the rights of certain residential
subtenants to remain in the building. These rights include the right to housing
at a predetermined rental for an indefinite period of time pursuant to New York
State rent stabilization laws.

The Company pays rent of $18,000 per month above the rent paid by LMOC to
the building's owner for a total monthly rent of approximately $50,802. The
Company has, to date, invested $690,000 in leasehold improvements. The Company
will not receive any credit, in terms of a reduction in rent or otherwise, for
these improvements. The initial term of the Company's sublease expired April 30,
1995 and is in its first renewal period which expires April 30, 2000. The
sublease contains two additional five-year renewal options beginning May 1,
2000. The monthly rent above the rent paid by LMOC to the building's owner will
increase to $22,000 per month during the second renewal term beginning May 1,
2000 and to $26,000 per month during the third renewal term beginning May 1,
2005. In 1994, the Company paid $40,000 to LMOC for the renewal options. This
option payment was separately negotiated between the Board of Directors of the
Company and LMOC. Mr. Slattery participated in such negotiations.

Fort Worth, Texas Lease

The Company leases the facility located at 600 North Henderson Street, Fort
Worth, Texas from an unaffiliated party at a monthly rental of $10,200 for the
period May 16, 1994 through May 15, 1996; $10,400 for the period May 16, 1996
through May 15, 1997; $10,815.20 for the period May 16, 1997 through May 15,
1998; and $11,252.97 for the period May 16, 1998 through April 15, 1999. The
lease for these premises commenced May 16, 1994 and expires April 15, 1999. The
lease contains three renewal options. The term of the first renewal option is
for three years and the second and third renewal options are for two years. The
Company's rent is to

13
<PAGE>

increase four percent per annum during each year of the renewal term.

Executive Office Leases

The Company leases approximately 6,400 square feet of executive office
space located at 1819 Main Street, Sarasota, Florida from an unaffiliated party
at a base monthly rental of $8,278.29 for the period October 1, 1995 through
September 30, 1996; $8,812.38 for the period October 1, 1996 through September
30, 1997; $9,346.46 for the period October 1, 1997 through September 30, 1998;
$9,880.54 for the period October 1, 1998 through September 30, 1999; $10,414.63
for the period October 1, 1999 through September 30, 2000. The lease does not
contain any renewal options. On March 1, 1997 the Company entered into a lease
amendment for approximately 1,399 square feet in its existing executive offices.
The lease amendment calls for an additional base rental of $1,924 with annual
increases of approximately $100 per month on each October 1st until the
expiration of the lease amendment on September 30, 2000.

The Company also leases an office at 9603 Gayton Road, Richmond, Virginia
from an unaffiliated party at a current base monthly rental of $1,661. The lease
for these premises, which commenced June 10, 1995, expires May 31, 1998. The
base monthly rent payable by the Company under this lease is to increase five
(5) percent per year during the term of the lease.

The Company also leases an office at 276 Fifth Avenue, New York, New York
from an unaffiliated party at a monthly rental of $2,231. The lease for these
premises, which commenced November 1, 1993, expires October 31, 1998.

Additional information with respect to this item is incorporated herein by
reference to Item 2-"Business- Facilities."

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.

On July 28, 1996 the Company shareholders agreed to change the name of the
corporation from "Esmor Correctional Services, Inc." to "Correctional Services
Corporation." The shareholders also agreed to increase the number of authorized
shares of Common Stock from 10,000,000 to 30,000,000 all with a par value of
$.01 per share.

14
<PAGE>

PART II

Item 5. Market for Common Equity and Related Stockholder Material

(a)The Company's Common Stock is traded on The Nasdaq National Market under
the symbol "CSCQ." The following table sets forth the high and low closing sales
prices for the calendar quarters indicated from February 2, 1994, the date of
the Company's initial public offering, as reported by the Nasdaq National
Market:

High Low
1995:

First Quarter..................... 16 1/5 7 7/8
Second Quarter.................... 22 1/2 10 1/2
Third Quarter..................... 15 1/2 7
Fourth Quarter.................... 13 3/4 7 1/4

1996:

First Quarter..................... 14 8 1/2
Second Quarter.................... 20 1/2 8 1/2
Third Quarter..................... 17 1/4 10
Fourth Quarter.................... 16 1/2 10

(b) As of March 14, 1997, there were approximately 2,694 holders of the
Company's Common Stock, including beneficial owners of shares registered in
nominee or street name.

(c) The Company has not paid any cash dividends on its capital stock and
does not anticipate paying any such dividends in the foreseeable future. The
Company's bank loan agreement precludes the payment of dividends prior to
December 31, 1996. Thereafter, such dividends are limited to ten percent (10.0%)
of the Company's net earnings after taxes, provided that the Company is in
compliance with the Financial covenants of the bank loan agreement.

The Company also has Series A Warrants to purchase its Common Stock at a
purchase price of $7.75 per share which trade on the Nasdaq Stock market under
the symbol "CSCQW."

Item 6. Management's Discussion and Analysis or Plan of Operation.

Revenues generated under federal, state and local government agency
contracts for the management of correctional and detention facilities are the
Company's principal source of income. Certain contracts are based on a fixed per
diem rate per offender, some of which have guaranteed minimum payments; others
provide for fixed monthly rates irrespective of the number of offenders.
Contracts typically are short-term ranging from one to three years, with renewal
options in favor of the governmental agency, thereby subjecting the Company to
the attendant risks.

The Company pays all costs of operating the managed facilities, except rent
in the case of government-owned facilities. The Company's primary expenses are
categorized as operating, general, administrative and interest expenses, net of
interest income. Operating expenses consist of payroll (employee salaries, wages
and fringe benefits, and payroll taxes) and resident expenses (food service,
medical services, supplies and maintenance and repairs). General and
administrative expenses include rent, utilities, insurance, professional fees,
travel, lodging depreciation and amortization.

The Company usually incurs development costs, which may range from $50,000
to $200,000, in responding to a governmental agency RFP. Such costs include
planning and developing the project, preparing the bid proposal and travel,
legal and consulting fees. If management believes the recovery of such costs is
probable, the costs are

<PAGE>

deferred until the anticipated contract has been awarded, at which time the
deferred costs are amortized on a straight-line basis over the term of the
contract (including option periods not to exceed five (5) years). Development
costs of unsuccessful or abandoned bids are expensed. The time period from
incurring initial development costs on a project to the commencement of
operations ranges from six to eighteen months.

After a contract has been awarded, the Company incurs start-up costs from
the date of the award until commencement of operations. Start-up costs include
recruitment, training and travel of personnel and certain legal costs, and are
capitalized until operations commence, at which time such costs are amortized on
a straight-line basis over the term of the contract (including option periods
not to exceed five (5) years). Revenues generated during this initial period
under per diem contracts increase as the offender population increases.

Results of Operations

The following table sets forth certain operating data as a percentage of
total revenues:

Percentage of Total Revenues
Years Ended December 31,

1995 1996
---- ----
Revenues:
Resident Fees 96.8% 98.0%
Other Income 3.2 2.0
----- -----
Total Revenues 100.0 100.0
----- -----
Expenses:
Operating 62.7 69.6
General and Administrative 31.5 27.5
Ft. Worth & NYCC Closure
Costs - 10.6
New Jersey Facility Closure
Costs 12.4 -
---- ---
Total Expenses 106.6 107.7
----- -----
Operating (Loss) ( 6.6) ( 7.7)
Interest Expense, Net 2.2 1.5
----- -----
Loss Before Income Taxes ( 8.8) ( 9.2)
Income Tax Benefit ( 3.3) (3.3)
------- -------
Net Loss ( 5.5%) (5.9%)
-------- -------

Year ended December 31, 1996 Compared to Year ended December 31, 1995

Revenue increased slightly from $31,490,026 for the year ended December 31,
1995 to $31,501,658 for the year ended December 31, 1996. A full year's revenues
in 1996 generated by the Canadian, Texas facility which began operations in
April, 1995 and the Bartow, Florida facility which began operations in July
1995, as well as revenues generated by the Phoenix, Arizona facility which began
operation in April 1996, were offset by the loss in revenues stemming
principally from the discontinuance of the Company's operations at its
Elizabeth, New Jersey INS facility on June 18, 1995 and lower occupancy rates at
the Company's Fort Worth, Houston, Texas and New York State Community
Corrections facilities.

Operating expenses increased 11.1% from $19,731,797 for the year ended
December 31, 1995 to $21,928,329 for the year ended December 31, 1996 primarily
due to increases in payroll which increased $1,839,967 or 15.1%. These changes
resulted primarily from the opening of the facilities noted above, and the
addition of management personnel in the corporate office. As a percentage of
revenues, operating expenses increased from 62.7% for the year ended December
31, 1995 to 69.6% for the year ended December 31, 1996.

General and administrative expenses decreased 12.9% from $9,938,344 for the
year ended December 31, 1995 to $8,655,628 for the year ended December 31, 1996.
The decline in general and administrative expenses was primarily attributable to
the closure of the Elizabeth, New Jersey INS facility in June, 1995. As a
percentage

16
<PAGE>

of revenues, general and administrative expenses were 31.6% and 27.5% for
the years ended December 31, 1995 and 1996 respectively. In addition, at
December 31, 1995 and 1996, the Company wrote-off $3,909,700 and $3,329,000
respectively in facility closure costs for its Elizabeth, New Jersey INS
facility (1995) and for its Fort Worth, Texas and New York State Community
Corrections programs (1996). In each year, the Company wrote-off fixed assets,
development and start-up costs and other costs associated with the closure of
each program.

The operating losses for the 1995 and 1996 years of $2,089,815 and
$2,411,299 respectively are attributable principally to the above mentioned
facility closure costs.

Interest expense net of interest income decreased 31.1% from $699,576 for
the year ended December 31, 1995 to $481,728 for the year ended December 31,
1996. This decrease resulted primarily from utilizing a portion of the net
proceeds received from the September 1996 public offering of Common Stock to
repay bank indebtedness which reduced interest expense, and from investing the
balance of the net proceeds in cash equivalents which increased interest income.

The income tax benefits of $1,050,000 and $1,025,000 respectively for the
years 1995 and 1996 result principally from the utilization of operating losses
sustained in each year. The effective tax rate was 37.6% in 1995 and 35.4% in
1996.

As a result of the foregoing factors, the Company had a net loss of
$1,739,391 or $0.38 per share for the year ended December 31, 1995 compared to a
net loss of $1,868,027 or $0.32 per share for the year ended December 31, 1996.

Liquidity and Capital Resources

The Company has historically financed its operations through private
placements and public sales of its securities, cash generated from operations
and borrowings from banks. The company had working capital at December 31, 1996
of $23,560,360, an increase of $19,020,264 from the Company's working capital at
December 31, 1995, which is principally attributable to funds received from the
September 1996 public offering of its Common Stock noted below in the financing
section. The Company's current ratio increased to 5.83 to 1 at December 31, 1996
from 1.95 to 1 at December 31, 1995.

Approximately $15.8 million of the net proceeds of the public offering have
been allocated to fund construction, start-up and related costs with respect to
two 350-bed detention facilities in Florida ($3.0 million in start-up), which
became operational in December 1996 and January 1997, and two facilities
scheduled to become operational in the fourth quarter of 1997 for which the
projected costs to the Company are estimated at $12.8 million.

Net cash provided by operating activities was $1,022,759 for the year ended
December 31, 1996 as compared to $3,226,138 for the year ended December 31,
1995. The decrease was attributed primarily to an increase in accounts
receivable and other current assets. Net cash of $9,585,473 was used in
investing activities during the year ended December 31, 1996 as a result of
fixed asset acquisition costs of $6,018,195, the majority of which related to
the Phoenix, Arizona facility and $4,317,276 in additional deferred development
and start-up costs principally for Phoenix, Arizona and the Polk and Pahokee,
Florida projects, as compared to net cash of $8,684,961 used in investing
activities for the year ended December 31, 1995. Net cash of $25,738,276 was
provided by financing activities in the year ended December 31, 1996 as compared
to $8,907,125 in the year ended December 31, 1995. The principal source of such
funds for the year ended December 31, 1996 was the public offering of Common
Stock and for the year ended December 31, 1995 the private placement of
subordinated debt, warrants and Common Stock (see below).

Financing

<PAGE>

On September 12, 1996 the Company completed a public offering of 2,450,000
shares of Common Stock at $13.625 per share. Of the 2,450,000 shares of Common
Stock offered, 2,070,000 were sold by the Company and 380,000 shares by certain
stockholders. The Company did not receive any proceeds from the shares sold by
the stockholders. The net proceeds received by the Company after deducting
applicable issuance costs and expenses aggregated $25,938,514. The net proceeds
were used to repay short-term and long-term bank indebtedness in the amount of
$7,198,468 and will be used to finance construction, start-up and related costs
of two Florida facilities, other facilities and for general corporate purposes,
including the financing of working capital needs. Also, in October, 1996
pursuant to the underwriters' over-allotment option, the Company sold an
addition 367,500 shares of Common Stock, which aggregated an additional
$4,569,542 in net proceeds.

Effective December 31, 1995, the Company entered into an $11,000,000
Revolving Credit and Term Loan Agreement (the "Loan Agreement") with
NationsBank, N.A. ("NationsBank"). Pursuant to the terms of the Loan Agreement,
the Company, from time to time, may borrow up to the lesser of $6,000,000 or
85.0% of the Company's eligible accounts receivable. Loan proceeds are to be
used for working capital, including deferred development and start-up costs in
connection with new or existing facilities. Interest on the revolving credit
loan is computed, at the Company's option, at either NationsBank prime rate plus
0.75% or the London International Bank rate plus 3.35%. Under the Loan
Agreement, NationsBank also made a term loan at an interest rate of 8.92% to the
Company in the principal amount of $5,000,000, which was applied to repay the
Company's indebtedness of $5,002,869 to another bank.

The short-term and long-term bank loans were repaid in September 1996, with
a portion of the proceeds received from the public offering. After September 30,
1996, the interest rate payable under the revolving credit loan will be based on
the Company's financial performance set forth in the Loan Agreement. The Company
may prepay any borrowings without interest or penalty. The Company has granted
NationsBank the first priority security interest in all of its assets, including
a first real estate mortgage on the land and building of the Phoenix, Arizona
facility. The Company is required to pay NationsBank 0.25% of the average unused
portion of the revolving credit loan.

During the year ended December 31, 1995, the Company completed a private
placement of 5,676.6 units at $1,000 per unit, each unit consisting of (i) a ten
percent (10.0%) subordinated promissory note due July 1, 1998, in the principal
amount of $1,000, and (ii) four year warrants to purchase 154 shares of Common
Stock at $7.75 per share. The Company received gross proceeds of $5,676,600 from
the sale of the units of which $365,000 was attributed to the value of the
warrants.

During such period, the Company also completed the private placement of
496,807 shares of Common Stock at $7.75 per share, receiving gross proceeds of
$3,850,254. Approximately $8,500,000 of the proceeds of the two placements was
used to finance costs associated with the Company's Phoenix, Arizona facility
and the balance for expenses related to the private placements and for working
capital.

The Company received from the exercise of stock options and warrants during
the years ended December 31, 1996 and 1995 $426,890 and $33,320 respectively.

Item 7.

The information required by this Item is contained on Pages F-1 through
F-27 hereof.

Item 8.
None.

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act

18
<PAGE>

Executive Officers and Directors

The following table lists the executive officers and directors of the
Company, together with their respective ages and offices:

Name Age Office

James F. Slattery 47 President, Chief Executive Officer and Director

Michael C. Garretson 52 Executive Vice President and Chief Operating Officer

Aaron Speisman 49 Executive Vice President, Secretary and Director

Ira M. Cotler 34 Executive Vice President-Finance

Richard P. Staley 65 Senior Vice President and Director

Lee Levinson 55 Chief Financial Officer

Melvin T. Stith(1) 50 Director

Raymond S. Evans(1) 60 Director

Stuart M. Gerson(1) 53 Director

Shimmie Horn 24 Director

</TABLE>

- -------------------------

(1) Member of Audit, Compensation and Stock Option Committees.

James F. Slattery co-founded the Company in October 1987 and has been its
President, Chief Executive Officer and a director since the Company's inception
and Chairman since August 1994. Prior to co-founding the Company, Mr. Slattery
had been a managing partner of Merco Properties, Inc., a hotel operation
company, Vice President of Coastal Investment Group, a real estate development
company, and had held several management positions with the Sheraton Hotel
Corporation.

Michael C. Garretson joined the Company in August 1994 as its Vice
President of Business Development. In October 1995, he became the Director of
Planning and Economic Development for the City of Jacksonville, Florida and
served in such position until rejoining the Company in January 1996, during
which period he also acted as a consultant to the Company. Mr. Garretson was
elected Executive Vice President and Chief Operating Officer in March 1996. From
September 1993 to August 1994, Mr. Garretson was Senior Vice President of
Wackenhut Corrections Corp., a developer and manager of privatized correctional
and detention facilities, and from August 1990 to August 1993 was Director of
Area Development for Euro Disney S.C.A., the operator of a European theme park.

Aaron Speisman co-founded the Company in October 1987 and has been its
Executive Vice President, Secretary and a director since the Company's
inception. From October 1987 to March 1994, Mr. Speisman also served as Chief
Financial Officer of the Company. Since June 1, 1996, Mr. Speisman has been
employed by the Company on a part-time basis.

Ira M. Cotler was elected the Company's Executive Vice President-Finance in
March 1996. Prior to joining the Company, from June 1989 to February 1996, Mr.
Cotler was employed by Janney Montgomery Scott Inc., an investment banking firm,
serving in several capacities, most recently as Vice President of Corporate
Finance.

Richard P. Staley has served as the Company's Senior Vice President of
Operations since November 1988

19
<PAGE>

and as a director since May 1994. From 1984 to 1987, Mr. Staley was the
Evaluation and Compliance Director for Corrections Corporation of America and
from 1953 to 1983, held various positions with the United States Department of
Justice, Immigration and Naturalization Service. Mr. Staley is a certified
American Correctional Association standards auditor for jail and detention
facilities.

Lee Levinson became an employee of the Company in February 1994 and was
elected Chief Financial Officer in March 1994. From 1989 until December, 1993,
Mr. Levinson was a partner at Fleischman & Company, independent certified public
accountants. Mr. Levinson is a certified public accountant.

Melvin T. Stith was elected a director of the Company in November 1994.
Since July 1991, Mr. Stith has been Dean of the Florida State University College
of Business. From December 1989 to July 1991, Mr. Stith was Chairman of the
Marketing Department of the Florida State University College of Business where
he was also a Professor. Mr. Stith is also a director of Sprint and United
Telephone of Florida.

Raymond S. Evans was elected a director in May 1994. For more than the past
five years, Mr. Evans has been a partner of the law firm of Ruskin, Moscou,
Evans & Faltischek, P.C.

Stuart M. Gerson was elected a director in June 1994. Since March 1993, Mr.
Gerson has been a partner of the law firm of Epstein Becker & Green, P.C. From
January 1993 to March 1993, he was acting Attorney General of the United States.
From January 1989 to January 1993, Mr. Gerson was the Assistant U.S. Attorney
General for the Civil Division of the Department of Justice.

Shimmie Horn was elected a director of the Company in June 1996. Mr. Horn,
received a B.A. degree in Economics from Yeshiva College in 1993, and graduated
from the Benjamin Cardozo School of Law in 1996. He is the son of the late
Morris Horn, the former Chairman and a founder of the Company.

20
<PAGE>

Item 10. Executive Compensation

The following table sets forth a summary of the compensation earned in
1994, 1995 and 1996 by the Company's Chief Executive Officer and by each other
executive officer whose compensation exceeded $100,000 in 1996:

Summary Compensation Table

Long Term
Annual Compensation Compensation Awards

Number of Shares ALl Other
Name and Principal Position Other Annual Underlying Options Compensation
Year Salary Bonus Compensation (1) Granted (2)
---- ------ ----- ---------------- ------- ---

James F. Slattery 1996 $208,685 0 $19,984 0 $20,139

President and 1995 $189,000 0 $13,010 5,000 $30,263

Chief Executive Officer 1994 $180,000 $77,230 $23,063 13,125 $22,376

Lee Levinson 1996 $112,184 $ 507 $ 5,167 5,000 0

Chief Financial Officer 1995 $110,615 $ 1,000 $ 5,167 5,000 0

1994 $ 90,269 $ 1,000 $ 7,615(3) 12,813 0

Michael Garretson 1996 $112,406 $ 507 $13,000(4) 100,000 0
Executive Vice President
1995 $ 55,926 0 0 6,250 0

1994 $ 17,525 0 0 0

Ira Cotler 1996 $107,261 $ 507 $50,396(5) 100,000 0
Executive Vice President
1995 N/A N/A N/A N/A N/A

1994 N/A N/A N/A N/A N/A

</TABLE>

- ------------------

(1) Consists of car lease payments.

(2) Consists of life insurance premiums.

(3) Consists of $7,615 of consulting fees prior to his employment by the
Company.

(4) Also includes housing allowance.

(5) Also includes relocation and related costs.

In addition to the compensation described above, for 1995, Mr. Slattery
received S Corporation distributions of $134,400.

21
<PAGE>

The following table sets forth information concerning stock options granted
executive officers named in the Summary Compensation Table:

Option Grants in 1996

Individual
Grants Individual
---------------------------------------------
<TABLE>
<CAPTION>

Number of % of Total Potential Realizable Value
Shares Options at Assumed Annual Rates of
Underlying Granted Exercise Stock Price Appreciation for
Options all Price Expiration Option Term
Name Granted Employees per/Share Date 5% 10%
---- ------- --------- ------------ ---------- -------- ---------

James F. Slattery......... 0 0 0 0 0 0
Lee Levinson.............. 5,000 1.9% $11.000 1/5/2001 $ 18,944 $ 41,973
Michael Garretson......... 100,000 39% $11.000 1/5/2001 $244,500 $540,500
Ira Cotler................ 100,000 39% $11.000 1/5/2001 $244,500 $540,500

</TABLE>

The following table sets forth information concerning stock options granted
executive officers named in the Summary Compensation Table:

Option Values at December 31, 1996

Number of Value of
Shares Underlying Unexercised In-The-Money Options
Options at Year End at Year End
Name Exercisable/Unexercisable Exercisable/Unexercisable

James F. Slattery............... 6,563/11,562 $ 6,497/$ 6,496
Lee Levinson.................... 6,407/12,656 $ 15,439/$ 15,435
Mike Garretson.................. 26,458/66,667 $138,877/$366,669
Ira Cotler...................... 33,333/66,667 $183,332/$366,669

</TABLE>

Employment Agreements

The Company has entered into an employment agreement with Mr. Slattery
which expires February 9, 1999 and provides for minimum annual compensation of
$189,000, cost of living increases, use of an automobile, reimbursement of
business expenses, health insurance, related benefits and a bonus equal to 5% of
pre-tax profits in excess of $1,000,000, such bonus not to exceed $200,000. As
of June 1, 1996, Mr. Speisman is employed under an agreement which provides for
Mr. Speisman's employment on a part-time basis at an annual salary of $35,000.

The Company has also entered into employment agreements with Messrs.
Garretson and Cotler which expire January 20, 1999 and provide for compensation
of $115,000 and $129,000, respectively, annual salary increases, automobile
allowances, reimbursement of business expenses, health or disability insurance,
related benefits, a bonus equal to 3% of pre-tax profits in excess of
$1,000,000, such bonus not to exceed $50,000 and $75,000, respectively, and the
grant to each of options to purchase 100,000 shares of Common Stock. See "Stock

22
<PAGE>

Options-Other Options."

In October 1989, a subsidiary of the Company, entered into an employment
agreement with William Banks. Under this agreement, Mr. Banks was responsible
for developing and implementing community relations projects on behalf of the
Company and for acting as a liaison between the Company and local community and
civic groups who may have concerns about Company's facilities being established
in their communities, and with government officials throughout the State of New
York. As compensation, Mr. Banks received 3% of the gross revenue from all
Federal Bureau of Prisons, state and local correctional agency contracts within
the State of New York with a guaranteed minimum monthly income of $4,500. In
December 1993, Mr. Banks agreed to become a consultant to the Company upon the
same terms and conditions in order to accurately reflect the level and nature of
the services he provided. In 1995 and 1996, Mr. Banks earned approximately
$334,000 and $296,000 respectively.

Stock Options

1993 Stock Option Plan

Under the 1993 Stock Option Plan (the "1993 Plan") 500,000 shares of Common
Stock are reserved for issuance upon exercise of options designated as either
(i) incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as
amended (the "Code") or (ii) non-qualified options. Under the 1993 Plan, ISOs
may be granted to employees and officers of the Company and non-qualified
options may be granted to consultants, directors (whether or not they are
employees), employees or officers of the Company.

The 1993 Plan is administered by the Company's Stock Option Committee which
determines the persons to whom options will be granted, the number of shares to
be covered by each option, whether the options granted are intended to be ISO's,
the rate of exercise of each option, the option purchase price per share, the
manner of exercise, the form of payment upon exercise, and whether restrictions
such as repurchase rights are to be imposed on the shares following exercise.
Options granted under the 1933 Plan expire five years after the date of grant
and may not be granted at a price less than the fair market value of the Common
Stock on the date of grant (or 110% of fair market value in the case of persons
holding 10% or more of the voting stock of the Company). The aggregate fair
market value of shares for which ISOs granted to any employee are exercisable
for the first time by such employee during any calendar year (under all stock
option plans of the Company and any related corporation) may not exceed
$100,000. No options may be granted under the 1993 Plan after October 2003;
however, options granted under the 1993 Plan prior thereto may extend beyond
that date. Options granted under the 1993 Plan are not transferable during an
optionee's lifetime but are transferable at death by will or by the laws of
descent and distribution.

During fiscal 1994 and 1995, options to purchase 225,313 and 54,375 shares,
respectively, were granted under the 1993 Plan at exercise prices ranging from
$4.76 to $20.63 per share. In 1996, options to purchase 50,700 shares were
granted under the 1993 Plan at exercise prices ranging from $8.875 to $15.25 per
share.

23
<PAGE>

Item 11. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information as of March 14, 1997,
based on information obtained from the persons named below, with respect to the
beneficial ownership of shares of the Company's Common Stock by (i) each person
known by the Company to beneficially own more than 5% of the outstanding shares
of Common Stock, (ii) each executive officer and director of the Company, and
(iii) all officers and directors of the Company as a group:

Name and Address Amount and Nature of Percentage of
Beneficial Owner(1) Beneficial Ownership Beneficial Ownership
<S> <C> <C>

Esther Horn................................ 659,175 8.6%
James F. Slattery(2)....................... 788,125 10.3
Aaron Speisman(3).......................... 470,763 6.1
Jennifer Anna Speisman 1992 Trust.......... 83,438 1.1%
Joshua Israel Speisman 1992 Trust.......... 83,438 1.1%
Ira M. Cotler (4).......................... 84,034 1.1%
Richard P. Staley (5)...................... 76,006
Michael C. Garretson (6)................... 59,791
Raymond S. Evans(7)........................ 24,044 *
Lee Levinson(8)............................ 26,814 *
Stuart Gerson (9).......................... 19,475 *
Melvin T. Stith (10)....................... 15,000 *
Shimmie Horn (11).......................... 1,312 *
All officers and directors as a group
(ten persons) (2) (3) (4) (5) (6) (7) (8)
(9) (10) (11).............................. 1,565,364 20.4%

</TABLE>

- ------------------------
* Less than 1%

(1) All addresses are c/o Correctional Services Corporation, 1819 Main
Street, Suite 1000, Sarasota, Florida 34236.

(2) Includes options to purchase 15,625 shares of Common Stock. Does not
include options to purchase 2,500 shares of Common Stock not exercisable within
60 days.

(3) Director and founder. Does not include 98,438 shares of Common Stock
owned by the Jennifer Anna Speisman 1992 Trust and 98,438 shares of Common Stock
owned by the Joshua Israel Speisman 1992 Trust, trusts for the benefit of Mr.
Speisman's children, as to which Mr. Speisman disclaims beneficial ownership.
Includes options to purchase 15,625 shares of Common Stock and a Series A
Warrant to purchase 6,700 shares of Common Stock but does not include options to
purchase 2,500 shares of Common Stock not exercisable within 60 days.

(4) Includes 2,612 shares of Common Stock owned by his wife as to which he
disclaims beneficial ownership. Also includes options to purchase 66,666 shares
of Common Stock, a Series A Warrant to purchase 3,850 shares of Common Stock and
other warrants to purchase 10,906 shares of Common Stock. Does not include
options to purchase 33,334 shares of Common Stock not exercisable within 60
days.

(5) Includes options to purchase 41,081 shares of Common Stock. Does not
include options to purchase 19,544 shares of Common Stock not exercisable within
60 days.

24
<PAGE>

(6) Consists of options to purchase 59,791 shares of Common Stock. Does not
include options to purchase 33,334 shares of Common Stock not exercisable within
60 days.

(7) Includes options to purchase 15,425 shares of Common Stock. Does not
include options to purchase 7,500 shares of Common Stock not exercisable within
60 days.

(8) Includes 3,282 shares of Common Stock owned by wife and 1,969 shares of
Common Stock owned by his minor child, as to which he disclaims beneficial
ownership. Also includes options to purchase 21,563 shares of Common Stock. Does
not include options to purchase 3,500 shares of Common Stock not exercisable
within 60 days.

(9) Consists of options to purchase 15,625 shares of Common Stock and a
Series A Warrant to purchase 3,850 shares of Common Stock. Does not include
options to purchase 22,500 shares of Common Stock not exercisable within 60
days.

(10) Consists of options to purchase 15,000 shares of Common Stock. Does
not include options to purchase 7,000 shares of Common Stock not exercisable
within 60 days.

(11) Does not include options to purchase 10,000 shares of Common Stock not
exercisable within 60 days.

The Company is unaware of any arrangements which may result in a change in
control of the Company.

25
<PAGE>

Item 12. Certain Relationships and Related Transactions

The Company subleases a building located at 12-16 East 31st Street, New
York, New York from LeMarquis Operating Corp. ("LMOC"), a corporation owned 25%
by Ester Horn and 8% by James F. Slattery. The Company currently utilizes
approximately fifty percent of the building for the Manhattan Community
Corrections and the New York Community Corrections programs. LMOC leases this
building from an unaffiliated party at a current base monthly rental of
approximately $15,456 (the "Base Rent"), plus taxes, currently approximately
$14,000, and water and sewer charges, currently approximately $3,500, for a
total monthly rental of approximately $33,000. The Company has the right to use
as much of the building as it requires for its business subject to the rights of
certain residential subtenants to remain in the building. These rights include
the right to housing at a predetermined rental for an indefinite period of time
pursuant to New York State rent stabilization laws.

As a result of the lease negotiations, under a sublease dated as of January
1, 1994, since May 1, 1995, the Company has paid rent of $18,000 per month above
the rent paid by LMOC to the building's owner for a total monthly rent of
approximately $50,802; prior to May 1, 1995 and under the prior lease, the
Company paid rent of $10,000 per month above the rent paid by LMOC to the
building owner. The Company has, to date, invested $690,000 in leasehold
improvements and will not receive any credit, in terms of a reduction in rent or
otherwise, for these improvements. The terms of this sublease were not
negotiated at arm's length due to the relationship of Mrs. Horn and Mr. Slattery
with both the Company and LMOC. The negotiation of the sublease, including the
renewal terms, was requested by the Representative of the Underwriters of the
Company's February 2, 1994 initial public offering to substantially track the
renewal terms of the Company's management contract. The negotiations were not
subject to the board resolution, adopted subsequent to the negotiations,
relating to affiliated transactions, although the terms were approved by all of
the directors. The initial term of the Company's sublease expired April 30,
1995, and is currently in its first renewal term expiring April 30, 2000. The
sublease contains two additional successive five-year renewal options beginning
May 1, 2000. The monthly rent above the rent paid by LMOC to the building's
owner will increase to $22,000 per month during the second renewal term
beginning May 1, 2000 and to $26,000 per month during the third renewal term
beginning May 1, 2005. The Company paid $40,000 to LMOC for the renewal options.
These renewal options were separately negotiated between the Board of Directors
of the Company and LMOC. Mr. Slattery participated in such negotiations. Mrs.
Horn and Mr. Slattery will receive their proportionate shares of rents received
by LMOC under the terms of this sublease.

Previously, residential and commercial tenants of the building paid annual
rent of approximately $300,000 to LeMarquis Enterprise Corp. ("Enterprises"), a
company owned 30% by Mrs. Horn, 28% by Mr. Slattery and 25% by Mr. Speisman, and
Enterprises paid all expenses of operating the residential and commercial
portions of the building as well as a portion of the overall expenses of the
building. The Company paid any cash flow deficiency to Enterprises. This
arrangement terminated in February 1994, and all of the building's revenues,
including rent from the residential and commercial tenants, are now received and
expenses paid by the Company. The revenue from this portion of the building was
approximately $210,000 in 1994 and $205,000 in 1995. The Company anticipates
that operating the portion of the building occupied by residential and
commercial tenants will result in a net expense to the Company of approximately
$25,000 per month. Due to New York rent stabilization laws, the Company is
unable to increase the rent paid by the residential tenants in this building in
response to increased rent or expenses incurred by the Company.

The Company leases the entire building located at 988 Myrtle Avenue,
Brooklyn, New York from Myrtle Avenue Family Center, Inc. ("MAFC") pursuant to a
lease which commenced January 1, 1994 and expires December 31, 1998. The lease
establishes a monthly rental of $40,000 and contains three five-year renewal
options. The monthly rental for the first option period, which runs from January
1, 1999 through December 31, 2003, is $40,000. The monthly rental for the second
option period, which runs from January 1, 2004 through December 31, 2008, is
$45,000, and the monthly rental for the third option period, which runs from
January 1, 2009 through December 31, 2013, is $50,000. In addition, the Company
pays taxes, insurance, repairs and maintenance on this building. MAFC is a
corporation owned by Mrs. Horn (27.5%) and Messrs. Slattery (8%) and Speisman
(27.5%). The terms of the lease were not negotiated at arm's length due to their
relationship with MAFC and the Company. Messrs. Slattery and Speisman
participated in such negotiations.

26
<PAGE>

The Company leases a building located at 2534 Creston Avenue, Bronx, New
York from Creston Realty Associates, L.P. ("CRA"), the corporation owned 10% by
Ester Horn. The lease term is two years commencing October 1, 1996 and has three
additional one year option periods. The Company also pays a base rent of
$180,000 per year which will escalate five percent per year for each of the
three year options if they are exercised. The Company pays taxes, insurance,
repairs and maintenance on this building which will be used to house a community
correctional center. The terms of this lease were not negotiated at arms length
due to the relationship between the Company, Ms. Horn and CRA.

Pursuant to the terms of a Board of Directors resolution adopted in
connection with the Company's initial public offering, all transactions between
the Company and any of its officers, directors or affiliates (except for
wholly-owned subsidiaries) must be approved by a majority of the unaffiliated
members of the Board of Directors and be on terms no less favorable to the
Company than could be obtained from unaffiliated third parties and be in
connection with bona fide business purposes of the Company. In the event the
Company makes a loan to an individual affiliate (other than a short-term advance
for travel, business expense, relocation or similar ordinary operating
expenditure), such loan must be approved by a majority of the unaffiliated
directors.

Stuart M. Gerson, a director of the Company, is a member of Epstein Becker
& Green, P.C., a law firm which represented the Company on certain matters and
which is representing the Company in connection with this offering. In April
1996, in consideration for certain consulting services, the Company granted Mr.
Gerson options to purchase a total of 15,000 shares of Common Stock at an
exercise price of $8.75 per share, the fair market value of the shares on the
date of grant. The options, which were not granted pursuant to either the 1993
Plan or the Directors Plan are non-qualified options under the Code, vest 50%
one year from the date of grant and the remaining 50% two years from the date of
grant. See "Legal Matters."

ITEM 13. EXHIBITS AND REPORTS

(a) Exhibits

*2.1 Stock Transfer Agreements between the Company and the stockholders of
each of Esmor Management, Inc., Esmor (Brooklyn), Inc., Esmor Manhattan, Inc.,
Esmor (Seattle), Inc., Esmor New Jersey, Inc., Esmor Texas, Inc. and Esmor
Houston, Inc.

*3.1 Certificate of Incorporation dated October 28, 1993

3.1.1 Copy of Certificate of Amendment of Certificate of Incorporation of
Esmor Correctional Services, Inc. dated July 29, 1996

*3.2 By-Laws

*4.2 Form of Underwriter's Warrant between the Company and Janney
Montgomery Scott Inc. *10.1 Stock Option Plan *10.5 Employment Agreement between
the Company and James F. Slattery *10.6 Employment Agreement between the Company
and Aaron Speisman

10.6.1 Modification to the Employment Agreement between the Company and
Aaron Speisman, dated June 13, 1996

*10.9.2 Exercise of third option year of the contract for operation of a
facility in Brooklyn, New York

#10.9.3 Extension of contract for operation of a facility in Brooklyn, New
York through March 31, 1995

*10.10 Bridge Contract between the Company and the U.S. Department of
Justice, Immigration and Naturalization Service for operation of the Seattle
Processing Center, dated September 28, 1993

27
<PAGE>

10.10.1 Contract Amendment between the Company and the U.S. Immigration and
Naturalization service for operation of the Seattle Processing Center, dated
10/1/96

*10.11 Contract between the Company and the Judicial District Community
Supervision and Corrections Department of Tarrant County, dated September 1,
1993

#10.11.1 Renewal and Amendment of Agreement between the Company and the
Judicial District Community Supervision and Corrections Department of Tarrant
County, dated October 5, 1994

**10.11.2 Contract between the Company and the Judicial District Community
Supervision and Corrections Department of Tarrant County, dated September 26,
1995 for the operation of the Tarrant County Community Corrections Facility

*10.12 Contract between the Company and the New York State Department of
Corrections, dated July 17, 1992

**10.12.1 Extension of Contract between the Company and the New York State
Department of Corrections

*10.13 Contract between the Company and the Texas Department of Criminal
Justice, Pardons and Paroles Division

#10.13.1 Extension to the contract between the Company and the Texas
Department of Criminal Justice, Pardons and Paroles Division for operation of
the South Texas Intermediate Sanction Facility

**10.13.2 Contract between the Company and the Texas Department of Criminal
Justice for operation of the South Texas Intermediate Sanction Facility

*10.15 Agreement between the Company and William Banks, dated October 31,
1989

*10.16 Form of Sub-Lease between the Company and LeMarquis Operating Corp.

*10.17 Form of Lease between the Company and Myrtle Avenue Family Center,
Inc.

*10.18 Lease between the Company and T. NY (USA)

#10.19 Contract by and between Esmor Canadian, Inc. and the Board of
Trustees for the Hemphill County Juvenile Detention Center for operation of the
Hemphill County Juvenile Detention Center

#10.20 Contract between Esmor Fort Worth, Inc. and the Texas Department of
22 of Criminal Justice, Pardons and Paroles Division for the Fort Worth
Community

#10.21 Contract dated September 1, 1994 by the Community Supervision and
Corrections Department of Travis County, Texas for the Travis County Substance
Abuse Treatment Facility

**10.21.1 Contract dated October 1, 1995 by the Community Supervision and
Corrections Department of Travis County, Texas for the Travis County Substance
Abuse Treatment Facility

#10.22 Contract between the Company and the U.S. Department of Justice,
Immigration and Naturalization Service for operation of the Seattle Processing
Center, effective August 1, 1994

**10.22.1 Exercise of second option of the contract for operation of the
Seattle Processing Center #10.23 Lease between Esmor Fort Worth, Inc. and Region
Enterprises, Inc.

#10.24 Revolving Credit and Term Loan Agreement with Marine Midland Bank
dated as of July 28, 1994

**10.25 1994 Non-Employee Director Stock Option Plan

28
<PAGE>

**10.26 Loan and Security Agreement with NationsBank, N.A. (South) dated as
of December 31, 1995

**10.27 Lease between the Company and Zell/Merrill Lynch Real Estate
Opportunity Partners Limited Partnership dated as of June 30, 1995

10.27.1 Amendment to the Lease Agreement between the Company and Zell
Merill Lynch Real Estate Opportunity Partners Limited Partnership dated November
15, 1996

**10.28 Lease between the Company and Gayton Crossing dated as of May 26,
1995

**10.29 Contract between the Company and the State of Florida, Correctional
Privatization Commission dated October 6, 1995 for operation of the Pahokee
Youth Facility

**10.30 Contract between the Company and the State of Florida, Correctional
Privatization Commission dated October 6, 1995 for operation of the Polk City
Youth Facility

**10.31 Contract between the Company and the State of Arizona, Department
of Corrections for operation of the Arizona DWI Facility

**10.32 Contract between the Company and the State of Florida, Department
of Juvenile Justice for operation of the Bartow Youth Facility

**10.34 Asset Purchase Agreement dated as of December 15, 1995 between the
Company and Corrections Corporation of America

**10.35 Construction Contract dated as of December 28, 1995 between the
Company and Bison Industries, Inc. for construction of the Pahokee (Florida)
Youth Facility

**10.36 Design and Construction Contract dated as of December 1, 1995 by
and between the Company, the Florida Correctional Finance Corporation and the
State of Florida, Correctional Privatization Commission for the design and
construction of the Polk City (Florida) Youth Facility

**10.37 Contract dated July 1, 1995, between the Company and the U.S.
Department of Justice, Federal Bureau of Prisons for operation of a facility in
New York, New York

**10.38 Contract between the Company and the U.S. Department of Justice,
Federal Bureau of Prisons for operation of a facility in Brooklyn, New York

10.40 Contract between the Company and the U.S. Bureau of Prisons for
operation of the Bronx Community Corrections Center, dated October, 1, 1996

10.41 Contract between the Company and the State of Arizona for operation
of the DWI Secure Prison, dated November 7, 1996.

10.42 Contract between the Company and McKinley County New Mexico for
operation of the McKinley County, New Mexico Adult Detention Facility, dated
October 3, 1996

10.43 Contract between the Company and Colorado County, Texas for the
operation of the Colorado County, Texas Juvenile Residential Facility

10.44 Lease Agreement between the Company and Creston Realty Associates,
L.P., dated October 1, 1996

*10.45 Lease between the Company and Elberon Development Company

10.45.1 Assignment of Lease between the Company and Elberon Development
Company

29
<PAGE>

10.46 Contract between the Company and Bell County Texas for operation of
the Bell County Juvenile Residential Facility

*10.47 Employment Agreement between the Company and Ira M. Cotler, dated
January 21, 1996.

*10.48 Employment Agreement between the Company and Michael C. Garretson,
dated January 21, 1996.

**22.1 List of Significant Subsidiaries

**23.1 Consent of Grant Thornton LLP

- ------------------------

*Incorporated by reference to the Company's Registration Statement on Form
SB-2 (File No. 33-71314-NY).

#Incorporated by reference to the Company's Annual Report on Form-10-KSB
for the year ended December 31, 1994.

**Incorporated by reference to the initial filing of the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1995.

(b) Reports on Form 8-K

The Company did not file any reports on Form 8-K for its last quarter in
fiscal 1996.

<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

CORRECTIONAL SERVICES CORPORATION
Registrant

By: /s/James F. Slattery, President
---------------------------------
James F. Slattery, President

Dated: March 31, 1997

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

Signature Title Date

/s/James F. Slattery President (Principal Executive Officer) and March 31, 1997
- --------------------------------
James. F. Slattery Director

/s/Aaron Speisman Vice President, Secretary and Director March 31, 1997
- --------------------------------
Aaron Speisman

/s/Lee Levinson Chief Financial Officer (Principal Financial March 31, 1997
- --------------------------------
Lee Levinson Officer)

/s/Raymond S. Evans
- -------------------------------- Director March 31, 1997
Raymond S. Evans

/s/Stuart Gerson
- -------------------------------- Director March 31, 1997
Stuart Gerson

/s/Melvin Stith
- -------------------------------- Director March 31, 1997
Melvin Stith

/s/Shimmie Horn
- -------------------------------- Director March 31, 1997
Shimmie Horn

/s/Richard Staley
- -------------------------------- Vice President and Director March 31, 1997
Richard Staley

</TABLE>

CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS

CORRECTIONAL SERVICES CORPORATION
AND SUBSIDIARIES

December 31, 1996 and 1995

<PAGE>

C O N T E N T S

Page
<S> <C>

Report of Independent Certified Public Accountants 1

Consolidated Balance Sheets as of December 31, 1995 and 1996 2

Consolidated Statements of Operations for the years ended December 31, 1995
and 1996 3

Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1995 and 1996 4

Consolidated Statements of Cash Flows for the years ended
December 31, 1995 and 1996 5-6

Notes to Consolidated Financial Statements 7

</TABLE>

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Correction Services Corporation

We have audited the accompanying consolidated balance sheets of
Correctional Services Corporation and Subsidiaries as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. 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 of the financial statements provide a reasonable
basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Correctional
Services Corporation and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their consolidated cash flows for
the years then ended, in conformity with generally accepted accounting
principles.

GRANT THORNTON LLP

New York, New York
March 7, 1997

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

December 31,
ASSETS 1996 1995
<S> <C> <C>

CURRENT ASSETS
Cash and cash equivalents $20,932,309 $ 3,756,748

Restricted cash - 750,000
Accounts receivable 4,023,620 3,374,229
Receivable from sale of equipment and leasehold improvements 1,476,000 -
Prepaid expenses and other 2,001,973 1,415,306
Total current assets 28,433,902 9,296,283

BUILDING, EQUIPMENT AND LEASEHOLD IMPROVEMENTS -
AT COST, NET 12,040,149 7,226,323

LONG-TERM RECEIVABLE FROM SALE OF EQUIPMENT AND

LEASEHOLD IMPROVEMENTS 2,031,882 3,207,882

OTHER ASSETS
Deferred development and start-up costs, net 5,817,959 1,729,270
Deferred income taxes 1,495,000 1,120,000
Other 485,157 760,769

$50,304,049 $23,340,527

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES

Accounts payable and accrued liabilities $4,873,542 3,535,165

Current portion of long-term debt -- 1,221,022

Total current liabilities 4,873,542 4,756,187

LONG-TERM DEBT -- 4,000,000
LONG-TERM PORTION OF ACCRUED CLOSURE EXPENSES 1,606,000 --
SUBORDINATED PROMISSORY NOTES 3,899,841 5,362,295

COMMITMENTS AND CONTINGENCIES -- --

STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares authorized,
none issued and outstanding -- --
Common stock, $.01 par value, 30,000,000 shares authorized,
7,660,779 and 4,911,688 shares issued and outstanding
as of 1996 and 1995, respectively. 76,608 49,117
Additional paid-in capital 42,022,593 9,479,436
Accumulated deficit (2,174,535) (306,508)
39,924,666 9,222,045

$50,304,049 $23,340,527

</TABLE>

The accompanying notes are an integral part of these statements.

F-2

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31,

1996 1995
<S> <C> <C>

Revenues
Resident fees $30,866,162 $30,482,683
Other income 635,496 1,007,343

31,501,658 31,490,026

Expenses
Operating 21,928,329 19,731,797
General and administrative 8,655,628 9,938,344
Fort Worth and New York Community Corrections
closure costs 3,329,000 --
New Jersey facility closure costs - 3,909,700

33,912,957 33,579,841

Operating Loss (2,411,299) (2,089,815)

Interest expense 481,728 699,576

Loss before income taxes (2,893,027) (2,789,391)
Income tax (benefit) (1,025,000) (1,050,000)

NET LOSS $ (1,868,027) $ (1,739,391)

Net per common share $(.32) $(.38)

Weighted average shares outstanding 5,781,853 4,552,707

</TABLE>

The accompanying notes are an integral part of these statements.

F-3

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>

Additional Retained
Common paid-in earnings
stock capital (deficit) Total
<S> <C> <C> <C> <C>

Balance at January 1, 1995 44,079 $5,616,456 $ 1,432,883 $ 7,093,418

Exercise of stock options 70 33,250 - 33,320
Common stock issuance 4,968 3,464,730 - 3,469,698
Issuance of warrants with
subordinated promissory notes - 365,000 - 365,000
Net loss - - (1,739,391) (1,739,391)

Balance at December 31, 1995 49,117 9,479,436 (306,508) 9,222,045

Common stock issuance through
public offering 24,375 30,483,681 - 30,508,056
Exercise of stock options 649 411,338 - 411,987
Exercise of warrants 2,467 1,648,138 - 1,650,605
Net loss - - (1,868,027) (1,868,027)

Balance at December 31, 1996 $76,608 $42,022,593 $(2,174,535) $39,924,666

</TABLE>

The accompanying notes are an integral part of this statement.

F-4

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
<TABLE>
<CAPTION>

<S> <C> <C>
1996 1995
Cash flows from operating activities:
Net loss $(1,868,027) $(1,739,391)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 778,462 1,168,850
Amortization of subordinated note discount 173,247 50,695
New Jersey facility asset impairment - 2,771,424
New Jersey deferred development costs writedown - 416,201
Ft. Worth deferred development cost writedown 98,446 -
Ft. Worth and NYCC facilities asset impairment 564,050 -
Amortization of deferred loan costs 243,258 127,568
Deferred income tax benefit (375,000) (1,120,000)
Changes in operating assets and liabilities:
Accounts receivable (649,391) 1,429,785
Refundable taxes (650,000) -
Prepaid expenses and other current assets 63,333 (774,644)
Accounts payable and accrued liabilities 377,877 895,650
Reserve for Ft. Worth and NYCC facilities carrying costs 2,566,504 -
Reserve for New Jersey facility carrying costs (300,000) -

Net cash provided by operating activities 1,022,759 3,226,138

Cash flows from investing activities:
Capital expenditures (6,018,195) (6,110,693)
Development and start-up costs (4,317,276) (1,824,268)
(Increase) decrease in restricted cash - unexpended construction
funds 750,000 (750,000)

Net cash used in investing activities (9,585,471) (8,684,961)

Cash flows from financing activities:
Proceeds from issuance of common stock 30,508,056 3,469,698
Proceeds from long-term borrowing - 1,500,000
Payments on long-term borrowings (4,000,000) (1,282,715)
Proceeds (payments) on short-term debt, net (1,221,022) 218,333
Issuance of subordinated notes and warrants - 5,676,600
Debt issuance costs - (652,101)
Net proceeds from exercise of stock options and warrants 426,890 33,320
Other assets 24,349 (56,010)

Net cash provided by financing activities 25,738,273 8,907,125

</TABLE>

The accompanying notes are an integral part of these statements.

F-5

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended December 31,
<TABLE>
<CAPTION>

1996 1995
<S> <C> <C>

NET INCREASE IN CASH AND CASH
EQUIVALENTS $17,175,561 $ 3,448,302

Cash and cash equivalents at beginning of period 3,756,748 308,446

Cash and cash equivalents at end of period $ 20,932,309 $ 3,756,748
=========== ===========

Supplemental disclosures of cash flows information: Cash paid during the period
for:
Interest $ 883,900 $ 602,700
=========== ============
Income taxes $ (2,200) $ 789,500
=========== ============

</TABLE>

The accompanying notes are an integral part of these statements.

F-6

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Correctional Services Corporation and Subsidiaries (formerly Esmor
Correctional Services, Inc.) operate and manage detention and correctional
facilities for Federal, state and local government agencies. On August 1, 1996,
the Company's Certificate of Incorporation was amended which changed the name of
the Company to Correctional Services Corporation and increased the number of
authorized shares of Common Stock from 10,000,000 to 30,000,000 shares.

1. Principles of Consolidation

The consolidated financial statements include the accounts of Correctional
Services Corporation and its wholly-owned subsidiaries, Esmor, Inc.,
Correctional Services Management, Inc., Esmor Brooklyn, Inc., Esmor Seattle,
Inc., Esmor Manhattan, Inc., Esmor Mansfield, Inc., Esmor Houston, Inc., Esmor
New Jersey, Inc., Esmor Ft. Worth, Inc., Esmor Canadian, Inc. and Esmor Travis,
Inc. (collectively the "Company" or the " companies"). All significant
intercompany balances and transactions have been eliminated. As of December 31,
1996 all of the aforementioned subsidiaries (except Esmor, Inc. and Esmor New
Jersey, Inc.) were merged into the parent company.

2. Revenue Recognition

Revenue is recognized at the time the service is provided. Revenues are
principally derived from government agencies. The Company's accounts receivable
balance is considered fully collectible based on historical experience and
management's current evaluation. Accordingly, no allowance for doubtful accounts
has been provided in the accompanying financial statements.

3. Building, Equipment and Leasehold Improvements

Building, equipment and leasehold improvements are carried at cost.
Depreciation of buildings are computed under the straight-line method over
twenty and thirty year periods. Depreciation of equipment is computed under the
straight-line method over a five-year period. Leasehold improvements are being
amortized over the shorter of the life of the asset or the applicable lease term
(ranging from five to ten years).

F-7

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

4. Deferred Development and Start-up Costs

Deferred development costs consist of costs that can be directly associated
with a specific anticipated contract and, if the recoverability from that
contract is probable, they are deferred until the anticipated contract has been
awarded. At the commencement of operations of the facility, the deferred
development costs are amortized over the life of the contract (including option
periods) as development expense but not to exceed 5 years. Costs of unsuccessful
or abandoned contracts are charged to expense when their recovery is not
considered probable. Facility start-up costs are incurred (after a contract is
awarded) in connection with the opening of new facilities under the contract.
These costs, which are required under the contract, are capitalized to the
extent recoverable from the date of award until commencement of operations, at
which time they are amortized on a straight-line basis over the term (including
option periods) of the government contracts not to exceed five years.

5. Income Taxes

The Company utilizes an asset and liability approach for financial
accounting and reporting for income taxes. The primary objectives of accounting
for income taxes are to (a) recognize the amount of tax payable for the current
year and (b) recognize the amount of deferred tax liability or asset based on
management's assessment of the tax consequences of events that have been
reflected in the Company's consolidated financial statements.

6. Loss Per Share

The computation of net loss per common share is based upon the weighted
average number of common shares outstanding during the year. Common stock
equivalents (stock options and warrants) were not included for the years ended
December 31, 1995 and 1996, as their effect would be anti-dilutive.

7. Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.

Restricted cash of $750,000 at December 31, 1995 represented payments made
in 1996 to the contractor for the completion of the Phoenix, Arizona facility.

F-8

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

8. Reclassifications

Certain reclassifications have been made to the 1995 balances to conform to
the 1996 presentation. In addition, certain construction costs initially
classified as deferred development costs have been reclassified to buildings,
equipment and leasehold improvements as of December 31, 1995.

9. Use of Estimates in Consolidated Financial Statements

In preparing consolidated financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the consolidated financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. For
discussion of the realization of Receivable from Sale of Equipment and Leasehold
Improvements and costs pertaining to the New York and Fort Worth closures. see
Note L.

10. Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of

On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). The standards for SFAS
No. 121 require that the Company recognize and measure impairment losses of
long-lived assets and certain identifiable intangibles and to value long-lived
assets to be disposed of. The primary objectives under SFAS No. 121 are to (a)
recognize an impairment loss of an asset whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable or (b) if
planning to dispose of long-lived assets or certain identifiable intangibles,
such assets have been reflected in the Company's consolidated financial
statements at the net asset value less cost to sell. The effect of adopting SFAS
121 was not considered material to the consolidated financial statements.

F-9

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

11. Stock Based Compensation

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation. With respect to stock options
granted to employees, SFAS No. 123 permits companies to continue using the
accounting method promulgated by the Accounting Principles Board Opinion No. 25
("APB No. 25"), "Accounting for Stock Issued to Employees," to measure
compensation or to adopt the fair value based method prescribed by SFAS No. 123.
Management has not adopted SFAS No. 123's accounting recognition provisions
related to stock options granted to employees and accordingly, will continue
following APB No. 25's accounting provisions. All other requirements of SFAS No.
123 were implemented on January 1, 1996.

NOTE B - CONTRACTUAL AGREEMENTS WITH GOVERNMENT AGENCIES

The Company currently operates fifteen secure and non-secure corrections or
detention programs in the states of Arizona, Florida, New York, Texas and
Washington for Federal, state and local government agencies exclusive of two
programs which are expected to close in 1997 and for which a write-down has been
provided for the year ended December 31, 1996 (see Note K). The Company's secure
facilities include a detention and processing center for illegal aliens,
intermediate sanction facilities for parole violators and a shock incarceration
facility, which is a military style "boot camp" for youthful offenders.
Non-secure facilities include residential programs such as community corrections
facilities for federal and state offenders serving the last six months of their
sentences and non-residential programs such as home confinement supervision.

The Company is compensated on the basis of the number of offenders held in
each of its facilities. The Company's contracts may provide for fixed per diem
rates or monthly fixed rates. Some contracts also provide for minimum
guarantees.

The terms of each contract vary and can be from one to five years.
Contracts for more than one year have renewal options which either are
exercisable on mutual agreement between the Company and the government agency or
are exercisable by the government agency alone.

F-10

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995

NOTE C - FAIR VALUE OF FINANCIAL INSTRUMENTS

For the Company, financial instruments consist principally of cash and cash
equivalents, subordinated promissory notes and long-term debt.

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

1. Cash and Cash Equivalents

The carrying amount reasonably approximates fair value because of the short
maturity of those instruments.

2. Subordinated Promissory Notes and Long-Term Debt

The fair value of the Company's subordinated promissory notes and long-term
debt is estimated based upon the quoted market prices for the same or similar
issues or on the current rates offered to the Company for debt of the same
remaining maturities.

Year Ended December 31,

1996 1995
---- ----

Carrying Fair Carrying Fair
Amount Amount Amount Amount
<S> <C> <C> <C> <C>

Cash and cash equivalents $20,932,00 $20,932,00 $3,757,000 $3,757,000

Long-term debt 0 0 $5,221,000 $5,221,000
Subordinated promissory
notes $3,900,000 $3,900,000 $5,362,000 $5,362,000

</TABLE>

3. Receivable from Sale of Equipment and Leasehold Improvements

The carrying value of the Receivable from Sale of Equipment and Leasehold
at December 31, 1995 and 1996 is $3,207,882 and $3,507,882 respectively. The
Company believes the fair value of the Receivable from Sale of Equipment and
Leasehold Improvements is not practicable to estimate (See Note L-1(b)).

F-11

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995

NOTE D - PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

1996 1995

Prepaid insurance $ 214,231 $ 190,754
Prepaid real estate 165,061 122,473
Prepaid and refundable income taxes 819,199 665,878
Other 803,482 436,201
$2,001,973 $1,415,306
========== ==========

NOTE E - BUILDING, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Building, equipment and leasehold improvements, at cost, consist of the
following:

1996 1995

Building and land $10,072,687 $5,742,749
Equipment 2,221,427 1,138,276
Leasehold improvements 645,341 1,000,678
---------- ---------
12,939,455 7,881,703

Less accumulated depreciation (899,306) (655,380)
--------- ---------
$12,040,149 $7,226,323
=========== ==========

Depreciation expense for the years ended December 31, 1996 and 1995 was
approximately $640,000 and $1,040,000, respectively.

F-12

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995

NOTE F - OTHER ASSETS

Deferred development and start-up costs are comprised of the following:

1996 1995
---- ----

Development costs $3,158,242 $1,663,804
Start-up costs 3,079,272 354,880
---------- ----------
6,237,514 2,018,684

Less accumulated amortization (419,555) (289,414)
---------- ----------
$5,817,959 $1,729,270
========== ==========

The December 31, 1996 and 1995 balance of $5,817,959 and $1,729,270
includes development costs of approximately $306,300 and $48,500, respectively,
related to unawarded contracts. Included in deferred development is $637,500
paid to Colorado County, Texas which represents the Company's contractual
commitment to finance 25% of the facility's construction cost with the county to
fund the balance.

Other assets consist of the following:

1996 1995
---- ----

Deferred refinancing costs, net $344,167 $587,424
Deposits 106,820 125,773
Deferred lease option costs 26,660 34,664
Other 7,510 12,908
------- --------
$485,157 $760,769
======== ========

F-13

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995

NOTE G - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities consist of the following:

1996 1995
---- ----

Accounts payable $1,900,867 $1,324,963
Accrued expenses 1,193,348 1,722,848
Payroll and related taxes 691,540 284,633
Construction costs (including retainage) 10,950 120,120
Income taxes 116,333 82,601
Accrued closure costs of Fort Worth and
New York Community Corrections 960,504 -
---------- ----------
$4,873,542 $3,535,165
========== ==========

NOTE H - DEBT

Effective December 31, 1995, the Company and NationsBank, N.A. entered into
a loan and security agreement totaling $11.0 million expiring on January 15,
1998. The agreement consists of $5 million term loan at a fixed rate of 8.92%,
which refinanced previous debt with another bank, and a $6 million revolving
line of credit for working capital purposes. On September 17, 1996, the
outstanding balances of both the term loan ($4,333,360) and the revolving line
($2,865,108) were repaid in full with interest from the net proceeds raised from
the public offering (see Note K). Borrowings under the revolver are based, at
the Company's option, on .75% over the bank's prime rate or the London
International Bank Rate (LIBOR) plus 3.35%. After September 30, 1996 the
interest rate charged under either method will be based on the Company's
financial performance as specified in the agreement. Further, the Company is
required to pay an annual commitment fee of .25% of the average unused portion
of the facility. The Company may prepay any borrowings without interest or
penalty. The Company's subsidiaries have guaranteed the Company's obligation
under the agreement. The Company has granted the bank a first priority security
interest in all of its assets, including a first real estate mortgage on the
land and building being used for its Phoenix, Arizona facility. The lending
agreement contains certain financial covenants including a debt service coverage
ratio and a senior liabilities to tangible net worth and subordinated debt
ratio. The agreement precludes the payment of dividends and stock repurchase or
redemptions prior to December 31, 1996. Thereafter, such dividends, purchase or
redemptions is limited to 10% of the Company's net earnings after taxes provided
that the Company is in compliance with the above- noted financial covenants.

F-14

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995

NOTE H - DEBT - (Continued)

Through a series of transactions that closed in July, August and September
1995, the Company issued 5,676.6 units at $1,000 per unit, in a private
placement of its securities ("1995 Private Placement"). Each unit consists of
(i) a 10% subordinated promissory note due July 31, 1998 in the principal amount
of $1,000, interest payable quarterly and (ii) a four year warrant to purchase
154 shares of common stock at $7.75 per share. The Company received proceeds of
$5,676,600 in connection with the 1995 Private Placement and recorded the market
value of the warrants, $365,000, as promissory note discount amortized over
three years. The net proceeds from such issuance were used to construct and
renovate the Phoenix, Arizona facility.

The Company's prior revolving credit and term loan agreement dated July 18,
1994, with a bank, provided the Company with maximum borrowings of $5,000,000,
at the bank's prime rate plus 1% per annum, in the form of: (i) a $1,000,000
revolving credit agreement expiring July 28, 1996 and (ii) a $4,000,000 term
loan agreement with the outstanding principal payable in monthly installments
through August 31, 1999. The Company had granted the prior bank a first priority
security interest in all of its assets. On March 24, 1995, the Company entered
into a $1,500,000 project loan and term loan agreement with a bank. Proceeds
from the loan were used to finance the cost of construction of the Company's
Canadian, Texas facility. As noted above, these loans have been repaid in full
by the loan and security agreement with NationsBank, N.A.

On July 28, 1995, the Company entered into an agreement with the bank under
which this bank (i) waived its right to declare the revolving credit and term
loan agreement dated July 28, 1994 and the project loan and term loan agreement
dated March 24, 1995 in default in the event of the expiration of the Company's
Elizabeth, New Jersey contract with the United States Department of Justice,
Immigration and Naturalization Services ("INS"), and (ii) consented to the
Company's 1995 Private Placement, see above. In addition, the Company granted
the prior bank a first priority deed of trust, assignment of rents and security
interest on its Phoenix, Arizona facility and the assignment of leases and rents
on its Elizabeth, New Jersey facility. Pursuant to the agreement, the maturity
date of the term loan agreements became July 1, 1997, payable in monthly
installments of $92,000 with the balance due July 1, 1997. Under the agreement,
the Company prepaid $250,000 of the term loans in September 1995. In connection
with the agreement, the President and Executive Vice President gave limited
personal guarantees, not to exceed $1,200,000 each. On December 31, 1995, the
term loan, revolving line of credit and project loan agreements were paid in
full by the loan and security agreement with NationsBank, N.A.

F-15

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1996

NOTE H - DEBT - (Continued)

There were no bank borrowings at the end of 1996. Borrowings at December
1995 under the bank long-term debt and revolving line of credit agreements
consist of the following:

1995
----

Term loans $5,000,000
Revolving line of credit 221,022
---------
5,221,022
Less
Current maturities 1,221,022
---------
$4,000,000
==========

NOTE I - RENTAL AGREEMENTS

Minimum rental commitments under non-cancelable leases as of December 31,
1996, are as follows:

Related
Total Companies
----- ---------
Year ending December 31,
1997 $1,850,000 $1,277,000
1998 1,870,000 1,254,000
1999 1,210,000 630,000
2000 540,000 212,000
2001 110,000 -
Thereafter - -
---------- ----------
$5,580,000 $3,373,000
========== ==========

The Company leases one facility from a related party under a sublease
arrangement, which expires April 30, 2000. The Company has a five-year option to
renew this sublease arrangement. A portion of this building and annex are
occupied by residential and commercial tenants.

F-16

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1996

NOTE I - RENTAL AGREEMENTS - Continued

The Company leases a second facility from a related party. The lease
commenced January 1, 1994 and expires December 31, 1998. Thereafter, the Company
has three successive five-year options to renew. In addition to the base rent,
the Company pays taxes, insurance, repairs and maintenance on this facility.

The Company leases a third facility from a related party. The lease
commenced October 1, 1996 and expires September 30, 1998. Thereafter, the
Company has three successive one-year options to renew. In addition to the base
rent, the Company pays taxes, insurance, repairs and maintenance on this
facility.

Rental expense for the years ended December 31, 1996 and 1995 aggregated
$1,410,000 and $1,510,000, respectively, and is included in general and
administrative expenses. Rent expense to related companies aggregated $1,090,000
and $1,038,000 for the years ended December 31, 1996 and 1995, respectively.

NOTE J - INCOME TAXES

The income tax expense (benefit) consists of the following:

1996 1995
---- ----
Current:
Federal $ (695,000) $ (42,000)
State and local 45,000 112,000

Deferred
Federal, state and local (375,000) (1,120,000)
----------- -----------
$(1,025,000) $(1,050,000)
=========== ===========

F-17

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995

NOTE J - INCOME TAXES - (Continued)

The following is a reconciliation of the federal income tax rate and the
effective tax rate as a percentage of pre-tax income:

December 31,

1996 1995
---- ----

Statutory federal rate (34.0)% (34.0)%
State taxes, net of federal tax benefit 1.4 5.0
Non-deductible items 1.5 1.2
Other (4.3) (9.8)
(35.4)% (37.6)%
======= =======

Deferred income taxes reflect the tax effected impact of "temporary
differences" between the amounts of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and regulations. The
components of the Company's deferred tax assets are summarized as follows:

1996 1995
---- ----

Ft. Worth and NYCC closure costs $ 969,000 -
New Jersey facility closure costs - $ 986,000
Vacation accrual 70,000 52,000
Development costs 111,000 42,000
Accrued expenses 33,000 70,000
Other - (30,000)
Net operating loss carryfoward 242,000 -
Alternative minimum tax credit 70,000 -
-------- -------
1,495,000 1,120,000
Valuation allowance - -
--------- ---------
$1,495,000 $1,120,000
========== ==========

The Company, after considering its previous pattern of profitability,
excluding the New Jersey, Ft. Worth, and NYCC facility closure charges, and its
anticipated future taxable income, believes it is more likely than not that the
deferred tax assets will be realized.

F-18

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995

NOTE K - STOCKHOLDERS' EQUITY

On March 8, 1995, the Company's Board of Directors authorized a
five-for-four stock split in the form of a 25% stock dividend payable on April
5, 1995 to stockholders of record on March 23, 1995. All references in the
financial statements to average number of shares outstanding, per share amounts
and stock option data for prior periods presented have been restated to reflect
the 5% stock dividend and five-for-four stock split.

During September 1995, the Company completed the private placement of
496,807 shares of common stock at $7.75 per share. The Company received gross
proceeds of $3,850,254, net of issuance costs of $380,556. The net proceeds were
used for its Phoenix, Arizona facility.

In connection with the 1995 Private Placement, warrants issued with units
totaled 874,198 which are exercisable at $7.75 per share. During the year ended
December 31, 1996, 216,703 of such warrants were exercised simultaneously with
the tendering of subordinated notes. At December 31, 1995 and 1996, warrants
outstanding totaled 874,198 and 657,495, respectively. (See Note H).

On February 2, 1994, the Company completed a public offering of 833,333
shares of common stock. The net proceeds received by the Company after deducting
applicable issuance costs and expenses aggregated $4,105,020. In connection with
the public offering, the Company sold to the representative of the underwriters,
for a nominal sum, warrants to purchase from the Company 109,375 shares of
common stock. The warrants are exercisable for a period of four years commencing
February 2, 1995 at an exercise price of 107% of the initial public offering
price ($4.76), increasing to 114% of the initial public offering price on
February 2, 1996, 121% of the initial public offering price on February 2, 1997
and 128% of the initial public offering price on February 2, 1998. During the
year ended December 31, 1996, 30,000 of such warrants were exercised at an
exercise price of $5.43 per share.

On September 12, 1996, the Company completed a public offering of 2,070,000
shares of Common Stock at $13.625 per share. The net proceeds of the public
offering after deducting applicable issuance costs and expenses aggregated
approximately $25,790,000. In October, 1996, pursuant to the underwriters'
over-allotment option, the Company sold an additional 367,500 shares of Common
Stock at $13.625 per share. The net proceeds received from the exercise of the
over-allotment option aggregated approximately $4,716,000. The net proceeds of
the public offering and the over- allotment option were used to repay bank loans
of $7,198,468 (See Note H) and are being used for construction, start-up and
related costs of the Florence, Arizona and Eagle Lake, Texas facilities and for
start-up costs of the Polk and Pahokee, Florida facilities and for general
corporate purposes.

F-19

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995

NOTE L - COMMITMENTS AND CONTINGENCIES

1(a). Fort Worth and New York Closures

During the fourth quarter of 1996, due to substantially reduced occupancy
levels and operating losses being sustained at two of the Company's
community-based halfway houses, the Company has decided to discontinue the
operations of two programs; one in Fort Worth, Texas and the other in New York,
New York. Operations at each facility are anticipated to cease early in the
second quarter of 1997. As a result, the Company has accrued certain expenses at
December 31, 1996, and has written down certain assets related to each program.

In Fort Worth, the Company has notified the contracting agency (Texas
Department of Criminal Justice) that the entire facility will be closed. All
incremental closure related costs, from April 1, 1997 until the expiration of
the facility's operating lease in May, 1999, have been charged to operations at
December 31, 1996. Such expenses include the write-off of fixed assets, deferred
development and start-up costs, and a provision for rent expense, real estate
taxes, insurance and closure costs.

At the Company's Brooklyn and Manhattan, New York facilities, the Company
has written- off a portion of fixed assets and expenses related to the program
it manages for the New York State Department of Corrections. Such expenses
include rents and related costs of operating each facility, real estate taxes,
insurance and closure costs from April 1, 1997 through the expiration of the
facilities' operating leases on December 31, 1998 and April 30, 2000,
respectively. Costs and expenses associated with the Company's ongoing programs
in New York with the Federal Bureau of Prisons have not been written down except
for certain costs anticipated at the Manhattan facility resulting from the
closure of the New York program.

The December 31, 1996 write-down of $3,329,000 represents actual charges to
operations incurred for each program at December 31, 1996 and the present value
of those expenses subsequent to April 1, 1997 attributable to the closure of
each program which total $3,600,000 discounted using an interest rate of 9% per
annum.

The composition of the writedown is as follows:

Fixed assets, net $ 564,050
Deferred development and start-up costs, net 98,446
Accrued closure costs 2,566,504
Closure related costs incurred in 1996 100,000
----------
$3,329,000
==========
Accrued closure costs $2,566,504
Less current portion 960,504
----------
Long-term portion of accrued closure costs $1,606,000
==========

F-20

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995

NOTE L - COMMITMENTS AND CONTINGENCIES - Continued

For each of the aforementioned programs, the operating losses incurred
until the facilities are closed will be reflected in the financial statements
applicable to those periods.

1. New Jersey Facility Closure

Due to a disturbance at the Company's Elizabeth, New Jersey facility on
June 18, 1995, the facility was closed and all detainees located therein were
moved by the INS to other facilities. On December 15, 1995, the company and a
publicly-traded company (the "Buyer"), which also operates and manages detention
and correctional facilities, entered into an asset purchase agreement pursuant
to which the Buyer purchased the equipment, inventory and supplies, contract
rights and records, leasehold and land improvements of the Company's New Jersey
facility for $6,223,000. The purchase price is payable in non-interest bearing
monthly installments of $123,000 (through August 1999) effective January 1997,
the month the Buyer commenced operations of the facility. If the INS re-awards
the contract to the Buyer, the unpaid balance is payable in monthly non-interest
bearing installments of $123,000 beginning in the first month of the re-award
term and the Company will record as income the unpaid balance. On June 13, 1996
the Company, the Buyer and the INS executed a novation agreement whereby the
Buyer became the successor-in-interest to the contract with the INS. In
addition, the Company's lease for the New Jersey facility was assigned to the
Buyer. The Company has no continuing obligation with respect to the Elizabeth,
New Jersey facility.

The receivable from sale of the equipment and leasehold improvements
reflected in the balance sheet at December 31, 1995 and December 31, 1996,
represents the present value of the consideration to be received through August
1999 of $3,207,882 and $3,507,882, respectively, ($4,428,000 discounted using an
interest rate of 11.5% per annum) reduced by the estimated closing costs (legal
and consulting) and the facility's estimated carrying costs through December 31,
1996. The statement of operations for 1995 reflects a provision, "New Jersey
facility closure costs," of $3,909,700 which represents $416,201 from the
write-off of deferred development costs related to the facility and $3,493,499
resulting from the adjustment of the carrying value of the related assets
discussed above. During the year ended December 31, 1996, the entire reserve
established at December 31, 1995 for carrying and closing costs was reduced by
approximately $300,000 of payments for rent and other carrying and closing
costs.

F-21

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995

NOTE L - COMMITMENTS AND CONTINGENCIES - (CONTINUED)

2. Legal Matters

In May 1993, a former employee of the Company filed suit in the United
States District Court, Southern District of New York, claiming he was
intentionally assaulted by employees of the Company and claiming $5,000,000 in
damages on each of six causes of action. In January 1996, a lawsuit was filed
with the Supreme Court of New York, County of Kings, by a former employee
alleging sexual harassment and discrimination, physical assault, rape and
negligent screening of employees and claiming damages of $4,000,000 plus
attorney fees. In March 1996, former inmates at one of the Company's facilities
filed suit in the Supreme Court of the State of New York, County of Bronx on
behalf of themselves and other similarly situated, alleging personal injuries
and property damage purportedly caused by negligence and intentional acts of the
Company and claiming $500,000,000 each for compensatory and punitive damages,
which suit was transferred to the United States District Court, Southern
District of New York, in April 1996. In July 1996, seven detainees at one of the
Company's facilities (and certain of their spouses) filed suit in the Superior
Court of New Jersey, County of Union, seeking unspecified damages arising from
alleged mistreatment of the detainees, which suit was transferred to the United
States District Court, District of New Jersey, in August 1996.

3. Contracts

Renewal of government contracts (Note B) is subject to, among other things,
appropriations of funds by the various levels of government involved (Federal,
state or local). Also, several contracts contain provisions whereby the Company
may be subject to audit by the government agencies involved. These contracts
also generally contain "termination for the convenience of the government" and
"stop work order" clauses which generally allow the government to terminate a
contract without cause. In the event one of the Company's larger contracts is
terminated, it may have a material adverse effect on the Company's operations.

4. Officers' Compensation

Effective February 9, 1994, the President entered into a five-year
employment agreement with the Company that provides annual compensation of
$189,000, annual cost of living increases and an annual bonus of five percent of
pre-tax earnings greater than $1,000,000, not to exceed $200,000.

In January 1996, the Company entered into three-year employment agreements
with its Chief Operating Officer and Executive Vice President-Finance, which
provide annual compensation of $115,000 and $129,000, respectively, and a bonus
equal to 3% of pre-tax profits in excess F-22

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995

NOTE L - COMMITMENTS AND CONTINGENCIES - (CONTINUED)

of $1,000,000 not to exceed $50,000 and $75,000, respectively. Pursuant to the
terms of the employment agreement, each executive was granted an option to
purchase 100,000 shares of common stock. The option was granted at the fair
market value of the stock on the date of grant which was $8.875 per share. The
options are exercisable as follows: one-third on the date of grant, one-third
one year from the date of grant and the remaining one-third two years from the
date of grant.

5. Other

Approximately 96.6% and 98.0% and of the Company's revenues for the years
ended December 31, 1995 and 1996, respectively, relate to amounts earned from
Federal, state and local contracts. The Company's contracts in 1995 and 1996
with government agencies where revenues exceeded 10% of the Company's total
consolidated revenues were with the U. S. Bureau of Prisons, the INS, the New
York State Department of Corrections, and the Texas Department of Criminal
Justice, and in 1996 also included the Arizona Department of Corrections.

6. Fiduciary Funds

The Company has acted as a fiduciary disbursing agent on behalf of a
governmental entity whereby certain governmental entity funds are maintained in
a separate bank account. These funds have been paid to the general contractor
which constructed the government owned facilities. The company is responsible
for managing the construction process. The Company has no legal rights to the
funds nor the constructed facility, and accordingly, such funds do not appear in
the accompanying financial statements.

7. Construction Commitments

The Company has a construction contract to build the Florence, Arizona
facility at a cost of $9,985,000 and another construction agreement to renovate
the Frio, Texas facility for $300,000.

8. Letter of Credit

In connection with the Company's workmen's compensation insurance coverage
requirements, the Company has obtained a $170,000 Letter of Credit from its bank
in favor of the insurance carrier.

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995

NOTE M - STOCK OPTIONS

In October 1993, the Company adopted a stock option plan (the "Stock Option
Plan"). This plan provides for the granting of both: (i) incentive stock options
to employees and/or officers of the Company and (ii) non-qualified options to
consultants, directors, employees or officers of the Company. The total number
of shares which may be sold pursuant to options granted under the stock option
plan is 500,000. The Company, in June 1994, adopted a Non-employee Directors
Stock Option Plan, which provides for the grant of non-qualified options to
purchase up to 196,875 shares of the Company's common stock.

Options granted under both plans may not be granted at a price less than
the fair market value of the Common Stock on the date of grant (or 110% of fair
market value in the case of persons holding 10% or more of the voting stock of
the Company). Options granted under the Stock Option Plan will expire not more
than five years from the date of grant.

In 1996, the Company granted 215,000 options to two key employees and a
director of the Company. The exercise price of the options is equal to the fair
market value of the common stock at the date of the grant. These options vest
over a two year period and expire five years from the date of grant.

The Company has adopted only the disclosure provisions of Financial
Accounting Standard No. 123, Accounting for Stock Based Compensation (FAS 123).
It applies APB Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations in accounting for its plans and does not recognize
compensation expense for its stock based compensation plans other than for
restricted stock. If the Company had elected to recognize compensation expense
based upon the fair value at the grant date for awards under these plans
consistent with the methodology prescribed by FAS 123, the Company's net loss
and loss per share would be increased to the pro forma amounts indicated below:

Year Ended December 31,

1996 1995
---- ----
Net (loss)
As reported $(1,868,027) $(1,739,391)
Pro forma $(2,716,910) $(1,972,438)

Loss earnings per common share
As reported $ (.32) $ (.38)
Pro forma $ (.47) $ (.43)

F-25

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995

NOTE M - STOCK OPTIONS - Continued

These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation expense related to
grants made before 1995. The fair value of these options was estimated at the
date of grant using Black-Scholes option-pricing model with the following
weighted-average assumption for the years ended December 31, 1996 and 1995.

1996 1995
---- ----

Volatility 72% 72%
Risk free rate 5.64% 6.38%
Expected life 3.32 years 4 years

The weighted average fair value of options granted during 1996 and 1995 for
which the exercise price equals the market price on the grant date was $5.71 and
$8.81, respectively, and the weighted average exercise prices were $10.56 and
$15.04, respectively. The weighted average fair value and weighted average
exercise price of options granted in 1995 for which the exercise price exceeded
the market price on the grant date were $10.5 and $20.63, respectively.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input asusmptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

Stock option activity during 1996 and 1995 is summarized below:

Weighted-Average
Options Exercise Price
------- ----------------

Balance, January 31, 1995 290,313 $ 6.19
Granted 81,875 15.73
Exercised (7,000) 4.76
Canceled - -
------- -------
Balance, January 1, 1996 365,188 8.35
Granted 293,700 10.56
Exercised (64,888) 6.37
Canceled (43,750) 12.67
Balance, December 31, 1996 550,250 9.40
======= =======

F-26

<PAGE>

CORRECTIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995

NOTE M - STOCK OPTIONS - Continued

The following table summarizes information concerning currently outstanding
and exercisable stock options:

Weighted-Average
Remaining
Range of Number Contractual Life Weighted-Average
Exercise Outstanding (Years) Exercise Price
-------- ----------- ---------------- ----------------

$4-8 214,676 2.34 $6.21
$8-12 240,374 4.0 $9.07
$12-18 60,200 4.46 $16.32
$18-21 35,000 3.46 $19.29
-------
550,250
=======

Range of Number Weighted-Average
Exercise Prices Exercisable Exercise Price
--------------- ----------- ----------------

$4-8 214,676 $6.21
$8-12 67,604 $9.22
$18-21 17,500 $19.29
-------
299,780
=======

</TABLE>

NOTE N - EMPLOYEE BENEFIT PLAN

On July 1, 1996, the Company adopted a contributory retirement plan under
Section 401(k) of the Internal Revenue Code, for the benefit of all employees
meeting certain minimum service requirements. Eligible employees can contribute
up to 15% of their salary but not in excess of $9,500 in 1996. The Company's
contribution under the plan amounts to 20% of the employees' contribution. In
1996, the Company contributed $15,886 to the plan.

NOTE O - SELF INSURANCE

During 1996, the Company decided to self insure for workers' compensation
insurance. The Company has obtained an aggregate excess policy which limits the
Company's exposure to a maximum of $600,000. The December 31, 1996 estimated
insurance liability totaling $120,000 is based upon review by the Company and an
independent insurance broker of claims filed and claims incurred but not
reported.

F-27

<ARTICLE> 5
<CIK> 0000914670
<NAME> Correctional Services Corporation

<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-1-1996
<PERIOD-END> Dec-31-1996
<CASH> 20,932,309
<SECURITIES> 0
<RECEIVABLES> 4,023,620
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,433,902
<PP&E> 12,939,455
<DEPRECIATION> 899,306
<TOTAL-ASSETS> 50,304,049
<CURRENT-LIABILITIES> 4,873,542
<BONDS> 0
0
0
<COMMON> 76,608
<OTHER-SE> 39,848,058
<TOTAL-LIABILITY-AND-EQUITY> 50,304,049
<SALES> 30,866,162
<TOTAL-REVENUES> 31,501,658
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 30,583,957
<LOSS-PROVISION> 3,329,000
<INTEREST-EXPENSE> 481,728
<INCOME-PRETAX> 2,893,027
<INCOME-TAX> (1,025,000)
<INCOME-CONTINUING> (1,868,027)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,868,027)
<EPS-PRIMARY> ($0.32)
<EPS-DILUTED> 0

</TABLE>

Exhibit 3.1.1

CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
ESMOR CORRECTIONAL SERVICES, INC.
--------------------------------------
Adopted in accordance with the provisions
of Section 242 of the General Corporation
Law of the state of Delaware
--------------------------------------

The undersigned, James F. Slattery and Aaron Speisman, being the President
and Secretary, respectively of ESMOR CORRECTIONAL SERVICES INC., a corporation
organized and existing under the laws of the State of Delaware, do hereby
certify as follows:

FIRST, that the Certificate of Incorporation of said corporation be amended
as follows:

1. By striking out the whose of ARTICLE FIRST, as it now exists, and
inserting in lieu and instead thereof a new ARTICLE FIRST, reading as follows:

"The name of the corporation (hereinafter called the "corporation") is
CORRECTIONAL SERVICES CORPORATION."

2. By striking out the whole of ARTICLE FOURTH, as it now exists, and
inserting in lieu and instead thereof a new ARTICLE FOURTH, reading as follows:

"The total number shares of stock which the corporation shall have
authority to issue is ThirtyOne Million (31,000,000), consisting of Thirty
Million (30,000,000) shares of Common Stock, all of a par value of One Cent
($.01) each, and One Million (1,000,000) share of Preferred Stock, all of a par
value of One Cent ($.01) each."

SECOND, that such amendment has been duly adopted in accordance with the
provisions of the General Corporation law of the State of Delaware by the
written consent of the holders of not less than a majority of the outstanding
stock entitled to vote thereon and that written notice of the corporate action
has been given to those stockholders who have not consented in writing, all in
accordance with the provisions of Section 228 of the General Corporation law of
the State of Delaware.

IN WITNESS WHEREOF, we have signed this certificate this 29th day of
July, 1996.

James F. Slattery, President
Aaron Speisman, Secretary.

Exhibit 10.6.1

ESMOR CORRECTIONAL SERVICES, INC.

MEMORANDUM

-------------------------------------------------------------

TO: Aaron Speisman

FROM: Jim Slattery

DATE: June 13, 1996

SUBJECT:

Per our meeting earlier today, the following is my understanding of your
compensation effective June 1st, 1996.

Your monthly base salary will be $2,916.66. Until September 15, 1996 the
company will reimburse you for all business related expenses. After September
1996 you will be responsible for any and all expenses.

This modification will stay in effect until the end of your employment
agreement. If the company is sold than this modification terminates and the
terms and conditions of the original employment agreement goes back into effect.

- -----------------------
Agreed to Aaron Speisman

- -----------------------
Agreed to James F. Slattery
President

JFS/egh/as.

Exhibit 10.10.1

AMENDMENT OF SOLICITATION/MODIFICATION OF CONTRACT

1. CONTRACT ID CODE Page 1 of Pages 2

2. AMENDMENT/MODIFICATION NO.: ??010

3. EFFECTIVE DATE: 10/01/96

4. REQUISITION/PURCHASE REQ. NO.: DET-97-001

5. PROJECT NO. (if applicable)

6. ISSUED BY CODE

Immigration & Naturalization Service
Administrative Center Laguna, ATTN: ACLCAP
P.O. Box 30080
Laguna Niguel, CA 92607-0080

7. ADMINISTERED BY(If other than Item 6) CODE

8. NAME AND ADDRESS OF CONTRACTOR (No., Street, County, State and ZIP
Code)

Esmor Seattle, Inc.
ATTN: James B. Slattery
1819 Main Street, Suite 1000
Sarasota, FL 34236

TIN: 91-1448944

9A. AMENDMENT OF SOLICITATION NO.: N/A

9B. DATED (SEE ITEM 11): N/A

10A. MODIFICATION OF CONTRACT/ORDER NO.: NRO-C-94-0002

10B. DATED (SEE ITEM 13): 09/29/94

11. THIS ITEM ONLY APPLIES TO AMENDMENTS OF SOLICITATIONS. (N/A)

12. ACCOUNTING AND APPROPRIATION DATA (If required):
See Below Increase 3,649,964.50

13. THIS ITEM APPLIES ONLY TO MODIFICATIONS OF CONTRACTS/ORDERS,
IT MODIFIES THE CONTRACT/ORDER NO. AS DESCRIBED IN ITEM 14.:

A. THIS CHANGE ORDER IS ISSUED PURSUANT TO THE CHANGES SET FORTH
IN ITEM 14 ARE MADE IN THE CONTRACT ORDER NO. IN ITEM IOA.
B. THE ABOVE NUMBERED CONTRACT/ORDER IS MODIFIED TO REFLECT THE
ADMINISTRATIVE CHANGES (such as changes in paying office, appropriation
date, etc.) SET FORTH IN ITEM 14, PURSUANT TO THE AUTHORITY OF FAR
43.103(b).
C. THIS SUPPLEMENTAL AGREEMENT IS ENTERED INTO PURSUANT TO
AUTHORITY OF:
X D. OTHER (specify type of modification and authority): FAR
52.217-9, Option to Extend the term of the Contract

E. IMPORTANT: Contractor is not, required to sign this document and
return

<PAGE>

copies to the issuing office.

14. DESCRIPTION OF AMENDMENT/MODIFICATION (Organized by UCF section
headings, including solicitation/contract subject matter where
feasible.)
(Continued...)

Modification 0010
NRO-C-94-0002
Page 2 of 2

1 . This modification is issued to exercise the third option year. The
obligated amount for the minimum guaranteed under the contract is increased by
$3,649,964 50 from $7,166,259,60 to $10,816,224.10. The period of performance
for the third option year is October 1, 1996 through September 30, 1997.

2. Accounting and Appropriation Data:

1571217/1250-057/03 - $2,591,474.79
1571217/1250.U31/03 - $1,058,489.71

Except as provided herein, all terms and conditions of the document
referenced in Item 9A or 10A, as heretofore changed, remains unchanged and in
full force and effect.

15A. NAME AND TITLE OF SIGNER (Type or print)

15B. CONTRACTOR/OFFEROR

S/S JAMES F. SLATTERY__

15C. DATE SIGNED: 7/30/96

16A. NAME AND TITLE OF CONTRACTING OFFICER (Type or print)
Lynn P. Kentfield
Assistant Director - Administration

16B. UNITED STATES OF AMERICA

By s/s_________________________________
(Signature of Contracting Officer)

16C. DATE SIGNED: 12 September, 1996

NSN 7540-01-152-807
STANDARD FORM 30 (REV, 10-83)

3. 52.232-18 AVAILABILITY OF FUNDS. (APR 1984)

Funds are not presently available for this contract. The Government's
obligation under this contract is contingent upon the availability of
appropriated funds from which payment for contract purposes can be made. No
legal liability on the part of the Government for any payment may arise until
funds are made available to the Contracting Officer for this contract and until
the contractor receives notice of such availability, to be confirmed in writing
by the Contracting Officer.

4. Department of Labor Wage Determination No. 94-2563 (Rev. 8), dated
06/10/1996, is attached and incorporated into the contract.

<PAGE>

Page 1 of 9

REGISTER OF WAGE DETERMINATIONS UNDER U.S. DEPARTMENT OF LABOR
THE SERVICE CONTRACT ACT EMPLOYMENT STANDARDS ADMINISTRATION
By direction of the Secretary of Labor WAGE AND HOUR DIVISION
WASHINGTON, D.C. 20210
Wage Determination No.: 94-2563
Alan L. Moss Division of Revision No.: 8
Director Wage-Determinations Date of Last Revision:
06/10/1996

State(s): Washington

Area: WASHINGTON COUNTIES OF KING, SNOHOMISH, WHATCOM.

** Fringe Benefits Required For All Occupations Included In This Wage
Determination Follow The Occupational Listing **

OCCUPATION CODE AND TITLE
ADMINISTRATIVE SUPPORT AND CLERICAL: MINIMUM HOURLY WAGE

01011 Accounting Clerk I $ 8.38
01012 Accounting Clerk II $ 9.40
01013 Accounting Clerk III $ 11.28
01014 Accounting Clerk IV $ 12.83
01030 Court Reporter $ 12.06
01050 Dispatcher, Motor Vehicle $ 12.06
01060 Document Preparation Clerk $ 10.38
01090 Duplicating Machine Operator $ 10.38
01110 Film/Tape Librarian $ 10.50
01115 General Clerk I $ 10.50
01116 General Clerk II $ 8.48
01117 General Clerk III $ 10.38
01118 General Clerk IV $ 12.45
01120 Housing Referral Assistant $ 12.77
01131 Key Entry Operator I $ 9.72
01132 Key Entry Operator II $ 10.78
01191 Order Clerk I $ 8.48
01192 Order Clerk II $ 10.10
01220 Order Filler $ 10.69
01261 Personnel Assistant
(Employment) I $ 8.87
01262 Personnel Assistant
(Employment) II $ 9.96
01263 Personnel Assistant
(Employment) III $ 12.13
01264 Personnel Assistant
(Employment) IV $ 12.90
01270 Production Control Clerk $ 12.77
01290 Rental Clerk $ 10.50
01300 Scheduler, Maintenance $ 10.50
01311 Secretary I $ 10.50
01312 Secretary II $ 12.06
01313 Secretary III $ 12.77
01314 Secretary IV $ 15.14
01315 Secretary V $ 18.20
01320 Service Order Dispatcher $ 10.10
01341 Stenographer I $ 11.47
01342 Stenographer II $ 12.88
01400 Supply Technician $ 14.61
01420 Survey Worker(Interviewer) $ 12.06

</TABLE>

<PAGE>

WAGE DETERMINATION NO.:94-2563 (Rev. 8)
ISSUE DATE:06/10/1996
Page 2 of 9

01460 Switchboard Operator-Receptionist $ 9.05
01510 Test Examiner $ 12.06
01520 Test Proctor $ 12.06
01531 Travel Clerk I $ 8.22
01532 Travel Clerk II $ 8.65
01533 Travel Clerk III $ 9.11
01611 Word Processor I $ 10.88
01612 Word Processor II $ 12.21
01613 Word Processor III $ 14.86

AUTOMATIC DATA PROCESSING:

03010 Computer Data Librarian $ 11.31
03041 Computer Operator I $ 11.31
03042 Computer Operator II $ 11.78
03043 Computer Operator III $ 14.20
03044 Computer Operator IV $ 15.79
03045 Computer Operator V $ 17.48
03071 Computer Programmer I 1/ $ 11.83
03072 Computer Programmer II 1/ $ 14.44
03073 Computer Programmer III 1/ $ 18.50
03074 Computer Programmer IV 1/ $ 21.03
03101 Computer Systems Analyst I 1/ $ 17.83
03102 Computer Systems Analyst II / $ 21.03
03103 Computer Systems Analyst III 1/ $ 24.71
03160 Peripheral Equipment Operator $ 11.83

AUTOMOTIVE SERVICE:

05005 Automobile Body Repairer, Fiberglass $ 18.75
05010 Automotive Glass Installer $ 17.55
05040 Automotive Worker $ 17.55
05070 Electrician, Automotive $ 18.14
05100 Mobile Equipment Servicer $ 16.38
05130 Motor Equipment Metal Mechanic $ 18.75
05160 Motor Equipment- Metal Worker $ 17.55
05190 Motor Vehicle Mechanic $ 18.70
05220 Motor Vehicle Mechanic Helper $ 15.78
05250 Motor Vehicle Upholstery Worker $ 16.97
05280 Motor Vehicle Wrecker $ 17.55
05310 Painter, Automotive $ 18.14
05340 Radiator Repair Specialist $ 17.55
05370 Tire Repairer $ 16.38
05400 Transmission Repair Specialist $ 18.75

FOOD PREPARATION AND SERVICE:

07010 Baker $ 11.42
07041 Cook I $ 10.66
07042 Cook II $ 11.42
07070 Dishwasher $ 9.06
07100 Food Service Worker (Cafeteria Worker) $ 9.06
0713O Meat Cutter $ 11.42
07250 Waiter/Waitress $ 9.51

<PAGE>

WAGE DETERMINATION NO. :94-2563 (Rev. 8)
ISSUE DATE:06/10/1996
Page 3 of 9

FURNITURE MAINTENANCE AND REPAIR:

09010 Electrostatic Spray Painter $ 18.45
09040 Furniture Handler $ 14.84
09070 Furniture Refinisher $ 18.45
09100 Furniture Refinisher Helper $ 15.98
09110 Furniture Repairer, Minor $ 17.12
09130 Upholsterer $ 18.48

GENERAL SERVICES AND SUPPORT:

11030 Cleaner, Vehicles $ 9.06
11060 Elevator Operator $ 9.06
11090 Gardener $ 10.69
11121 Housekeeping Aide I $ 8.52
11122 Housekeeping Aide II $ 9.06
11150 Janitor $ 9.06
11180 Laborer $ 9.06
11210 Laborer, Grounds Maintenance $ 9.51
11240 Maid or Houseman $ 8.52
11270 Pest Controller $ 11.05
11300 Refuse Collector $ 9.06
11330 Tractor Operator $ 10.30
11360 Window Cleaner $ 9.51

HEALTH:

1201O Ambulance Driver $ 9.75
12040 Emergency Medical Technician $ 12.50
12071 Licensed Practical Nurse I $ 12.25
12072 Licensed Practical Nurse II $ 13.75
12073 Licensed Practical Nurse III $ 15.39
12100 Medical Assistant $ 10.03
12130 Medical Laboratory Technician $ 10.03
12160 Medical Record Clerk $ 10.03
12190 Medical Record Technician $ 12.96
12221 Nursing Assistant I $ 6.05
12222 Nursing Assistant II $ 8.20
12223 Nursing Assistant III $ 8.95
12224 Nursing Assistant IV $ 10.94
12250 Pharmacy Technician $ 11.55
12280 Phlebotomist $ 10.03
12311 Registered Nurse I $ 17.27
12312 Registered Nurse II $ 21.06
12313 Registered Nurse II,
Specialist $ 21.06
12314 Registered Nurse III $ 25.03
12315 Registered Nurse III,
Anesthetist $ 25.03
12316 Registered Nurse IV $ 28.03

INFORMATION AND ARTS:

130O2 Audiovisual Librarian $ 15.14
13011 Exhibits Specialist I $ 14.50
130l2 Exhibits Specialist II $ 16.54
13013 Exhibits Specialist III $ 20.34
13041 Illustrator I $ 14.50
13042 Illustrator II $ 16.54
13043 Illustrator III $ 20.34
13047 Librarian $ 18.20

<PAGE>

WAGE DETERMINATION NO. :94-2563 (Rev. 8)
ISSUE DATE:06/10/1996
Page 4 of 9

13050 Library Technician $ 12.06
13071 Photographer I $ 12.35
13072 Photographer II $ 14.80
13073 Photographer III $ 16.54
13074 Photographer IV $ 20.34
13075 Photographer V $ 25.02

LAUNDRY, DRY CLEANING, PRESSING:

15010 Assembler $ 6.52
15030 Counter Attendant $ 6.52
15040 Dry Cleaner $ 8.68
15070 Finisher, Flatwork, Machine $ 6.52
15090 Presser, Hand $ 6.52
15100 Presser, Machine, Dry Cleaning $ 6.52
15130 Presser, Machine, Shirts $ 6.52
15160 Presser, Machine, Wearing
Apparel, Laundry $ 6.52
15190 Sewing Machine Operator $ 9.40
15220 Tailor $ 10.66
15250 Washer, Machine $ 7.22

MACHINE TOOL OPERATION AND REPAIR:

19010 Machine-tool Operator (Toolroom) $ 18.48
19040 Tool and Die Maker $ 20.73

MATERIALS HANDLING AND PACKING:

21010 Fuel Distribution System Operator $ 16.38
21020 Material Coordinator $ 16.97
21030 Material Expediter $ 16.97
21040 Material Handling Laborer $ 13.88
21071 Forklift Operator $ 14.25
21080 Production Line Worker
(Food Processing) $ 13.73
21100 Shipping/Receiving clerk $ 12.59
21130 Shipping Packer $ 12.59
21140 Store Worker I $ 11.94
21150 Stock Clerk ( Shelf Stocker;
Store Worker II $ 12.59
21150 Stock Clerk
21210 Tools and Parts Attendant $ 14.18
21400 Warehouse Specialist $ 13.73

MECHANICS AND MAINTENANCE AND REPAIR:

23010 Aircraft Mechanic $ 19.02
23040 Aircraft Mechanic Helper $ 15.98
23060 Aircraft Servicer $ 17.12
23070 Aircraft Worker $ 17.88
23100 Appliance Mechanic $ 18.45
23120 Bicycle Repairer $ 16.55
23125 Cable Splicer $ 19.02
23130 Carpenter, Maintenance $ 18.45
23140 Carpet Layer $ 18.45
23160 Electrician, Maintenance $ 20.11
23181 Electronics Technician,
Maintenance I $ 17.53

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WAGE DETERMINATION NO. :94-2563 (Rev. 8)
ISSUE DATE:06/10/1996
Page 5 of 9

23182 Electronics Technician,
Maintenance II $ 18.80
23183 Electronics Technician,
Maintenance III $ 23.19
23260 Fabric Worker $ 17.12
23290 Fire System Mechanic $ 19.02
23310 Fire Extinguisher Repairer $ 16.55
23340 Fuel Distribution System Mechanic $ 19.02
23370 General Maintenance Worker $ 15.65
23400 Heating, Refrigeration and Air
Conditioning Mechanic $ 19.02
23430 Heavy Equipment Mechanic $ 19.02
23460 Instrument Mechanic $ 19.02
23500 Locksmith $ 18.45
23530 Machinery Maintenance Mechanic $ 21.01
23550 Machinist, Maintenance $ 18.29
23580 Maintenance Trades Helper $ 15.98
23640 Millwright $ 19.02
23700 Office Appliance Repairer $ 18.45
23740 Painter, Aircraft $ 18.45
23760 Painter, Maintenance $ 18.45
23790 Pipefitter, Maintenance $ 19.02
23800 Plumber, Maintenance $ 18.45
23820 Pneudraulic Systems Mechanic $ 19.02
23850 Rigger $ 19.02
23870 Scale Mechanic $ 17.88
23890 Sheet-metal Worker, Maintenance $ 19.02
23910 Small Engine Mechanic $ 17.88
23930 Telecommunications Mechanic I $ 19.02
23940 Telecommunications Mechanic II $ 19.59
23950 Telephone Lineman $ 19.02
23960 Welder, Combination, Maintenance $ 19.02
23965 Well Driller $ 19.02
23970 Woodcraft Worker $ 19.02
23980 Woodworker $ 16.55

PERSONAL NEEDS:

24570 Child Care Attendant $ 6.77
24600 Chore Aide $ 8.75
24630 Homemaker $ 13.48

PLANT AND SYSTEM OPERATION:

25010 Boiler Tender $ 19.02
25040 Sewage Plant Operator $ 18.42
25070 Stationary Engineer $ 19.02
25190 Ventilation Equipment Tender $ 15.98
25210 Water Treatment Plant Operator $ 18.45

PROTECTIVE SERVICE:

27004 Alarm Monitor $ 10.59
27010 Court Security Officer $ 18.28
27040 Detention Officer $ 13.53
27070 Firefighter $ 17.62
27101 Guard I $ 6.77
27102 Guard II $ 10.59
27130 Police Officer $ 19.35

<PAGE>

WAGE DETERMINATION NO. :94-2563 (Rev. 8)
ISSUE DATE: 06/10/1996
Page 5 of 9

<PAGE>

WAGE DETERMINATION NO.:94-2563 (Rev. 8)
ISSUE DATE:06/10/1996
Page 6 of 9

TECHNICAL:

29020 Archeological Technician $ 16.54
29030 Cartographic Technician $ 16.54
29035 Computer Based Training
Specialist/Instructor $ 17.83
29040 Civil Engineering Technician $ 16.54
29061 Drafter I $ 10.51
29062 Drafter II $ 12.35
29063 Drafter III $ 14.50
29064 Drafter IV $ 16.54
29070 Embalmer $ 14.42
29081 Engineering Technician I $ 12.01
29082 Engineering Technician II $ 13.48
29083 Engineering Technician III $ 15.38
29084 Engineering Technician IV $ 18.98
29085 Engineering Technician V $ 22.85
29086 Engineering Technician VI $ 27.65
29090 Environmental Technician $ 16.54
29100 Flight Simulator/Instructor
(Pilot) $ 21.03
29150 Graphic Artist $ 17.83
29210 Laboratory Technician $ 13.77
29240 Mathematical Technician $ 16.54
29330 Mortician $ 14.42
29361 Paralegal/Legal Assistant I $ 12.06
29362 Paralegal/Legal Assistant II $ 15.14
29363 Paralegal/Legal Assistant III $ 16.72
29364 Paralegal/Legal Assistant IV $ 22.41
29390 Photooptics Technician $ 16.54
29480 Technical Writer $ 17.20
29620 Weather Observer, Senior 2 $ 15.79
29621 Weather Observer, Combined 2/
Upper Air and Surface Programs $ 14.20
29622 Weather Observer, Upper Air 2/ $ 14.20

TRANSPORTATION/MOBILE EQUIPMENT
OPERATION:

31030 Bus Driver $ 16.15
31100 Driver Messenger $ 10.66
31200 Heavy Equipment Operator $ 19.06
31260 Parking and Lot Attendant $ 8.39
31290 Shuttle Bus Driver $ 9.91
31300 Taxi Driver $ 8.66
31361 Truckdriver, Light Truck $ 9.91
31362 Truckdriver, Medium Truck $ 16.15
31363 Truckdriver, Heavy Truck $ 16.95
36364 Truckdriver, Tractor-Trailer $ 16.95

MISCELLANEOUS:

99005 Aircraft Quality Control $ 24.12
Inspector
99020 Animal Caretaker $ 9.97
99030 Cashier $ 7.94
99040 Child Care Center Clerk $ 8.44
99050 Desk Clerk. $ 9.74

<PAGE>

99260 Instructor $ 14.42
99300 Lifeguard $ 8.67
99350 Park Attendant (Aide) $ 10.89

<PAGE>

WAGE DETERMINATION NO.:94-2563 (Rev. 8) ISSUE DATE:06/10/1996 Page
7 of 9

99400 Photofinishing Worker ( Photo $ 8.67
Lab / Dark Room Technician
99500 Recreation Specialist $ 13.48
99510 Recycling Worker $ 10.33
99610 Sales Clerk $ 8.67
99630 Sports Official $ 8.67
99658 Survey Party Chief $ 19.86
99659 Surveying Technician $ 13.20
99660 Surveying Aide $ 9.63
99690 Swimming Pool Operator $ 11.42
99720 Vending Machine Attendant $ 10.33
99730 Vending Machine Repairer $ 11.42
99740 Vending-Machine Repairer Helper $ 10.33

** Fringe Benefits Required For All Occupations Included In This Wage
Determination **

HEALTH & WELFARE: $0.90 per hour or $36.00 per week or $156.00 per month.

VACATION: Two weeks paid vacation after 1 year of service with a contractor
or successor; 3 weeks after 5 years; 4 weeks after 15 years. Length of service
includes the whole span of continuous service with the present contractor or
successor, wherever employed, and with the predecessor contractor in the
performance of similar work at the same Federal facility. (Reg. 4.173)

HOLIDAYS: Minimum of ten paid holidays per year: New Year's Day, Martin
Luther King Jr.'s Birthday, Washington's Birthday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day, and Christmas
Day. (A contractor may substitute for any of the named holidays another day off
with pay in accordance with a plan communicated to the employees involved.) (See
29 CFR 4.174)

1) Does not apply to employees employed in a bona fide executive,
administrative, or professional capacity as defined and delineated in 29 CFR
541. (See 29 CFR 4.156)

2) APPLICABLE TO WEATHER OBSERVERS ONLY - NIGHT PAY & SUNDAY PAY: If you
work at night as a part of a regular tour of duty, you will earn a NIGHT
DIFFERENTIAL and receive an additional 10% of basic pay for any hours worked
between 6pm and 6am. If you are a full-time employee.(40 hours a week) and
Sunday is part of your regularly scheduled workweek, you are paid at your rate
of basic pay plus a Sunday premium of 25% of your basic rate for each hour of
Sunday work which is not overtime (i.e. occasional work on Sunday outside the
normal tour of duty is considered overtime work).

** UNIFORM ALLOWANCE **

If employees are required to wear uniforms in the performance of this

<PAGE>

contract (either by the terms of the Government contract, by

<PAGE>

WAGE DETERMINATION No.:94-2563 (Rev. 8)
ISSUE DATE:06/10/1996
Page 8 of 9

the employer, by the state or local law, etc.), the cost of furnishing such
uniforms and maintaining (by laundering or dry cleaning) such uniforms is an
expense that may not be borne by an employee where such cost reduces the hourly
rate below that required by the wage determination. The Department of Labor will
accept payment in accordance with the following standards as compliance:

The contractor or subcontractor is required to furnish all employees with
an adequate number of uniforms without cost or to reimburse employees for the
actual cost of the uniforms. In addition, where uniform cleaning and maintenance
is made the responsibility of the employee, all contractors and subcontractors
subject to this wage determination shall (in the absence of a bona fide
collective bargaining agreement providing for a different amount, or the
furnishing of contrary affirmative proof as to the actual cost), reimburse all
employees for such cleaning and maintenance at a rate of $4.25 per week (or $.85
cents per day). However, in those instances where the uniforms furnished are
made of "wash and wear" materials, may be routinely washed and dried with other
personal garments, and do not require any special treatment-such as dry
cleaning, daily washing, or commercial laundering in order to meet the
cleanliness or appearance standards set by the terms of the Government contract,
by the contractor, by law, or by the nature of the work, there is no requirement
that employees be reimbursed for uniform maintenance costs.

** NOTES APPLYING TO THIS WAGE DETERMINATION **

Source of Occupational Titles and Descriptions:

The duties of employees under job titles listed are those described in the
"Service Contract Act Directory of Occupations," Fourth Edition, January 1993,
as amended by the Second Supplement, dated August 1995, unless otherwise
indicated. This publication may be obtained from the Superintendent of
Documents, at 202-783-3238, or by writing to the Superintendent of Documents,
U.S. Government Printing Office, Washington, D.C. 20402. Copies of specific job
descriptions may also be obtained from the appropriate contracting officer.

REQUEST FOR AUTHORIZATION OF ADDITIONAL CLASSIFICATION AND WAGE RATE
(Standard Form 1444 (SF 1444))

Conformance Process:

The contracting officer shall require that any class of service employee
which is not listed herein and which is to be employed under the contract (i.e.,
the work to be performed is not performed by any classification listed in the
wage determination), be classified by the contractor so as to provide a
reasonable relationship (i.e., appropriate

<PAGE>

level of skill comparison) between such unlisted classifications and the
classifications listed in the wage determination. Such conformed classes of
employees shall be paid the monetary wages and furnished the fringe benefits as
are determined. Such conforming process shall be initiated by the contractor
prior to the performance of contract work by such unlisted class(es) of
employees. The conformed classification, wage rate, and/or fringe benefits shall
be retroactive to the

WAGE DETERMINATION NO.:94-2563 (Rev. 8)
ISSUE DATE:06/10/1996
Page 9 of 9

commencement date of the contract. (See Section 4.6 (C)(vi).) When multiple
wage determinations are included in a contract, a separate SF 1444 should be
prepared for each wage determination to which a class(es) is to be conformed.

The .process for preparing a conformance request is as follows:

1) When preparing the bid, the contractor identifies the need for a
conformed occupations) and computes a proposed rate(s).

2) After contract award, the contractor prepares a written report listing
in order proposed classification title(s), a Federal grade equivalency (FGE) for
each proposed classifications), job descriptions), and rationale for proposed
wage rate(s), including information regarding the agreement or disagreement of
the authorized representative of the employees involved, or where there is no
authorized representative, the employees themselves. This report should be
submitted to the contracting officer no later than 30 days after such unlisted
class(es) of employees performs any contract work.

3) The contracting officer reviews the proposed action and promptly submits
a report of the action, together with the agency's recommendations and pertinent
information including the position of the contractor and the employees, to the
Wage and Hour Division, Employment Standards Administration, U.S. Department of
Labor, for review. (See section 4.6(b)(2) of Regulations 29 CFR Part 4).

4) Within 30 days of receipt, the Wage and Hour Division approves,
modifies, or disapproves the action via transmittal to the agency contracting
officer, or notifies the contracting officer that additional time will be
required to process the request.

5) The contracting officer transmits the Wage and Hour decision to the
contractor.

6) The contractor informs the affected employees.

Information required by the Regulations must be submitted on SF 1444 or
bond paper.

When preparing a conformance request, the "Service Contract Act

<PAGE>

Directory of Occupations" (the Directory) should be used to compare job
definitions to insure that duties requested are not performed by a
classification already listed in the wage determination. Remember, it is not the
job title, but the required tasks that determine whether a class is included in
an established wage determination. Conformance's may not be used to artificially
split, combine, or subdivide classifications listed in the wage determination.

Exhibit 10.27.1
Equity Office Properties, L.L.C
Office of the Building
Westshore Center
1715 North Westshore Boulevard, Tampa, Florida 33607
813.288.9333 Fax 813.288.9134

January 21, 1997

Mr. Michael Lambert
Vice President
Correctional Services Corporation
1819 Main Street
Suite 10000
Sarasota, Florida 34236

Re: Sarasota City Center

Dear Michael:

Enclosed are five (5) copies of a lease amendment for approximately 1,399
square feet on the Sixth Floor (6th) floor at Sarasota City Center.

Please review the enclosed documents, and if acceptable, the appropriate
party and two corporate officers to witness and attest will need to sign four
sets where indicated. After the leases have been executed, please return four
sets me at to 1819 Main Street, Management Office, Sarasota, Florida 34236.

Please note that the Tenant Improvement Allowance equals the amount of the
contractor's bid to build-out the space, including plans and permits, and that
any changes to the plans are the sole responsibility of the Tenant.

Should you have any questions or comments regarding the enclosed documents,
please do not hesitate to contact me at (813) 288-9333. We look forward to your
tenancy in Sarasota City Center.

Sincerely,
Equity Office Properties, L.L.C., L.C.

Alex Y. Cobble
Area Leasing Representative

cc: Arvid Povilaitis
Mark Scully
Ron O'Neal
File

<PAGE>

Doing business as Equity Office Properties, L.L.C., L.C. In Florida, Equity
Office Properties, A Limited Liability Company In Ohio and Equity Office
Properties, LLC In California.

<PAGE>

SECOND AMENDMENT

This Second Amendment (the "Amendment") is made and entered into as of the
____ day of ________, 19___, by and between Zell Merrill Lynch Real Estate
Opportunity Partners Limited Partnership ("Landlord") by its agent, Equity
Office Holdings, L.L.C., L.C., and Correctional Services Corporation, Inc., a
Delaware Corporation (formerly known as Esmor Correctional Services, Inc.)
("Tenant").

WITNESSETH

A. WHEREAS, Landlord and Tenant are parties to that certain lease dated the
Thirtieth day of June, 1995 currently containing approximately 6,409 rentable
square feet of space described as Suite No. 1000 on the Tenth floor of the
building commonly known as Sarasota City Center and the address of which is 1819
Main Street, Sarasota, Florida 34236 (the "Building"), which lease has been
previously amended or assigned by instrument dated November 15, 1996
(collectively, the "Lease"); and

B. WHEREAS, Tenant has requested that additional space consisting of
approximately 1,399 rentable square feet on the Sixth floor of the Building
shown on Exhibit A hereto (the "Expansion Space") be added to the Premises and
that the Lease be appropriately amended, and Landlord is willing to do the same
on the terms and conditions hereinafter set forth;

NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, Landlord and Tenant agree as
follows:

I. Expansion and Effective Date, Effective as of the Expansion Effective
Date (as hereinafter defined), the Premises is increased from 6,409 rentable
square feet on the Tenth floor to 7,808 rentable square feet on the Sixth and
Tenth floor(s) by the addition of the Expansion Space. The lease term for the
Expansion Space shall commence on the Expansion Effective Date and end on the
Termination Date. The Expansion Space is subject to all the terms and conditions
of the Lease except as expressly modified herein and except that Tenant shall
not be entitled to receive any allowances, abatement or other financial
concession granted with respect to the Premises unless such concessions are
expressly provided for herein with respect to the Expansion Space.

A. Tile Expansion Effective Date shall be the later to occur of (i) March
1, 1997 ("Target Expansion Effective Date"), and (ii) the date upon which
Landlord's improvement work in the Expansion Space has been substantially
completed; provided, however, that if Landlord shall be delayed in substantially
completing the Landlord's work in the Expansion Space as a result of the
occurrence of any of the following (a "Delay"):

<PAGE>

1. Tenant's failure to furnish information or to respond to any request by
Landlord for any approval or information within any time period prescribed or,
if no time period is prescribed, then within two (2) Business Days of such
request; or

2. Tenant's insistence on materials, finishes or installations that have
long lead times after having first been informed by Landlord that such
materials, finishes or installations will cause a Delay; or

3. Changes in any plans and specifications; or

4. The performance or nonperformance by a person or entity employed by
Tenant in the completion of any work (all such work and such persons or entities
being subject by the prior approval of Landlord); or

5 Any request by Tenant that Landlord delay the completion of any of the
Landlord's work; or

6. Any breach or default by Tenant in the performance of Tenant's
obligations under this Amendment or the Lease; or

7. Any delay resulting from Tenant's having taken possession of the
Expansion Space for any reason prior to substantial completion of the Landlord's
work; or

8. Any other delay chargeable to Tenant, its agents, employees or
independent contractors; or

9. Any other cause beyond Landlord's control;

then, for purposes of determining the Expansion Effective Date, the date of
substantial completion shall be deemed to be the day that said Landlord's work
would have been substantially completed absent any such Delay(s). The Expansion
Space shall be deemed to be substantially completed on the date that Landlord
reasonably determines that all Landlord's work has been performed (or would have
been performed absent any Delays), other than any details of construction,
mechanical adjustment or any other matter, the noncompletion of which does not
materially interfere with Tenant's use of the Expansion Space. The adjustment of
the Expansion Effective Date and, accordingly, the postponement of Tenant's
obligation to pay Rent on the Expansion Space shall be Tenant's sole remedy and
shall constitute full settlement of all claims that Tenant might otherwise

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<PAGE>

have against Landlord by reason of the Expansion Space not being ready for
occupancy by Tenant on the Target Expansion Effective Date.

B. In addition to the postponement, if any, of the Expansion Effective Date
as a result of the applicability of Paragraph I.A. of this Amendment, the
Expansion Effective Date shall be delayed to the extent that Landlord fails to
deliver possession of the Expansion Space for any other reason, including but
not limited to, holding over by prior occupants. Any such delay in the Expansion
Effective Date shall not subject Landlord to any liability for any loss or
damage resulting therefrom. If the Expansion Effective Date is delayed, the
Termination Date under the Lease shall not be similarly extended.

II. Monthly Base Rental,

In addition to Tenant's obligation to pay Base Rental for the Premises,
Tenant shall pay Landlord the sum of Ninety Three Thousand Three Hundred Eighty
Three and 35/100s* Dollars ($93,383.35*) as Base Rental for the Expansion Space
in 44 monthly installments as follows:

A. Seven equal installments of $1,923.63* each payable on or before the
first day of each month during the period beginning March 1, 1997 and ending
September 30, 1997.

B. Twelve equal installments of $2,040.21* each payable on or before the
first day of each month during the period beginning October 1, 1997 and ending
September 30, 1998.

C. Twelve equal installments of $2,156.79* each payable on or before the
first day of each month during the period beginning October 1, 1998 and ending
September 30, 1999.

D. Thirteen equal installments of $2.273,38* each payable on or before the
first day of each month during the period beginning October 1, 1999 and ending
October 31, 2000.

*Plus Applicable Florida State Sales Tax

All such Base Rental shall be payable by Tenant in accordance with the
terms of Article V of the Lease.

Landlord and Tenant acknowledge that the foregoing schedule is based on the
assumption that the Expansion Effective Date is the Target Expansion Effective
Date. If the Expansion Effective Date is postponed, the beginning date set forth
above with respect to the payment of any installment(s) of Base Rental shall be
appropriately adjusted on a per them basis and set forth in a confirmation
letter to be prepared by Landlord.

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<PAGE>

III. Additional Security Deposit, Upon Tenant's execution hereof, Tenant
shall pay $2,183.02 to Landlord which is added to and becomes part of the
Security Deposit if any, held by Landlord which is added to and becomes part of
the Security Deposit, if any, held by Landlord as provided under the Lease as
security for payment of Rent and the performance of other terms and conditions
of the Lease of Tenant. Accordingly, simultaneous with the execution hereof, the
Security Deposit is increased from $10,414.63 to $12,597.65.

IV. Tenant's Pro Rata Share, For the period commencing with the Expansion
Effective Date and ending on the Termination Date, Tenant's Pro Rata Share for
the Expansion Space is Fifty Six Hundredths of a percent (.56%).

V. Base Year, Base Amount, Tax Base, and Expense Base. For the period
commencing with the Expansion Effective Date and ending on the Termination Date,
the Base Year for the computation of Tenant's Pro Rata Share of Basic Costs
applicable to the Expansion Space is 1995.

VI. Improvements to Expansion Space.

A. Tenant has inspected the Expansion Space and agrees to accept the same
"as is" without any agreements, representations, understandings or obligations
on the part of Landlord to perform any alterations, repairs or improvements,
except as may be expressly provided otherwise in this Amendment.

B. Cost of Improvements to Expansion Space. Provided Tenant is not in
default, Tenant shall be entitled to receive an improvement allowance (the
"Expansion Improvement Allowance") in an amount not to exceed Fourteen Thousand
Nine Hundred Fifty Five and 31/100s Dollars ($14,955.31) to be applied toward
the cost of performing initial construction, alteration or improvement of the
Expansion Space, including but not limited to the cost of space planning, design
and related architectural and engineering services. In the event the total cost
of the initial improvements to the Expansion Space exceeds the Expansion
Improvement Allowance, Tenant shall pay for such excess upon demand. The entire
unused balance of the Expansion Improvement Allowance, if any, shall accrue to
the sole

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<PAGE>

benefit of Landlord. Landlord shall pay such Expansion Improvement
Allowance directly to the contractors retained to perform the construction,
design or related improvement work to the Expansion Space.

C. Responsibility for Improvements to Expansion Space. Landlord shall enter
into a direct contract for the initial improvements to the Expansion Space with
a general contractor selected by Landlord. Tenant shall devote such time in
consultation with Landlord or Landlord's architect as may be required to provide
all information Landlord deems necessary in order to enable Landlord to
complete, and obtain Tenant's written approval of, the plans for the initial
improvements to the Expansion Space in a timely manner. All plans for the
initial improvements to the Expansion Space shall be subject to Landlord's
consent, which consent shall not be unreasonably withheld. If the cost of such
improvements exceeds the Expansion Improvement Allowance, then prior to
commencing any construction of improvements to the Expansion Space, Landlord
shall submit to Tenant a written estimate setting forth the anticipated cost,
including but not limited to the cost of space planning, design and related
architectural and engineering services, labor and materials, contractor's fees,
and permit fees. Within a reasonable time thereafter, Tenant shall either notify
Landlord in writing of its approval of the cost estimate or specify its
objections thereto and any desired changes to the proposed improvements. In the
event Tenant notifies Landlord of such objections and desired changes, Tenant
shall work with Landlord to reach a mutually acceptable alternative cost
estimate.

VII. Early Access to Expansion Space. During any period that Tenant shall
be permitted to enter the Expansion Space prior to the Expansion Effective Date
(e.g., to perform alterations or improvements), Tenant shall comply with all
terms and provisions of the Lease, except those provisions requiring payment of
Base Rental or Additional Base Rental as to the Expansion Space. If Tenant takes
possession of the Expansion Space prior to the Expansion Effective Date for any
reason whatsoever (other than the performance of work in the Expansion Space
with Landlord's prior approval), such possession shall be subject to all the
terms and conditions of the Lease and this Amendment, and Tenant shall pay Base
Rental and Additional Base Rental as applicable to the Expansion Space to
Landlord on a per diem basis for each day of occupancy prior to the Expansion
Effective Date.

VIII. Parking.

1. During the Lease Term, Tenant agrees to lease from Landlord and Landlord
agrees to lease to Tenant an additional four (4) unreserved parking spaces (the
"Spaces") in the Building garage ("Garage") for the use of

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<PAGE>

Tenant and its employees. No deductions or allowances shall be made for
days when Tenant and its employees do not utilize the parking facilities or for
Tenant utilizing less than all of the number of unreserved Spaces set forth
above. Tenant shall not have the right to lease or otherwise use more than the
number of unreserved Spaces set forth above.

2. Tenant shall pay Landlord, as Additional Base Rental in accordance with
Article V of the Lease, the sum of $40.00 per month, plus applicable Florida
State Sales Tax for each unreserved parking Space leased by Tenant hereunder.

3. Except for particular spaces and areas designated by Landlord for
reserved parking, all parking in the Garage shall be on an unreserved, first
come, first served basis. Reserved Spaces, if any, shall be designated by
Landlord.

4. Landlord shall not be responsible for money, jewelry, automobile or
other personal property lost in or stolen from the Garage regardless of whether
such loss or theft occurs when the Garage or other areas therein are locked or
otherwise secured. Except as caused by the negligence or willful misconduct of
Landlord and without limiting the terms of the preceding sentence, Landlord
shall not be liable for any loss, injury or damage to persons using the Garage
or automobiles or other property therein, it being agreed that, to the fullest
extent permitted by law, the use of the Spaces shall be at the sole risk of
Tenant and its employees.

5. Landlord shall have the right from time to time to designate the
location of the Spaces and to promulgate reasonable rules and regulations
regarding the Garage, the Spaces and the use thereof, including, but not limited
to, rules and regulations controlling the flow of traffic to and from various
parking areas, the angle and direction of parking and the like. Tenant shall
comply with and cause its employees to comply with all such rules and
regulations as well as all reasonable additions and amendments thereto.

6. Tenant shall not store or permit its employees to store any automobiles
in the Garage without the prior written consent of Landlord. Except for
emergency repairs, Tenant and its employees shall not perform any work on any
automobiles while located in the Garage or on the Property. If its necessary for
Tenant or its employees to leave an automobile in the Garage or on the surface
parking areas overnight, Tenant shall provide Landlord with prior notice thereof
designating the license plate number and model of

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<PAGE>

such automobile.

7. Landlord shall have the tight to temporarily close the Garage or certain
areas therein in order to performing necessary repairs, maintenance and
improvements to the Garage.

8. Tenant shall not assign or sublease any of the Spaces without the
consent of Landlord. Landlord shall have the right to terminate this Parking
Agreement with respect to any Spaces that Tenant desires to sublet or assign.

9. Landlord may elect to provide parking cards or keys to control access to
the Garage. In such event, Landlord shall provide Tenant with one card or key
for each Space that Tenant is leasing hereunder, provided that Landlord shall
have the right to require Tenant or its employees to place a deposit on such
access cards or keys and to pay a fee for any lost or damaged cards or keys.

IX. Miscellaneous.

A. This Amendment sets forth the entire agreement between the parties with
respect to the matters set forth herein. There have been no additional oral or
written representations or agreements.

B. Except as herein modified or amended, the provisions, conditions and
terms of the Lease shall remain unchanged and in full force and effect.

C. In the case of any inconsistency between the provisions of the Lease and
this Amendment, the provisions of this Amendment shall govern and control.

D. Submission of this Amendment by Landlord is not an offer to enter into
this Amendment but rather is a solicitation for such an offer by Tenant.
Landlord shall not be bound by this Amendment until Landlord has executed and
delivered the same to Tenant.

E. The capitalized terms used in this Amendment shall have the same
definitions as set forth in the Lease to the extent that such capitalized terms
are defined therein and not redefined in this Amendment.

F. This Amendment shall be of no force and effect unless and until accepted
by any guarantors of the Lease, who by signing below shall agree that their

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<PAGE>

guarantee shall apply to the Lease as amended herein, unless such
requirement is waived by Landlord in writing.

G. Tenant hereby represents to Landlord that Tenant has dealt with no
broker in connection with this Amendment. Tenant agrees to indemnify and hold
Landlord and the Landlord Related Parties harmless from all claims of any
brokers claiming to have represented Tenant in connection with this Amendment.

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment
as of the day and year first above Written.

WITNESS/ATTEST: LANDLORD: Zell Merrill Lynch Real
Estate
Opportunity Partners Limited Partnership

By: Equity Office Holdings, L.L.C., L.C.,
as agent

By:
- ------------------------------- ----------------------------------

Name (print):
------------------ Name: Arvid Povilaitis:

Title: Vice President, Asset Management
- -------------------------------

Name (print):

WITNESS/ATTEST: TENANT: Correctional Services Corporation,
a Delaware Corporation

By:

- --------------------------------- ------------------------------------------

Name Name:
(print):

- --------------------------------- ---------------------------------------

Title:
------------------------------------
Name (print): Date:
------------------

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Exhibit 10.40

OMB 1103-0018 exp. 02/28/98

1. AWARD/CONTRACT

2. CONTRACT (Proc. Inst. J200c-280

3. EFFECTIVE DATE October 1, 1996

4. Requistition/Purchase Reqeust Brown/289

5. ISSUED BY
U.S.. Department of Justice
Federal Bureau of Prisons
320 First Street, NW
Washington, DC 20534

6 Elizabeth S. Gorman
Contract Specialist
(202) 307-3069

7. NAME AND ADDRESS OF CONTRACTOR (NO. STREET, CITY, COUNTY,
STATE, AND ZIP CODE)
Esmor Correctional Services, Inc.
1819 Main Street, Suite 1000
Sarasota, FL 34236
Attn: James F. Slattery President

8. X Other - Destination

9. Discount for prompt payment: Net 30 days

10. Part I Section G

11. SHIP TO/Ma RK FOR
Bronx Community Corrections Center
2524 Creston Avenue
Bronx, NY

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12. Payment will be made
Federal Bureau of Prisons
US Customs House - 7th Floor, Attn: Accounting
2nd and Chestnut Streets
Philadelphia, PA 19106

14. 72-T-270-420-215-2506 FUNDS ARE OBLIGATED BY EACH DELIVERY
ORDER

15A. 1 15B Provide Residential Community
Corrections Center Services for male and Female Federal
Offenders in accordance with RFP 200-296-NE

15C 32,850 MANDAYS 75.00 2,463,750.00
w/Gov't unilateral right to exercise three one-year
options at
17,155 MANDAYS 80.00
17,520 MANDAYS 85.00
17,885 MANDAYS 90.00 for each option year
respectively

15G. TOTAL AMOUNT OF CONTRACT $2,463,750.00

16. TABLE OF CONTENTS

(V) [SEC. I DESCRIPTION DESCRIPTION
PART I -THE SCHEDULE PART 11 -CONTRACT CLAUSES

X A SOLICITATION/CONTRACT FORM I CONTRACT CLAUSES

X B SUPPLIES OR SERVICES AND PRICES/COSTS

PART III - LIST OF DOCUMENTS, EXHIBITS AND
OTHER ATTACH.

X C DESCRIPTION/SPECS./WORK STATEMENT J LIST OF ATTCHMENTS

X D PACKAGING AND MARKING

PART IV - REPRESENTATIONS AND INSTRUCTIONS

X E INSPECTION AND ACCEPTANCE K REPRESENTATIONS, CERTIFICATIONS

X F DELIVERIES OR PERFORMANCE OTHER STATEMENT OF OFFERORS

X G CONTRACT ADMINISTRATION DATA L INSTRS., CONDS., AND NOTICES TO OFFERORS

X H SPECIAL CONTRACT REQUIREMENTS M EVALUATION FACTORS FOR AWARD

</TABLE>

CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE

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17. lX-] CONTRACTOR'S NEGOTIATED AGREEMENT (Contractor is required to sign
this document and return 2.

Contractor agrees to furnish and deliver all Items or perform all the
services set forth or otherwise Identified above and on any continuation sheets
for the consideration stated herein. The rights and obligations of the parties
to this contract shall be subject to and governed by the following documents:
(a) this award/contract, (b) the solicitation, If any, and (c) such Provisions,
representations, and specification as they are attached or incorporated by
reference herein. (Attachments are listed herein).

NAME AND TITLE OF SIGNER

James F. Slattery, President
Esmor Correctional Services, Inc

Date signed 7/24/96

19B. NAME OF CONTRACTOR

SIGNED

18. AWARD (Contractor is not required to sign this document.) Your offer on
Solicitation Number including the additions or Changes made by you which
additions or changes are set forth in full above, is hereby accepted as to the
Items listed above and on any continuation sheets. This award consummates the
contract which consists of the following documents: (a) the Government's
solicitation and your offer, and (b) this award/contract . no further
contractual document Is necessary.

20 A. NAME OF CONTRACTING OFFICER

Rodney A. Anderson

19. Date signed 7/29/96

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Ref. No. J200c-280

pages 2 OF 9

Esmor Correctional Services, Inc.

AWARD/CONTRACT CONTINUED --

Business, Past Performance, and Technical Proposal, signed by the President
of Esmor Correctional Services, Inc. on January 9, 1996, and the following;

Clarifications and Deficiencies Response dated April 22, 1996; Best and
Final Offer dated May 16, 1996; Subcontracting Plan dated 07/10/96.

Base Period: $75.00 (2 Years)
Option Year 1: $80.00 .-
Option Year 2: $85.00
Option Year 3: $90.00.

2. Performance shall begin no later than October 1, 1996, and upon the
Government I s issuance of Notice to Proceed.

3. Home Confinement and Furlough services shall be provided at one-half
(1/2) the rate of regular manday services.

4. Option Year number 1,, if exercised, will begin on October 1, 1998.
Option Years 2, and 3, if exercised, will begin on October 1.

5. "The Government intends to refer all eligible CCC requirements under
this solicitation to the successful Contractor". The Base Period and Option Year
dates have been revised to reflect the following:

Base Period: 10/01/96 - 09/30/98
Option Year 1: 10/01/98 - 09/30/99
Option Year 2 10/01/99 - 09/30/2000
Option Year 3: 10/01/00 - 09/30/2001

Section I:

6. Revise: Section F.2 Deliveries to Add Tora Bunch, Contract Specialist.

7. Delete: FAR 52.225-17, Buy American Act--Supplies Under European
Community Agreement (MAY 1995)

8. Update: FAR 52.215-27, Termination of Defined Benefit Pension Plans (MAY
1996) :

9. Update: FAR 52.215-39, Reversion or Adjustment of Plans for
Post-retirement Benefits Other than Pension (PRB) (MAR 19 9 6)

CONTINUATION SHEET

J200c-280
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Esmor Correctional Services, Inc.

AWARD/CONTRACT CONTINUED --

10. Update: FAR 52.209-5, Certification Regarding Debarment, Suspension,
Proposed Debarment, and other Responsibility Matters (MAR 1996)

11. Update: 52.232-17, Interest (JUN 1996)

Section K:
12. Delete: FAR 52.225-16, Buy American Act--Supplies Under European
community Agreement Certificate (MAY, 1993)

13. Incorporate: FAR 52.209-7, . Organizational Conflicts of Interest
Certificate-Marketing Consultants (OCT 1995) (Full Text)

Section L:
14. Incorporate: FAR 52.215-16, Contract Award (OCT 1995) (Full text)

15. Incorporate: FAR 52.21,5-41, Requirements for Cost or Pricing Data or
Information other than Cost or Pricing Data (OCT 1995) (Full Text)

16. Remove the statement in section I, I-5 52.216-19, that . reads: *may be
exceeded by up to 25 percent as provided at Item B.1.

17. Incorporate revised language in number 1 and 2 as follows:

(1) Any order for a single item in excess of (no maximum) cited due to this
being a requirements-type contract. (A requirements-type contract is one which
the purchaser agrees to buy all of its ' needs for the specified services herein
from the award to fill all of the purchaser's needs during the period of the
contract.) (2) Any order for a combination of items in excess of (no maximum)
cited due to this being a requirements-type contract. (A requirements-type
contract is one in which the purchaser agrees to buy all of its needs for the
specified services herein from the awardee to fill all the purchaser's needs
during the period of the contract.)

18. Section K, K.11 (a)(1) 52.219-1, Small Business Program Representations
(OCT 1995) the Standard Industrial Classification (SIC) Code 8361 should be
incorporated into this contract.

A. 1 52.209-7 ORGANIZATIONAL CONFLICTS OF INTEREST CERTIFICATE-MARKETING
CONSULTANTS (OCT 1995)

(a) Definitions.

(1) "Marketing consultant" means any independent contractor who furnishes
advice, information, direction or assistance to an offeror or any other
contractor in support of the preparation or submission of an offer for a
Government contract by that offeror. An independent Contractor is not a
marketing consultant when rendering--

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(i) Services excluded in subpart 37.2;

(ii) Routine engineering and technical services (such as installation,
operation, or maintenance of systems, equipment, software, components, or
facilities);

(iii) Routine legal, actuarial, auditing, and accounting services; or

(iv) Training services.

(2) Organizational conflict of interest means that because of other
activities or relationships with other persons, a person is unable or
potentially unable to render impartial assistance or advice to the Government,
or the person's objectivity in performing the contract work is or might be
otherwise impaired, or a person has an unfair competitive advantage.

(b) An individual or firm that employs, retains, or engages contractually
one or more marketing consultants in connection with a contract, shall submit to
the contracting officer, with respect to each marketing consultant, the
certificates described below, if the individual or firm is notified that it is
the apparent successful offeror.

(1) The name of the agency and the number of the solicitation in question.

(2) The name, address, telephone number, and federal taxpayer
identification number of the marketing consultant.

(3) The name, address and telephone number of a responsible . officer or
employee of the marketing consultant who has personal knowledge of the marketing
consultants involvement in the contract.

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A.1 (Continued)

(4) A description of the nature of the services rendered by or to be
rendered by the marketing consultant.

(5) The name, address, and telephone number of the client or clients, and
the name of a responsible officer or employee of the marketing consultant who is
knowledgeable about the services provided to such client(s), and a description
of the nature of the services rendered to such client(a), if, based an
information provided to the contractor by the marketing consultant, any
marketing consultant is rendering or, in the 12* months preceding the date of
the certificate has rendered services respecting the same subject matter of the
instant solicitation, or directly relating to such subject matter, to the
Government or any other client (including any foreign government or person).

(6) A statement that the person who signs the certificate for the prime
Contractor has informed the marketing consultant of the existence of Subpart
9.5 and office of Federal Procurement Policy Letter 89-1.

(7) The signature, name, title, employer's name, address, and telephone
number of the persons who signed the certificates for both the apparent
successful offeror and the marketing consultant.

(d) In addition, the apparent successful offeror shall forward to the
Contracting Officer a certificate signed by the marketing consultant that the
marketing consultant has been told of the existence of Subpart 9.5 and Office of
Federal Procurement Policy Letter 89-1, and the marketing consultant has made
inquiry, and to the best of the consultant's knowledge and belief, the
consultant has provided no unfair competitive advantage to the prime Contractor
with respect to the Services rendered or to be rendered in connection with the
solicitation, or that any unfair competitive advantage that, to the best of the
consultant's knowledge and belief, does or may exist, has been disclosed to the
offeror.

(e) Failure of the offeror to provide the required certifications may
result in the offeror being determined ineligible for award. Misrepresentation
of any fact may result In the assessment of penalties associated with false
certifications or such other provisions provided for by law or regulation.

*If approved by the head of the contracting activity, this period may be
increased up to 36 months.

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A.1 52.215-16 CONTRACT AWARD (OCT 1995) ALTERNATE II (OCT 1995)

(a) The Government will award a contract resulting from this solicitation
to the responsible offeror whose offer conforming to the solicitation will be
most advantageous to the Government, cost or price and other factors, specified
elsewhere in this solicitation, considered.

(b) The Government may (1) reject any or all offers if such action is in
the public interest, (2) accept other than the lowest offer, and (3) waive
informalities and minor irregularities in offers received.

(c) The Government intends to evaluate proposals and award a contract
without discussions with offerors (except communications conducted for the
purpose of minor clarification). Therefore, each initial offer should contain
the offeror's best terms from a cost or price and technical standpoint. However,
the Government reserves the right to conduct discussions if later determined by
the Contracting officer to be necessary.

(d) The Government may accept any item or group of items of an offer,
unless the offeror qualifies the offer by specific limitations. UNLESS OTHERWISE
PROVIDED IN THE SCHEDULE, OFFERS MAY BE SUBMITTED FOR QUANTITIES LESS THAN THOSE
SPECIFIED. THE GOVERNMENT RESERVES THE RIGHT TO MAKE AN AWARD ON ANY ITEM FOR A
QUANTITY LESS THAN THE QUANTITY OFFERED, AT THE UNIT COST OR PRICES OFFERED,
UNLESS THE OFFEROR SPECIFIES OTHERWISE IN THE OFFER.

(e) A written award or acceptance of offer mailed or otherwise furnished to
the successful offeror within the time for acceptance specified in the offer
shall result in a binding contract without further action by either party.
Before the offer's specified expiration time, the Government may accept an offer
(or part of an offer, as provided in paragraph (d) above), whether or not there
are negotiations after its receipt, unless a written notice of withdrawal is
received before award. Negotiations conducted after receipt of an offer do not
constitute a rejection or counteroffer by-the Government.

(f) Neither financial data submitted with an offer, nor representations
concerning facilities or financing, will form a part of the resulting contract.
However, if the resulting contract contains a clause providing for price
reduction for defective cost or pricing data, the contract price will be subject
to reduction if cost or pricing data furnished is incomplete, inaccurate, or not
current.

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A.1 (continued)

(g) The Government may determine that an offer is unacceptable if the
prices proposed are materially unbalanced between line items or subline items.
An offer is materially unbalanced when it is based on prices significantly less
than cost for some work and prices which are significantly overstated in
relation to cost for other work, and if there is a reasonable doubt that the
offer will result in the lowest overall cost to the Government, even though it
may be the low evaluated offer, or it is so unbalanced as to be tantamount to
allowing an advance payment.

(h) The Government may disclose the following information in post-award
debriefing to other offerors: (1) the overall evaluated cost or price and
technical rating of the successful offeror; (2) the overall ranking of all
offerors, when any ranking was developed by the agency during source selection;
(3) a summary of the rationale for award; (4) for acquisitions of commercial end
items, the make and model of the item to be delivered by the successful offeror.

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A.1 52.215-41 REQUIREMENTS FOR COST OR PRICING DATA OR INFORMATION OTHER
THAN COST OR PRICING DATA (OCT 1995)

(a) Exceptions from cost or -pricing data. (1) In lieu of submitting cost
or pricing data, offerors may submit a written request for exception by
submitting the information described in the following subparagraphs. The
Contracting Officer may require additional supporting information, but only to
the extent necessary to determine whether an exception should be granted, and
whether the price is fair and reasonable.

(i) Information relative to an exception granted for prior or repetitive
acquisitions.

(ii) Catalog price information as follows:

(A) Attach a copy of or identify the catalog and its date, or the
appropriate pages for the offered items, or a statement that the catalog is on
file in the buying office to which this proposal is being made.

(B) Provide a copy or describe current discount policies and price lists
(published or unpublished), e.g., wholesale, original equipment manufacturer,
and re-seller.

(C) Additionally, for each catalog item that exceeds (extended value not
unit price), provide evidence of substantial sales to the general public. This
may include sales order, contract, shipment, invoice, actual recorded sales or
other records that are verifiable. In addition, if the basis of the price
proposal is sales of essentially the same commercial item by affiliates, other
manufacturers or vendors, those sales may be included. The offeror shall explain
the basis of each offered price and its relationship to the established catalog
price. When substantial general public sales have also been made at prices other
than catalog or price list prices, the offeror shall indicate how the proposed
price relates to the price of such recent sales in quantities similar to the
proposed quantities.

(iii) Market price information. Include the source and date or period of
the market quotation or other basis for market price, the base amount, and
applicable discounts. The nature of the market

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A.1 (Continued)

should be described. The supply or service being purchased should be the
same as 6r similar to the market price supply or service. Data supporting
substantial sales to the general public is also required.

(iv) Identification of the law or regulation establishing the price
offered. If the price is controlled under law by periodic rulings, reviews, or
similar actions of a governmental body, attach a copy of the controlling
document, unless it was previously submitted to the contracting office.

(v) For a commercial item exception, information on prices at which the
same item or similar items have been sold in the commercial market.

(2) The offeror grants the Contracting officer or an authorized
representative the right to examine, at any time before award, books, records,
documents, or other directly pertinent records to verify any request for an
exception under this provision, and the reasonableness of price. Access does not
extend to cost or profit information or other data relevant solely to the
offeror's determination of the prices to be offered in the catalog or
marketplace

(b) Recruitment's for cost or pricing data. If the offeror is not granted
an exception from the requirement to submit cost or pricing data, the following
applies:

(1) The offeror shall submit cost or pricing data on Standard Form (SF)
1411, Contract Pricing Proposal Cover Sheet (Cost or Pricing Data Required),
with supporting attachments prepared in accordance with Table 15-2 of FAR
15.804-6(b)(2).

(2) As soon as practicable after agreement on price, but before contract
award (except for unpriced actions such as letter contracts), the offeror shall
submit a certificate of Current Cost or Pricing Data, as prescribed by FAR
15.804-4.

(c) By submitting information to qualify for an exception, an offeror is
not representing that this is the only exception that may apply.

Page 9 of 9

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Exhibit 10.42

OPERATIONS AND MANAGEMENT AGREEMENT
for the
McKinley County, New Mexico Adult Detention Facility

This Operations and Management Agreement for the McKinley County, New
Mexico Adult Detention Facility (the "Agreement") is made as of the 3rd, day of
October, 1996, by and between Correctional Services Corporation, 1819 Main
Street, Suite 1000, Sarasota, Florida 34236, (the "Contractor") and McKinley
County New Mexico, 210 West Hill Avenue, Gallup, New Mexico 87301 (the
"County"), a governmental entity of the State of New Mexico, upon the terms,
conditions and provisions herein set forth.

WITNESSETH

WHEREAS, the County has made provisions for the financing and construction
of an adult detention facility in McKinley County, New Mexico, which Facility,
exclusive of courtrooms, county, city and state offices, shall be known as the
McKinley County Adult Detention Facility (the "Facility"); and, WHEREAS, the
County desires to enter into a contract under which the Contractor shall
operate, maintain and manage the Facility in compliance with all applicable
Federal, State and Local laws and ordinances; and, NOW THEREFORE, in
consideration of the mutual rights, duties, benefits and obligations herein
exchanged, the parties hereto covenant, agree and bind themselves as follows:

ARTICLE ONE
Purposes

1.01 The Contractor shall manage, supervise and operate the Facility for
the County and receive, supervise and care for each inmate that is assigned to
the Facility by the County pursuant to applicable law. The Contractor shall
accept inmates that are assigned by the County, from a jurisdiction that enters
into a Joint Powers Agreement with the County to reserve space for the on-going
placement of inmates in the Facility, or a jurisdiction that contracts with the
County on a limited basis to house one or more individuals in the Facility.

1.02 The Contractor shall manage and supervise the Facility to remain in
compliance with all local, State and Federal health, fire and safety codes and
shall document such compliance at the beginning of each fiscal year. Such
documentation shall consist of certificates from the local health department,
Fire Marshal and building inspector and copies thereof shall be forwarded to the
County as required or requested. The Facility shall be managed, operated
maintained and utilized in conformance and compliance with applicable law, the
standards and regulations of the American Corrections Association, or County
standards, whichever is higher.

1.03 The Contractor shall work cooperatively with the County and agrees
that the County shall have the right to inspect the Facility prior to the
placement of any inmate and that there shall be no

<PAGE>

placements made until both the Contractor and the Facility are in
compliance with all contract provisions, and all standards or regulations of the
County.

1.04 Youthful offenders subject to the Juvenile Code shall not be accepted
into the Facility.

<PAGE>

ARTICLE TWO
Term

2.01 This Agreement is effective on the date set forth in the initial
paragraph of this Agreement. The ordinal term of this Agreement shall be
three(3) years and such term shall commence on the date the first inmate shall
occupy the Facility and shall end on the third anniversary date thereafter.

2.02 The County and the Contractor may negotiate renewal of the Agreement
for an additional term of two years. Per diem rate, for daily fees for
operational and management services, increases shall be based on the increases
found in the Department of Labor s CPI-W index with the base year being 1997.

2.03 The County may unilaterally terminate this Agreement at any time only
for reason of Contractors failure to operate or cause the operation of the
Facility in compliance with the terms of this Agreement, State law, the
applicable rules and procedure of the County and/or the applicable standards of
the ACA, or default under this Agreement. However, prior to any such
termination, the County shall give written notice by certified mail to the
Contractor of such deficiency. Deficiencies shall be corrected within 30-90 days
as specifically stated in the notice. Within ten days, the Contractor shall
submit a plan of corrections to the County indicating action to be taken and the
time frame for full compliance. The County shall review the plan of correction
and shall either concur with the plan or identify corrective actions to be taken
and the time frame for completion. At the end of the specified time frame, the
County may again inspect for deficiencies at the Facility to ensure compliance
with the plan. Deficiencies that remain uncorrected may cause a one percent
penalty per day for that day's billable man-days to be imposed against the
monthly invoice of the Contractor until deficiencies are corrected.

2.04 The County may, upon 30-days written notice to the Contractor,
unilaterally terminate this Agreement on or after the second anniversary of the
effective date set forth in the initial paragraph of this Agreement. The County
shall give written notice by certified mail to the Contractor of such notice.

2.05 The Contractor may, upon 90-days written notice to the County,
unilaterally terminate this Agreement on or after the second anniversary of the
effective date set forth in the initial paragraph of this Agreement. The
Contractor shall give written notice by certified mail to the County of such
notice.

<PAGE>

ARTICLE THREE
Facility Costs and Payments

3.01 The Contractor shall submit to the County or its designee, no later
than the third day of each month, a billing for inmates assigned from the 16th
day to the last day of the previous month, and no later than the 18th day of
each month, a billing for inmates assigned from the first day to the 15th day of
the current month.

3.02 The Contractor shall participate in an annual program evaluation and
annual audit of the Facility including the maintenance and availability of
accurate and up-to-date program, and inmate trust fund financial records for
inspection. The first evaluation and audit shall be conducted no later than the
eleventh (llth) month after the commencement of operations.

3.03 During the term of this Agreement, the County shall pay the Contractor
$35.00 per inmate per day for the operation and management services set forth
herein; which includes gross receipts tax (The term "day" means a twenty-four
hour period, or part thereof, beginning at 12 o'clock midnight-12:00 a.m.)

3.04 The County reserves the right to withhold or require return of funds
upon substantial noncompliance with applicable regulations, standards, policies
or this Agreement if the Contractor fails to remedy or cure the noncompliance
within 30 days of written notice from the County, as required in Paragraph 2.03.

3.05 The County Auditor shall make payments to the Contractor on the eighth
and twenty-third days of each month; based on the billings and invoices given to
the County by the Contractor on the 3rd and 18th day of each month.

3.06 Services that are desired by the County, or a jurisdiction in contract
with the County for detention services, that are not included in this Agreement,
shall be negotiated for between the County and the Contractor. Additional
charges for services not in the Agreement shall be as agreed upon between the
Contractor and the County and placed in an addendum to this Agreement.

3.07 The Contractor may enter into Agreement with vendors for inmate
telephone service and commissary operations at their option; during, the term of
the contract. All commission from inmate telephone service and income from
commissary operations may be utilized at the Contractor's discretion. The cost
to the inmates for commissary items shall be based on actual cost of goods plus
taxes and reasonable mark-ups for overhead and personnel. Sales prices for goods
shall be comparable to that available in local retail store for the same or
similar goods. Inmate telephone service shall be in accordance with regulations
of the Public Utilities Commission.

3.08 Within 10 working days after the execution of the Agreement,

<PAGE>

Contractor shall open an Operating Account, in the name and under the
control of the Contractor, at a bank located within the City of Gallup, New
Mexico, and deposit, or cause to be deposited, the amount of $500,000 as an
Operating Reserve (the "Operating Reserve"). Once operations have commenced,
Contractor may, during the course of operating the Facility, draw against these
funds to an amount equal to an amount then due Contractor by County. This
Operating Reserve shall be maintained, allowing for the previous sentence, at
this minimum level for 180-days past the commencement date of this Agreement.

<PAGE>

ARTICLE FOUR
Duties of the Contractor

4.01 The Contractor Shall manage and shall operate and provided, or cause
the operation and provision under Contractor's supervision and primary
responsibility:

A. The documentation of all agreements or contracts of the County with
other jurisdictions to assure the documentation reasonably necessary for each
such contract is complete and that any such contract or Agreement is not
inconsistent with the terms of this Agreement, prior to the housing of any
inmate in the Facility pursuant to a contract between the County and another
jurisdiction.

B. All services, supplies, amenities, -benefits and equipment necessary to
comply with the terms of this Agreement and all contracts with other
jurisdictions for the housing of inmates meet or exceed State law requirements,
the rules and procedures promulgated by the County and the applicable standards
of the ACA. Should the Agreement between the county and the contractor be
terminated for any reason, at any time, those supplies and the equipment
purchased by the Contractor, and utilized in the daily operation of the
Facility, remain the property of the Contractor. The supplies and equipment
furnished by the developer or the County shall remain the property of the
County.

C. Intake facilities and inmate accounting which may encompass bookkeeping,
recordkeeping end billings, system of controls, identification systems and
records, communication interface with law enforcement agencies, and such
statistical records as may be required by law.

D. Attendants to control ingress and egress, maintain the requisite level
of internal security and to monitor the activities of the inmates within the
Facility.

E. Food and beverage services shall be provided in accordance with all
applicable standards, sanitation and health codes and individualized and special
needs. All menus shall be planned and reviewed in advance by a registered
dietitian or physician. Meals shall meet the dietary requirements of the U.S.
Department of Agriculture; unless some other standard is required by the County.
Menu and food service plans shall be prepared, and a schedule shall be followed
whenever possible. Menu plans shall be kept for one year. The menus shall
contain a variety of foods and recognize special occasions and holidays. The
quality of food and beverage service provided will be periodically reviewed by
the County or its designee, and the Contractor shall correct any failure to meet
the foregoing standards noted by the County or its designee within 72 hours.
Special diets shall be provided to

<PAGE>

inmates on the recommendation of a physician or dentist and for inmates
whose religious beliefs require it to be provided. Staff members shall supervise
inmates during meals. Inmates will be provided three meals each day, two of
which shall be hot meals. No more than 14 hours may lapse between the evening
meal and breakfast, unless a snack is provided.

F. Clothing shall be provided to inmates at least in accordance with County
standards and shall be adequate according to climate, sex, height and weight of
the inmate. Inmates shall be provided with the opportunity to shower daily and
hygiene supplies shall be provided to inmates.

G. Laundry service for inmates shall be provided in accordance with
standards. Inmates may exchange linens once each week, clean towels twice each
week, and clean clothing two times per week.

H. Procurement and purchasing.

I. Recreational services.

J. Bookkeeping and financial accounting.

K. Basic medical care.

L. Training of personnel employed at the Facility, including such security,
professional, law enforcement and cultural sensitivity training and education as
may be required by the County, applicable ACA standards, the terms of this
Agreement, third party contracts or agreements by the County, and the terms of
all insurance policies applying to the Facility.

M. All repair, upkeep, maintenance and cleaning.

N. All personnel services, miscellaneous supplies and benefits necessary to
the operations of the Facility, or care and control of inmates; including
toiletries and hygiene supplies.

0. Payment of all utility charges and fees.

P. An inventory of the Facility furnishings at start up, and thereafter
keep, maintain and replace such furnishings, fixtures, and equipment furnished
by the County or the Developer with equivalent quality.

Q.Proper bedding, to each inmate and personal property storage

R. The provision of all such other services or tangible things that are
necessary to care for the inmates housed at the Facility; including all services
and tangible things required by the County, standards or directives; to include
access to a law library.

<PAGE>

S. The Contractor shall provide transportation for inmates to and from
locations within Gallup, New Mexico, including taking Native Americans to the
Indian Health Services Hospital in Gallup, as required for Court hearing,
medical reasons or other pertinent reasons. It is the Contractor's
responsibility to provide armed security for inmates outside the Facility except
as noted in section 5.10 of this Agreement.

4.02 Contractor, with the County's assistance, where needed, shall obtain
and maintain all of the proper and required local, State and federal permits,
licenses and certifications necessary for the Facility to serve as an Adult
Detention Facility. The Contractor shall maintain such certifications as
required. If, after such certifications have been obtained, the Contractor is
required by the County, State law, other applicable law, court order, rules and
procedures, or ACA standards, to perform additional work or services, or to
modify the Facility, the County and the Contractor shall consult and, if
appropriate, agree upon a temporary increase in the schedule of payments
sufficient over a reasonable period of time to reimburse the Contractor for the
cost of such operational modifications.

4.03 Notwithstanding anything contained herein to the contrary, the County
shall have no liability for any employees, agents, subcontractors or assigns of
the Contractor. The Contractor hereby agrees to indemnify and hold the County
and its officials, officers, or employees, harmless from all costs, claims,
expenses and liabilities whatsoever which may be incurred by or arising from any
and all acts done or omitted to be done by Contractor or employees, agents,
subcontractors and assigns of the Contractor, in connection with services
performed or to be performed under this Agreement. The Contractor shall provide
the County with copies of incident reports and claims and the types of claims
made against the Contractor each quarter.

4.04 The interviewing, hiring, training, assignment, certification,
control, management compensation, promotion and termination of all members of
the Facility's administration and staff shall be the responsibility and
obligation of the Contractor. The Contractor shall furnish reports on such
matters to the County when so requested. The Contractor will use its best
efforts to hire and train local personnel. Staffing shall conform to the
following:

A. The qualifications, selection, training and staff development shall
comply with County standards, and written job descriptions for all employee
positions at the Facility shall be prepared and provided to the County.

B. A sufficient number of trained, qualified employees shall be on duty,
awake and fully dressed at all times to meet all contractual requirements and to
monitor Facility control, security end inmate safety.

C. The County shall be notified within 72 hours of any

<PAGE>

change in the position of Facility Administrator.

D. Adequate staff with provision for supervision of male and female inmates
shall be maintained in accordance with all legal requirements, including County
standards.

E. Hiring preference shall be given to current, qualified jail employees.

4.05 The Contractor shall use the best efforts to purchase goods and
services within the County.

4.06 The Contractor is associated with the County for the purposes and to
the extent set forth in this Agreement for the performance of operations and
management services for the Facility, and Contractor is and shall be an
independent contractor and, subject to the terms of this Agreement, shall have
the sole right to supervise, manage, operate, control, and direct the
performance of the details incident to its duties under this Agreement. Nothing
contained in this Agreement shall be deemed or construed to create a partnership
or joint venture, to create the relationships of an employer-employee or
principal agent, or to otherwise create any liability for the County whatsoever
with respect to the indebtedness, liabilities, and obligations of the
Contractor. The Contractor shall be solely responsible for payment of all
federal income, F.I.C.A., and other taxes owed or claimed to be owed by the
Contractor, arising out of this Agreement, and the Contractor shall indemnify
and hold the County harmless from and against, and shall defend the County
against any and all losses, damages, claims, costs, penalties, liabilities, and
expenses whatsoever arising or incurred because of, incident to, or other-wise
with respect to any such taxes.

4.07 The Contractor shall maintain the exterior walls, roof, foundation,
and all outside utilities in good repair, except for reasonable wear and tear.
Such maintenance includes the duty to repair and/or replace components of the
building that may be damaged due to neglect; with quality equivalent to the
original component.

A. The Contractor shall not be liable to make repairs or replacement to any
exterior wall, roof, foundation, or outside utility that is the result of design
or construction flaws. The County shall pass through to the Contractor any and
all warranties from the Project Design/Builder.

4.08 The Contractor shall provide the services hereinafter set forth at its
own expense and risk:

A. Maintain all interior walls and ceilings, window glass, doors,
electrical fixtures, and plumbing fixtures in good repair; painting all interior
wall, as required, and furnishing furnace filters.

<PAGE>

B. Include all usual janitorial and maintenance service including sweeping
and mopping of floors, trash disposal, cleaning of window, dusting and
replacement of light bulbs.

C. Shall maintain grounds of the Facility, mowing, trimming, watering of
plants and lawn to maintain a good cosmetic appearance of the grounds.

D. Periodically have the Facility fumigated and/or sprayed for insects and
rodents.

<PAGE>

ARTICLE FIVE
Medical Care

5.01 Basic medical care will be made available by Contractor, at
Contractor's sole cost, to all inmates housed at the Facility. For the purposes
of this Agreement, basic medical care shall be limited to any condition which
can be "self-treated" by the inmates or which may be treated by a lay technician
acting under guidelines provided by a medical doctor, including first aid for
emergencies. This shall include dispensing, "over the counter" medications which
have been approved for inventory by the Facility's medical authority.

5.02 Consistent with its duties to provide basic medical care the
Contractor shall establish a program which includes:

A. The training of all supervisory staff in emergency first aid procedures
and cardiopulmonary resuscitation (CPR).

B. Adopting written medical backup plans which are communicated to all
employees and inmates.

C. Maintaining, sufficient first aid supplies and equipment to adequately
support the overall basic medical care requirements of the inmate population.

D. Maintaining, replacing and replenishing medical first aid supplies and
equipment in accordance with prescribed standards recognized or approved by a
licensed health authority or organization that has expertise to evaluate, assess
and determine the potential need for or condition of the required first aid
supplies and equipment.

5.03 State certification shall apply to all health care personnel
responsible for dispensing medical services to inmates.

5.04 Except as required by lawful authority, the Contractor will not accept
or admit into the Facility any offender who represents a significant health or
medical risk. Arresting Officers must have a release from a physician for any
arrestee that has obvious medical problems such as cuts, broken bones, etc.
prior to bringing the offender to the Facility.

5.05 The Contractor shall develop workplace guidelines which addresses all
airborne and blood borne pathogens, communicable diseases including HIV.
Contractor shall develop policies of confidentiality and an employee/client
education program in compliance with State laws.

5.06 The Contractor shall provide the County with copies of all

<PAGE>

medical related policies and procures at, on or before the commencement of
this Agreement.

5.07 Inmates shall receive a physical screening by qualified health care
personnel within seven days of admittance into the Facility. Facility nursing
staff shall perform the screenings and make referrals to the local hospital as
required.

5.08 Inmate medical files shall be confidential and accessed by authorized
health care personnel only.

5.09 All prescription drugs, prostheses, dental treatment, psychiatric
care, eye glasses and medical treatment that is not a part of the routine
treatment at the Facility shall be at the expense of the inmate or the County.

5.10 Should an inmate be hospitalized for any reason, the Contractor shall
be responsible for maintaining security, including the Indian Health Services
Hospital in Gallup, of the inmate for the first seventy-two (72) hours. Security
of inmates hospitalized for more than 72 hours shall be the responsibility of
the County.

5.11 The Contractor shall provide psychological evaluation and counseling
for inmates as necessary at the Facility.

<PAGE>

ARTICLE SIX
Compliance With Standards

6.01 The Contractor shall prepare and adopt, prior to admitting any inmate
to the Facility, a Procedures Manual for the operation of the Facility so as to
assure that the Facility is operated fully in accordance with State and other
applicable laws and regulations, rules and procedures promulgated by the County
and applicable standards promulgated by the ACA. The Contractor shall, from time
to time, make such modifications and corrections in the said Procedures manual
as are necessary to keep the Facility in compliance with such laws, regulations
and standards. The County and the Contractor agree that the Facility shall be
operated according to those applicable standards established by the American
Correctional Association in the STANDARDS FOR ADULT ' LOCAL DETENTION FACILITIES
third edition; except where specific exception is noted in this Agreement.

6.02 The Contractor shall require that all employees at the Facility are
adequately trained and certified, as appropriate, to perform at standards
required by State and other applicable law, the rules of the County and the
applicable ACA standards.

6.03 The County and the Contractor shall agree upon a monitoring plan to
assure compliance with this agreement. The Contractor shall develop and submit
to the County a detailed plan, illustrating how Contractor intends to facilitate
evaluation and monitoring of operations, prior to receiving any inmate.

6.04 Notwithstanding, any other term or provision of this Agreement, the
minimum standards for operation and management of the Facility shall be the
standards developed by the County and those applicable ACA standards agreed upon
by the County and the Contractor.

<PAGE>

ARTICLE SEVEN
Duties of the County

7.01 The County shall cooperate with the Contractor in all matters of law
enforcement, security and communications and shall employ its reasonable
influence and persuasion to obtain such cooperation from the law enforcement
agencies within the County and Slate

7.02 The County shall assist and cooperate with the Contractor in obtaining
and providing information needed by the Contractor in the screening of
candidates for employment; NCIC checks and driving records. The Contractor is
responsible for background and employment history checks.

7.03 It is agreed that the first priority for bed space in the Facility is
to assure space is available for such persons that are detained by the County
Sheriff, and the New Mexico State Police, and the city of Gallup. However, the
County and Contractor agree it shall be to their mutual benefit that the
Facility be utilized by an inmate population within the design limits of bed
capacity. To this end, and throughout the term of the Agreement, the County and
Contractor agree to cooperate and work to manage and limit vacancies by
contracting with other jurisdictions, the Navajo Nation, the Pueblo of Zuni, and
the City of Gallup for the housing of their offenders.

<PAGE>

ARTICLE EIGHT
Inmate Programs, Monitoring & Staffing

8.01 The Contractor shall provide housing, supervision and programs for all
inmates including adult remedial education, counseling, and other education and
training as required by law or the County.

8.02 Orientation-All inmates entering the Facility shall complete an
orientation that includes:

A. Intake booking, including but not limited to fingerprinting and mug shot
according to the appropriate State statutes.

B. Physical examination within seven days of confinement.

C. Orientation to Facility rules and regulations.

D. Classification assignment.

E. Education, counseling assessment.

F. HIV orientation and education.

G. Literacy screening.

H. Other programs required by law or the County.

8.03 Participation by inmates in programs shall be made available by the
Contractor at no cost to the inmate.

8.04 Appropriate safeguards shall be established to enable the Contractor
to closely monitor the whereabouts of each inmate, including a daily system and
periodic accounting for all inmates assigned to the Facility and providing that
such inmates shall only be allowed to, leave the Facility to conduct court
approved business. Written policy and procedure shall follow those guidelines
from the ACA and guidelines based on generally accepted security practices.

8.05 The Contractor shall provide a designated area for family visitation
which shall accommodate visitors and also provide shelter during inclement
weather. Family visits shall be allowed five days a week during hours specified
by the Contractor.

8.06 The Contractor shall adopt Disciplinary procedures including
procedures for the processing of violations and setting the types of sanctions
which may be imposed. Each inmate shall be given the Disciplinary Rules included
in the Orientation Handbook during intake.

8.07 The Contractor shall be responsible for maintaining accurate and
complete file records, reports as necessary for each inmate. Safeguards will be
established for the protection and

<PAGE>

confidentiality of inmate records. Records shall only be disclosed to
authorized persons on a need to know basis. Inmate records shall be maintained
for A period of three years after discharge from the Facility. Files shall
include:

A. Identification data, including but not limited to fingerprinting and mug
shot according to the appropriate State statutes.

B. Conditions of Confinement.

C. Intake forms and assessments.

D. Classification committee records.

E. Correspondence.

F. Disciplinary record.

G. Incident reports.

H. Release of information forms.

1. Medical records (in a separate file).

8.08 Inmate labor shall only be used to support the Facility or in
Community Service projects. No inmate shall perform personal services or labor
for any employee of the Facility.

8.09 Inmate trustee status shall only be given to those inmates that meet
all requirements of being appointed as a trustee:

A. Inmate must not have an aggravated with bodily harm or sexual offense.

B. Inmate must be a resident of McKinley County, New Mexico.

C. Inmate, with a bond administrative approval, who is a resident of a
county directly adjoining McKinley County.

D. Any other inmate that has been approved by the Classification Committee.

E. Inmate must not have an escape offense on record.

F. Inmate must be approved by the Classification Committee for trustee
status.

<PAGE>

ARTICLE NINE
Liability and Indemnity

9.01 The County and the Contractor agree to jointly and severally act to
ensure that neither becomes responsible for any such actions taken with regard
to any inmate prior to the delivery of such inmate to the Contractor's
employees, officers, and agents at the Facility. To the extent possible and
allowed by law, the County and Contractor will insure that all inmate agreements
and contracts with other jurisdictions provide that the contracting jurisdiction
shall, to the extent allowed by law, defend, indemnify and hold harmless the
County and Contractor for any claims, damages or losses arising, or alleged to
have arisen from act or failures to act, including but not limited to claims of
false arrest, false imprisonment, wrongful detention, violation of civil rights,
and all other claims of a similar nature, occurring prior to the delivery of any
inmate to the Facility, or occurring after the release of any inmate therefrom
to the contracting jurisdiction or assigning agency.

9.02 Contractor agrees to and hereby does defend, hold harmless and
indemnify the County and its officers, directors, employees, agents and
representatives from and against any and all claims, damages, demands, losses,
costs, assessments and expenses incurred or suffered by the County that arise
out of or result from any cause or claim or any negligent or wrongful act or
failure to act pursuant to the provisions of this Agreement by the Contractor or
its officers, employees, agents or representatives, or its subcontractors or
assigns, but not including specifically, claims made that arise out of
negligence of the officers, directors, employees and agents of the County while
on the premises of the Facility.

A. This indemnity(s) provisions(s) is not meant to violate the public
policies regarding indemnity If a court of competent jurisdiction determines
that the provisions of Section 56-7-1 NMSA 1978, as amended, are applicable to
this Agreement, or any claim arising under this Agreement, then any Agreement to
indemnify contained in this Agreement will not extend to liability, claims,
damages, losses or expenses, including attorneys fees arising out of:

(1) The preparation or approval, maps, drawings, opinions, reports,
surveys, change orders, design or specifications by the orders, designs or
specifications by the indemnity, or the agents or employees of the indemnities,
or (2) the giving of or the failure to give directions or instructions by
indemnify or the agents or employees of the indemnity, or such giving or failure
to give directions or instructions is the primary cause of bodily injury to
person or damage to property.

<PAGE>

9.03 The Contractor agrees to and does hereby assume responsibility for the
maintenance and repair of the real and personal property that is (a) owned by
the County or the Contractor; (b) is located at the Facility and; (c) is used by
the Contractor in the operation or maintenance of the Facility.

9.04 Notwithstanding the foregoing or an other term or provision or
condition of this Agreement, as to third parties and third party claims, nothing
in this Agreement is intended to nor shall be interpreted to: (a) waive or
deprive the County or the Conductor of any legal defense; (b) give, grant or
bestow any legal right, defense or benefit upon any third party; or; (c) deprive
the County or the Contractor of the benefits of any legal defense including
sovereign and official immunity, or the benefits of any law limiting damages.

<PAGE>

ARTICLE TEN
Insurance

10.01 Contractor shall obtain and maintain in force during the term of this
Agreement beginning not later then the commencement date, at its sole cost, risk
and expense and without charge or reimbursement by the County, the greater of,
(i) the amounts shown on Exhibit 1 or (ii) the State requirement under the Tort
Claim Act. Save and except as hereafter modified by the parties in writing, such
insurance shall be in addition to the coverage maintained or required to be
maintained by the County and shall insure against all claims whatsoever against
Contractor or County, or their officers, employees, agents and representatives
in connection with the detention, care, security, housing and training of
Inmates of the Facility, including but not limited to claims based on violations
or alleged violations of civil right's arising from services performed by
(contractor or its employees, agents, subcontractors or assigns pursuant to this
Agreement.

10.02 During the term of the Agreement or any extended Term hereof, the
Contractor shall at its sole cost and expense obtain, keep and maintain in full
force and effect, an insurance policy or policies providing worker's
compensation Insurance (or its approved and authorized equivalent) in amounts
not less than the amounts required by State law.

10.03 Prior to the commencement date the Contractor shall assure County
that the insurance required pursuant to this section 10.03 and Exhibit 1 is in
full effect. The Contractor shall secure such insurance, or additional
insurance, through companies licensed to do business in the State of New Mexico,
and thereafter secure and maintain insurance coverages in effect as follows;

A. A policy or policies of insurance insuring the Facility Buildings,
premises furniture, fixtures and equipment against all casualty and hazard
risks, and other risks of direct physical loss.

B. A policy insuring against claims and liability for personal injuries,
death or property damages that arise or are in any manner occasioned by premise
defects or acts or negligence of the Contractor or others in the custody,
operation or use of the Facility.

C. All Contractor's vehicles (including those owned, leased, or hired),
regardless of the purpose, shall be covered by automobile liability insurance in
the amounts shown on Exhibit 1.

D. All other Policies of insurance required by the County regarding the
Facility.

10.04 Save and except as specifically provided in this Article Ten, each
and every insurance policy required by this Article Ten shall name the County as
an additional insured and shall provide

<PAGE>

that such policy may not be canceled or modified except upon at least
thirty calendar days notice in writing to both the Contractor and the County.

10.05 Contractor shall provide to the County insurance certificates as
proof of the insurance policies obtained, and if, through no fault of the
Contractor, such insurance policies are canceled or endorsed in such a way as to
limit such insurance coverage, Contractor shall provide the County written
notice thereof immediately, and Contractor shall obtain, as soon as possible and
at its own cost, replacement insurance. Should the Contractor not obtain
sufficient insurance in a reasonable time, the County may obtain a policy to
fulfill the obligation of the Contractor and shall adjust payments to the
Contractor to cover the premium cost of such insurance purchased by the County.

10.06 The County shall be responsible for providing workers compensation
coverage and liability insurance for its officers, agents and employees, and
insurance for County property, with exception of that properly provided by the
developer, used or stored at the Facility. Personal property of County employees
or Contractor's employees stored or used at the Facility, the responsibility of
the owners and not of the County, the Contractor nor their respective insurers.

10.07 Should any required policy lapse from non-payment, the County may
provide the policy at the Contractor's expense.

<PAGE>

ARTICLE ELEVEN
Monitoring by the County

11.01 The County shall regularly monitor the operation of the Facility,
and, to this end, the County's designated representative may conduct a thorough
on-site inspection of the liability at least once during each month throughout
the term of this Agreement. Such monitoring by County shall not relieve the
Contractor of any duties, standards of care or responsibility. The County shall
be given full access to conduct, and will conduct, any other inspection required
by law.

ARTICLE TWELVE
Additional Provisions

12.01 Notwithstanding Contractor's obligation to perform, or cause to be
performed, all duties and services set forth in this Agreement in consideration
of the compensation to be paid hereunder to Contractor, the County and
Contractor recognize and agree that operation changes, and additional Services
desired by jurisdictions contracting for placement of inmates, may, at some
future time, require that Contractor provide service not included in the terms
of this Agreement In such event, the County and the Contractor shall negotiate
and execute written terms, conditions and amendments hereto or supplementary
agreements prior to any such services being provided or compensation earned.

12.02 In the event of the occurrence of any damage to or loss of the
Facility that materially affects the continued operation of the Facility the
Contractor shall immediately notify the County of such loss or damage. If
insurance proceeds are available, the Contractor shall immediately proceed to
obtain repair and reconstruction of the Facility in consultation with the County
only as to the plans and quality of repair. The County has no obligation to
appropriate funds for this purpose, except insurance proceeds revolved therefor.
If the County decides that the damage is too extensive to repair or reconstruct
and decides not to rebuild the Facility, this Agreement shall terminate
immediately upon such determination.

12.03 The Contractor shall not sell, assign, transfer, convey or encumber,
in whole or in part, their Contract or any right, interest, duty or obligation
of performance herein or hereunder or suffer or permit any such assignment,
transfer or encumbrance to occur by operation of law.

12.04 All subcontractors for counseling, education and employee services at
the Facility are subject to the approval of an

<PAGE>

authorized representative of the County, which approval will not be
unreasonably withheld.

<PAGE>

ARTICLE THIRTEEN
Default and Termination

13.01 Each of the following shall constitute an Event of Default by the
Contractor:

A. A material failure to keep, observe, perform, meet or comply with any
covenant, Agreement, term or provision of this Agreement which is the duty of
the Contractor hereunder, which failure continues for a period of 90 days after
the Contractor has been provided written notice thereof.

B. A material failure to meet or comply with any Court Order; the
standards, rules and regulations of the County or any federal or State
requirement or law; which failure continues for a period of 90 days after
written notice thereof of the Contractor.'

C. The discovery by the County that any material statement, representation,
or warranty herein or made is support of the award of this Agreement to the
Contractor is false, misleading or erroneous in a material respect.

D. Failure of the Contractor to timely pay trade creditors, utility
suppliers payroll and other operational expenses; timely payments shall be
within ninety days of billing.

E. Failure of the Contractor to comply with the terms of the Operations and
Management Agreement.

13.02 Upon the occurrence of an Event of Default and if the Contractor
believes that it cannot be corrected within the 90 days allowed to cure period,
and if the Contractor, through a diligent, on-going, and conscientious effort to
correct the default believes that the cure will take longer than 90 days, the
Contractor may submit a plan for a cure to the County. Upon receipt of the plan
and review by the County, the County may at its discretion approve or disapprove
of the plan. If the County approves of the plan, the County agrees that it will
not exercise its remedies hereunder so long as the Contractor takes diligent,
on-going conscientious action to cure the default. If the County disapproves of
the Contractor s plan, the County will identify corrective actions necessary to
be taken and give a specific time frame for correction.

13.03 In the event of a bankruptcy, reorganization, debt arrangement,
moratorium, proceeding under any bankruptcy or insolvency law, or dissolution or
liquidation proceeding is instituted by or against the Contractor, this
Agreement shall be reviewed immediately by the County and determination made as
to continue the contractual agreement or modify the agreement to

<PAGE>

ensure that the County is not liable for contractor s debt.

13.04 The Contractor may terminate this Agreement at its sole discretion in
the event that sufficient funds are not provided or appropriated by the County
to pay the amounts due the Contractor for services provided under Article 3 of
this Agreement; if the failure of funding arises from matters beyond the control
of the Contractor and is without fault or negligence of the Contractor

<PAGE>

ARTICLE FOURTEEN
Non-Discrimination

14.01 The Contractor shall not discriminate against any employee, inmate or
subcontractor with regard to race, color, handicap, religion, sex, national
origin or age.

14.02 The Contractor agrees to place in conspicuous places, available to
employees and applicants for employment, notices setting forth the provisions of
this non-discrimination clause and that all advertisements for employment shall
state that the Contractor is an Equal Opportunity Employer.

14.03 The contractor shall make every effort to use under utilized
businesses minority and female owned businesses and suppliers in the performance
of this Agreement.

ARTICLE FIFTEEN
Applicable Law and Venue

15.01 This Agreement shall be construed under and in accordance with the
laws of the State of New Mexico, and all obligations created hereunder are
performable in McKinley County, New Mexico. Venue shall lie and be in McKinley
County, New Mexico.

ARTICLE SIXTEEN
Legal Construction

16.01 In case any one or more of the provisions contained in the Agreement
shall, for any reason, be held invalid, illegal or unenforceable, and such is
not a material provision, such validity, illegality or unenforceability shall
not effect any other provision hereof.

ARTICLE SEVENTEEN
Amendments

17.01 This Agreement may be amended only in writing, with such written
instrument approved and executed by both the County and the Contractor.

ARTICLE EIGHTEEN
Compliance With Federal Tax law

18.01 The Contractor acknowledges and agrees that the Facility has been
financed with tax exempt bonds issued by the County under the provisions of the
Internal Revenue Code of 1986, as amended. Therefore, this Agreement is required
to comply with Rev. Proc. 93-19 promulgated by the Internal Revenue Service and
other regulations/guidelines which may hereafter be promulgated by the Internal
Revenue Service for management contracts such as this Agreement. Consequently,
the Contractor and County agree that this Agreement shall be construed in a
manner necessary to satisfy the

<PAGE>

terms and conditions of Rev.Proc.93-19 and other future regulations/
guidelines and, if necessary to protect and preserve the tax exempt; status of
bonds issued by the County to finance the Facility, shall be modified to meet
those requirements.

ARTICLE NINETEEN
Election Authority

19.01 By his or her signature below, each signatory individually certifies
that he or she is the properly authorized agent or officer of the applicable
party hereto and has the necessary authority to execute this Agreement on behalf
of such party, and each party hereby certifies to the other that any resolutions
necessary to create such authority have been duly passed and are now in full
force and effect.

ARTICLE TWENTY
Entire Agreement

20.01 This Agreement constitutes the sole and only Operations and
Management Agreement of the Parties hereto and supersedes any prior
understanding or written or oral agreements between the parties respecting the
within subject matter.

This Agreement entered into as of the day and year first written on Page 1
of Agreement.

Board of Commissioners/McKinley County, New Mexico/Gallup, New
Mexico

- -------------------------
Earnest C. Becenti, Sr.
Chairperson

- -------------------------
Bennie Shelly
Commissioner

- -------------------------
Sharon Richards
Commissioner

ATTEST:

- -----------------------
Carol K. Sloan
McKinley County Clerk

Correctional Services Corporation, Sarasota, Florida

<PAGE>

By ______________________
Ira Cotler

Title ECP- Finance

<PAGE>

EXHIBIT 1
Minimum Insurance Coverage

TYPE COVERAGE LIMIT
Per Occurrence $5,000,000

Comprehensive General Liability Aggregate $10,000,000
Including Civil Rights

Workers Compensation Statutory Amounts
Automobile Liability $2,000,000

Exhibit 10.43

TEXAS JUVENILE PROBATION COMMISSION CONSTRUCTION BOND PROJECT
OFFICIAL NOTICE OF AWARD

On June 7, 1996 the board of the Texas Juvenile Probation Commission voted
to allocate funds to applicants for the construction bond project, pending the
approval of such applications by the Texas Public Finance Authority. As one of
the counties selected for funding, this is your official notification and letter
of acceptance.

The board voted to allocate up to $2,550,000 to Colorado County to
construct a minimum of 100 post-adjudicatory secure beds. Any project whose
actual construction costs are less than the award will have the balance
de-obligated, and the funds will be reallocated to other projects. Any actual
costs in excess of those projected in the application must be borne by the
county. The final award of the funds is contingent upon:

1. Texas Public Finance Authority and Bond Review Board approval.
2. Approval and verification of the local 25% match requirement.
3. Correction of any deficiencies noted in the site evaluation report.
4. Formal acceptance of the award and all applicable conditions of the award.
By signing below, the county formally accepts the amount and conditions of
the award:

- -----------------------------------------
County Judge, County of Colorado

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- -----------------------------------------
Juvenile Board Chairman, Colorado County

- -----------------------------------------
Tri-County Juvenile Board, Chairman

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MANAGEMENT AGREEMENT FOR OPERATION OF THE COLORADO COUNTY
JUVENILE RESIDENTIAL FACILITY

This Management Agreement (as amended or supplemented as herein provided,
the "Agreement") is made and entered into by and between Esmor Correctional
Services, Inc., a duly organized corporation of the State of Delaware ("Esmor"),
and Colorado County, Texas, a political subdivision of the State of Texas (the
"County").

WITNESSETH:

WHEREAS, the County desires to build and operate a post adjudication
juvenile facility containing a total of one hundred (100) juvenile detention
beds (the "Facility");

WHEREAS, the County desires to engage Esmor to manage and operate the
Facility and to provide the program services described herein (the "Programs")
under the terms and conditions contained herein.

NOW, THEREFORE, for and in consideration of the promises and the mutual
covenants hereinafter contained, and subject to the conditions herein set forth,
the parties hereto covenant, agree, and bind themselves as follows:

ARTICLE ONE
DEFINITIONS

1.1 Interpretation. For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:

1.1.1 All references in this instrument to designated "Articles",
"Sections", "Exhibits", and other subdivisions are to the designated Articles,
Sections, Exhibits and other subdivisions of this instrument as originally
executed.

1.1.2 The words "herein", "hereof 1, and hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section, Exhibit, or other subdivision.

1.1.3 This Agreement contains references to documents and other instruments
that are not in existence on the date of execution hereof. When and as such
instruments are prepared and are approved by Esmor and the County the references
herein to such instruments and to any capitalized terms used therein shall have
the same effect as though such instruments existed on the date of execution
hereof.

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1.2 Service Commencement Date. Shall mean the date upon which Esmor
commences the provision of operational and management services of the Facility.

ARTICLE TWO
REPRESENTATIONS AND WARRANTIES

2.1 Representations of Esmor. Esmor represents and warrants to and for the
benefit of the County, with the intent that the County will rely thereon for
purposes of entering into this Agreement, as follows:

2.1.1 Organization and Qualification. Esmor has been duly incorporated and
is validly existing as a corporation in good standing under the laws of the
State of Delaware with power and authority to own or lease its properties and
conduct its business as presently conducted.

2.1.2 Authorization. This Agreement has been duly authorized, executed, and
delivered by Esmor and, assuming due execution and delivery by the County,
constitutes a legal, valid, and binding agreement enforceable against Esmor in
accordance with its terms.

2.1.3 No Violation of Agreements, Articles of Incorporation, or Bylaws. The
consummation of the transactions contemplated by this Agreement and the
fulfillment of the terms hereof will not conflict with, or result in a breach of
any of the terms and provisions of, or constitute a default under any indenture,
mortgage, deed of trust, lease, loan agreement, license, security agreement,
contract, governmental license or permit, or other agreement or instrument to
which Esmor is a party or by which its properties are bound, or any order, rule,
or regulation of any court or any regulatory body, administrative agency, or
properties, except any such conflict, breach, or default which would not
materially and adversely affect Esmor's ability to perform its obligations under
this Agreement, and will not conflict with, or result in a breach of any of the
terms and provisions of, or constitute a default under, the Articles of
Incorporation (or other corresponding charter document) or Bylaws of Esmor.

2.1.4 No Defaults Under Agreements. Esmor is not in default, nor is there
any event in existence which, with notice or the passage of time or both, would
constitute a default by Esmor, under any indenture, mortgage, deed of trust,
lease, loan agreement, license, security agreement, contract, governmental
license or permit, or other agreement or instrument to which it is a party or by
which any of its properties are bound and which default would materially and
adversely affect Esmor's ability to perform its obligations under this
Agreement.

2.1.5 Compliance with Laws. Neither Esmor not its officers and directors
purporting to act on behalf of Esmor have been advised, and have no

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reason to believe, that Esmor or such officers and directors have not been
conducting business in compliance with all applicable laws, rules, and
regulations of the jurisdictions in which Esmor is conducting business including
all safety laws and laws with respect to discrimination in hiring, promotion or
pay of employees or other laws affecting employees generally, except where
failure to be so in compliance would not materially and adversely affect Esmor'
s ability to perform its obligations under this Agreement.

2.1.6 No Litigation. There is not now pending or, to the knowledge of
Esmor, threatened, any action, suit, or proceeding to which Esmor is a party,
before or by any court or governmental agency or body, which might result in any
material adverse change in Esmor' s ability to perform its obligations under
this Agreement, or any such action, suit, or proceeding related to environmental
or civil rights matters; and no labor disturbance by the employees of Esmor
exists or is imminent which might be expected to materially and adversely affect
Esmor's ability to perform its obligations under this Agreement.

2.1.7 Taxes. Esmor has filed all necessary federal, state, and foreign
income and franchise tax returns and has paid all taxes as shown to be due
thereon; and Esmor has no knowledge of any tax deficiency which has been or
might be asserted against Esmor which would materially and adversely affect
Esmor's ability to perform its obligations under this Agreement.

2.1.8 Disclosure. There is no material fact which materially and adversely
affects or in the future will (so far as Esmor can now reasonably foresee)
materially and adversely affect Esmor's ability to perform its obligations under
this Agreement which has not been accurately set forth in this Agreement or
otherwise accurately disclosed in writing to the County by Esmor prior to the
date hereof.

2.2 Representations of the County. The County represents and warrants to
and for the benefit of Esmor with the intent that Esmor will rely thereon for
purposes of entering into this Agreement as follows:

2.2.1 Authorization. The County has the requisite power to enter into this
Agreement and perform its obligations hereunder and by proper action has duly
authorized the execution, delivery, and performance hereof.

2.2.2 No Violation of Agreements. The consummation of the transaction
contemplated by this Agreement and the fulfillment of the terms hereof will not
conflict with, or result in a breach of any of the terms and provisions of, or
constitute a default under any other agreement or instrument to which the County
is party or by which its properties, except any such conflict, breach or default
which would not materially and adversely affect the County's ability to perform
its obligations under this Agreement.

2.2.3 Disclosure. There is no material fact which materially

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and adversely affects or in the future will (so far as the County can now
reasonably foresee) materially and adversely affect the County's ability to
perform its obligations under this Agreement, which has not been accurately set
forth in this Agreement or otherwise accurately disclosed in writing to Esmor by
the County prior to the date hereof.

ARTICLE THREE
EFFECTIVE DATE, INITIAL TERM, EXTENSIONS

3.1 Effective Date of Agreement, Initial Term. This Agreement shall become
effective upon its execution and delivery, and shall continue in full force and
effect unless sooner terminated, as hereinafter provided, for an initial term
ending five (5) years from the date the Facilities are completed (the
"Commencement Date"); provided, however, that the County shall have the right to
terminate this Agreement upon at least sixty (60) days advance written notice to
Esmor, on the third anniversary date of the Commencement Date.

3.2 Renewal. The County and Esmor shall have the option to renew the term
of this Agreement for a period of five (5) years by agreeing to such renewal in
writing on or before ninety (90) days prior to the expiration of the initial
term of this Agreement. The County and Esmor shall have two (2) additional
options to renew the term of this Agreement for two (2) successive option terms
of five (5) years each by agreeing to each renewal in writing on or before
ninety (90) days prior to the expiration of the preceding option period.

ARTICLE FOUR
THE FACILITY

4.1 Financing. The County has submitted a proposal in response to a request
for proposal issued by the Texas Juvenile Probation Commission (the "TJPCII)
which has been accepted by the TJPC. Pursuant to the County's proposal, the
County and the TJPC will enter into an agreement (the "TJPC Agreement") whereby
the TJPC will advance up to $2,550,000.00 (the TJPC Funds") to the County for
the design and construction of the Facility. The Facility will contain a minimum
of eight (8) and a maximum of ten (10) beds which meet TJPC standards for
pre-adjudication and administrative segregation beds. Esmor agrees to advance to
the County an amount equal to one-fourth of the amount of the TJPC Funds up to a
maximum amount equal to $637,500.00 (the "Esmor Funds"). The TJPC Funds and the
Esmor Funds are sometimes referred to herein as the "Project Funds". The County
agrees to use the Project Funds solely for the purpose of designing and
constructing the Facility. The County agrees to cause the Facility to be
completed for an amount equal to the Project Funds plus whatever County funds
are available for such purpose. Esmor shall deliver the Esmor Funds to an escrow
agent acceptable to the County and Esmor pursuant to

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an escrow agreement acceptable to said parties on or before thirty (30)
days after the date of execution of the TJPC Agreement with the County. The
escrow agreement shall provide that the County shall use the Esmor Funds only
for the purpose of designing and constructing the Facility and that the Esmor
Funds may be drawn upon by the County prior to the use of any TJPC Funds for the
purpose of constructing the Facility. The escrow agreement will have attached as
an exhibit the contracts between the County and each architect and engineer
performing design services for the County in connection with the Facility and
the construction contract for the construction of the Facility, complete with
draw schedules governing the advance of Project Funds under such contracts. In
the event an entered into by the 1996, then Esmor may to the County escrow
agreement acceptable to Esmor is not County and Esmor on or before September 15,
terminate this Agreement upon written notice

4.2 Construction. The design and construction of the Facility shall be
performed pursuant to contracts awarded in the name of the County. The County,
at its own expense and not using any Project Funds, will provide all road work
and drives necessary for the Facility. The County shall enter into a contract
with the City of Eagle Lake, Texas, wherein the City of Eagle Lake agrees to,
free of charge to the County and not using any Project Funds (i) acquire the
tract of land containing at least thirteen (13) acres of land and described in
Exhibit "A" attached hereto (the "Site"), (ii) either convey the Site to the
County or lease the Site to the County for a period of at least twenty (20)
years after the Commencement Date, and (iii) provide the other services to the
Facility described on Exhibit "B" attached hereto.

Esmor shall act in an advisory role during the construction process, and
shall be available for consultation with the County, its design professionals
and contractors on the construction of the Facility; however, Esmor shall not
serve as the construction manager of the construction of the Facility and shall
not have any liability to the County or any other party for any design or
construction defect or otherwise in connection with the design or construction
of the Facility.

4.3 Payment to Esmor. In the event the TJPC fails to provide all of the
TJPC Funds to the County as contemplated herein, or in the event the Facility is
not completed or made operational on or before September 15, 1997 for any reason
other than Esmor's default hereunder, then Esmor shall have the right to
terminate this Agreement and the County shall immediately pay Esmor $637,500.00.
In the event the County or Esmor terminates this Agreement at any time, or in
the event this Agreement expires and is not renewed by the County and Esmor
prior to the date twenty (20) years after the Commencement Date, the County
shall pay Esmor an amount equal to the product obtained by multiplying
$637,500.00 by a fraction, the denominator of which is twenty (20) and the
numerator of which is the number of whole and fractional years from the date of
termination until the date twenty (20) years after the Commencement Date. In the
event this Agreement is terminated and the County desires to engage another firm

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to manage and operate the Facility, the County shall require such other
firm to reimburse the County for the fee paid to Esmor as set forth herein.

4.4 Compliance with Codes, Standards and Guidelines. The County will build
the Facility in compliance with all state, local and generally recognized
building and construction codes, including, without limitation, all applicable
standards and guidelines promulgated by the American Corrections Association and
Texas Juvenile Probation Commission Standards for Post Adjudication. Facilities.
The County shall obtain all permits and licenses required by any governmental
entity having power to control or regulate the operation of the Facility. The
County shall cause the County Juvenile Board to inspect the Facility annually
and provide the necessary certifications for the continued operation of the
Facility.

4.5 Fixtures and Equipment. The County shall provide a complete Facility,
including a parking lot with eighty (80) parking spaces, all necessary systems
and components such as heating, air conditioning, electrical, plumbing, door,
window and fire alarm systems, internal fixtures, fixed furniture (including,
without limitation, beds) exterior security lighting, interior emergency
lighting, interior security system, all connections to utilities, including
water, sewer, electricity, gas, telephone, etc., entry ways, parking areas,
walkways, recreation, physical fitness areas, grounds, fences, etc. Esmor shall
provide the operational administrative equipment such as desks, chairs,
telephone systems and filing equipment required to operate the Facility.

4.6 Repairs and Maintenance. The County shall, at its own expense, maintain
the physical structure of the Facility, and make all necessary structural
repairs and improvements to the Facility including, but not limited to, repairs
and improvements to the foundation, walls, roof, underground and concealed
plumbing, heating, ventilating and air conditioning system, drives, parking
areas, fixed furniture fixtures and equipment, fire protection systems,
appliances, wiring and electrical systems, to keep the Facility in good repair
working order and condition. Esmor will, at its sole cost and expense, replace
all light bulbs and ballasts as necessary, be responsible for janitorial and
cleaning services at the Facility and perform routine maintenance and repairs at
the Facility resulting from normal wear and tear.

4.7 Utilities. Esmor shall pay for the use of all utilities necessary
and/or required for the operation of the Facility such as electricity, gas,
telephone service, water, sewer, waste and trash removal, etc.

4.8 Taxes and Charges. Esmor shall pay or discharge, or cause to be paid or
discharged, before the same become delinquent, all income, payroll and worker's
compensation taxes assessed against Esmor in connection with its operation of
the Facility.

4.9 Administrative Offices. Esmor agrees to make three (3) offices at the

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Facility available for use by the County for juvenile probation staff
personnel.

ARTICLE FIVE
OPERATION AND MANAGEMENT OF THE FACILITY

5.1 General Duties and Obligations; Standards. Esmor shall provide the
operations and management services described herein and operate, maintain and
manage the Programs in compliance with all applicable federal and state
constitutional requirements and laws, with all applicable provisions and
standards (and/or any variances originally granted by the County) , with all
applicable standards of the Texas Juvenile Probation Commission.

5.2 Policies. Esmor shall establish written policies, procedures and
operation manuals in regard to the Facility operation and juvenile supervision
for which it is responsible pursuant to the terms of this Agreement. Said
written policies, procedures and operation manuals shall comply with all
applicable federal and state constitutional requirements and laws, all
applicable standards of the Texas Juvenile Probation Commission. Said written
policies, procedures and operations manuals shall be the property of Esmor, and
shall continue to be the property of Esmor.

5.3 Specified Duties and Obligations. Esmor's duties and obligations shall
include, but not be limited to, each of the activities specified below. Esmor's
written system of policies, procedures and operation manuals described in
Article V, Section 5.2 shall address these specified duties and obligations.

5.3.1 Administration of the Facility. Esmor shall appoint a Facility
Administrator to manage on-site Esmor' s day-to-day operation of the Facility.
The position of Facility Administrator shall be staffed by a professional
experienced in the administration of a like correctional facility.

5. 3.2 Staffinq. Esmor shall at all times provide adequate staffing of the
Programs in compliance with standards and TJPC policies. Esmor shall be
responsible for employee benefits, including medical insurance, worker's
compensation insurance, and other benefits.

5.3.3 Personnel Recruitment and Selection. Esmor's recruitment, selection
and employment of all personnel shall conform. to the rules and regulations of
the Equal Employment Opportunity Commission. Esmor shall adopt and implement a
nondiscriminatory policy with respect to handicap, race, color, religion, sex,
age and national origin. Esmor shall provide access to records required by law
to be maintained of such nondiscriminatory action upon request by the County. A
notice evidencing Esmor' s adoption and commitment to this policy shall be
posted in a conspicuous location at the Facility.

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5 3 4 Employee Training. Esmor shall provide, at its own expense, adequate
training for each of its employees. To the extent necessary, Esmor shall train
employees to assure their ability to comply with applicable policies, procedures
and operation manuals as specified by Esmor.

5 .3. 5 Programs. Esmor shall deliver to the juvenile population all
program services required by federal and state regulatory agencies, the Texas
Juvenile Probation Commission.

5.3. 6 Rights of Juveniles. Esmor shall implement the proper policies,
procedures and staff training to ensure that juvenile rights are not violated
and that all activities that take place within the Programs with respect to
juveniles complies with applicable standards, policies and procedures.

5.3 .7 Juvenile Supervision. Esmor shall provide such security and
supervision of juveniles as is required by sound juvenile correctional practices
to maintain the safety, security and order of the Programs, to carry out program
requirements and to protect the safety and well-being of juveniles, staff,
visitors and surrounding community. In the event of any disturbance caused by
the juveniles, or if any security threat or peril, should occur within the
Programs or on its premises, either of which poses a material threat to persons
or property, Esmor shall immediately notify the Eagle Lake Police Department,
the Colorado County Sheriff and the County Judge. In the event of any such
occurrence, Esmor shall, as requested, cooperate with the County and any
appropriate law enforcement authorities in restoring order.

5.3. 8 Securing Points of Facility Access. Esmor shall operate and control
all points of ingress and egress.

5.3.9 Safety and emergency Plan. Esmor shall operate and maintain the grams
in compliance with the National Fire Protection Association Life Safety Code
101, applicable State of Texas regulations to safety and emergency planning and
County policies and procedures related to safety and emergency planning. Esmor
shall have an emergency plan for various emergency events and fire prevention
and suppression plan.

5.3.10 Records and Reports Esmor shall maintain proper accounts with
respect to all activities. Said records shall be the property of Esmor, and
shall continue to be the Property of Esmor. All records, reports and other
statistical data required to be kept by the TJPC shall be collected by Esmor.

5.3 11 Juvenile Records. Esmor shall make all record entries in a timely
manner. 1 juvenile information maintained by Esmor shall be considered
confidential and subject to release or disclosure only (i) as required by law,
(ii) in compliance with the order of any court having jurisdiction ' (iii) in
defense of any proceeding to which Esmor or its employees or agents are a party
or (iv) to

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physicians or other health care providers for use in treatment.

5.312 Health Care Services. Esmor shall provide a physician licensed and
practicing in the State of Texas to review the medical and health care policies,
procedures and practices of Esmor. Esmor shall Provide nursing coverage by a
nursing professional who shall meet the licensing and certification requirements
of the State of Texas. Esmor's medical and health care services shall- be
limited to those services that the State of Texas regulations allow to be
performed by a Registered Nurse, a Licensed Practical Nurse and a Licensed
Vocational Nurse. Esmor shall provide transportation within Colorado County,
Texas for juveniles to medical appointments or for the purpose of obtaining
medical treatment not available at the Programs site, except, in any case of
medical emergency, upon which Esmor shall provide transportation of juveniles to
the nearest point of medical care Esmor shall not be required to assume
responsibility for the payment of any juvenile's prescription medications,
medical care, hospitalization or institutionalization outside the Facility but
Esmor shall be responsible for security and supervision of the. juvenile
out-side the Facility within Colorado County, Texas. As used herein, "medical
care" means all types of health related services, including but not limited to
dental, psychological, psychiatric, optical, chiropractic, laboratory, and
diagnostic, as well as the services traditionally rendered by medical doctors.
The- additional costs in connection with any juvenile's prescription
medications, medical care, hospitalization, institutionalization, and/or
security and supervision outside the Facility will be charged to the county (or
other entity) referring the juvenile to the Facility and shall be in addition to
the amount due under paragraph 6.1 hereof.

5.3.13 Laundry and Juvenile Clothing. Esmor shall provide full juvenile
laundry services and clothing in compliance with applicable standards, and
appropriate to the time of year, weather conditions and type of activity.

5.3.14 Religious Services. The County shall arrange for religious services
to be conducted for juveniles at the Facility.

5.3.15 Essentials. Esmor shall provide at its expense, all supplies,
including hygiene items, clothing, paper, envelopes, stamps, pencils, paper,
program support materials and supplies, building support materials and supplies
and supplies for juvenile quarters (e. g., sheets, pillowcases, blankets,
towels) necessary to meet applicable standards.

5.3.16 Additional Services. The County, at its option, may contract with
Esmor for additional programs or services. Esmor agrees to cooperate with the
County in the provision of such additional programs and services.

5.3.17 Food Services. Esmor will provide all food services for all
juveniles at the Facility in compliance with applicable laws and regulations.
The

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County will use its reasonable best efforts to enter into a contract with
the appropriate public school district prior to the Commencement Date which
requires such school district to pay to Esmor all amounts received by such
school district for the provision of food services to juveniles at the Facility.
On or before July 1, 1997, the County shall apply to the Texas Department of
Human Services to be reimbursed for the cost of food services at the Facility,
and commencing September 1, 1997, the County shall pay to Esmor all amounts paid
to the County by the Texas Department of Human Services for the provision of
food services to juveniles at the Facility.

5.3.18 Educational Services. The County shall enter into an agreement with
the appropriate public school district to provide educational services to
juveniles at the Facility in compliance with TJPC requirements.

ARTICLE SIX
COMPENSATION AND PAYMENTS

6.1 Compensation for Services. Esmor agrees to provide residential services
and programs at a per them rate selected by Esmor not to exceed the maximum per
them rate allowed by the State of Texas, from time to time. The current maximum
per them rate allowed by the State of Texas is $83.43 for a level 4 placement;
however, the parties acknowledge that this amount is subject to change by the
State of Texas. The amount due to Esmor hereunder for each juvenile shall not be
an obligation of any party other than the county (or other entity) referring
such to the Facility. Esmor agrees to Pay the County an amount equal to $0.25
for each per diem amount received by Esmor within thirty (30) days after the end
of the calendar month for which such payments are received- All such amounts
paid to the County shall be held by the County in a separate fund and used
solely for the purposes of making repairs to the Facility, paying costs of
insuring the Facility and making improvements to the Facility.

6.2 Billing. Esmor shall submit invoices to the referring county as on as
practicable after the last day of each month for the services performed in the
month just ended. Payment for the services and any expenses which are the
responsibility of the referring county which are invoiced are due and payable
upon receipt of the invoices

ARTICLE SEVEN
DEFAULT AND TERMINATION

7.1 Notice of Default: opportunity to Cure. The breach by either party of
any covenant, representation, or warranty shall constitute an event of default.
In such event, the injured party shall provide the defaulting party 60 days
written notice of the default, and allow the defaulting party a sixty (60) day
period to

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proceed with reasonable efforts to cure such default. If a party fails to
proceed with reasonable efforts to cure such default, either party shall have
the option, with sixty (60) days written notice, to terminate this Agreement.

7.2 Termination. The County and Esmor shall each have the right to
terminate this Agreement for any reason sixty (60) days after delivery of
written notice of such termination to the other party hereto. In such event the
County shall pay to Esmor on the date of such termination an amount calculated
as set forth in the second paragraph of Section 4.3 of this Agreement.

7.3 Arbitration. This Agreement is subject to arbitration pursuant to the
provisions of the Texas General Arbitration Act, Texas Revised Civil Statutes,
Article 224 et. seq.

ARTICLE EIGHT
ADMISSION AND DISCHARGE OF JUVENILES

8.1 Admission to the Detention Center. Esmor shall accept for admission to
the Facility competent juveniles who meet the criterion set forth by State law,
standards and County policies and procedures, subject to the following
limitations:

8-1.1 Esmor shall not be required to accept juveniles presented for
admission who, in the judgment of Esmor, appear to be seriously ill injured, or
to be otherwise in need of immediate medical attention and who are without
documented medical clearance from a licensed medical authority.

8 .1.2 Esmor shall not be required to accept juveniles without
documentation properly authorizing their placement.

8-2 Return Of Residents. Esmor shall have the right to return to the
referring county juveniles who do not conform to the juvenile profile or
juveniles whose behavior presents a threat to other juveniles, Facility staff,
or the security of the Facility. In the event that Esmor exercises its right to
return a juvenile, Esmor shall give the referring county oral and/or written
notice and the referring county shall remove the juvenile immediately upon
receipt of notice. The referring county agrees that it will at all times
indemnify and hold harmless Esmor against any and all losses caused or arising
out of the referring county' s negligent failure to remove a juvenile as
hereinbefore provided.

8.3 Non-delegation. In completing their obligations under this Agreement,
the parties agree that Esmor's authority shall be limited by applicable law as
well as well as the express limitation that this Agreement does not authorize,
allow or imply a delegation of authority -by the County to Esmor of the
following.

8.3.1 Determining a juvenile's release date.

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8.3.2 Determining a juvenile's placement after release.

8.3. 3 Granting a juvenile any form of special or temporary release
authorization.

8-4 Discharge. Esmor shall discharge juveniles only upon expressed written
direction from the county. Such direction must be received by Esmor at least
three (3) business days prior to the date the Juvenile is to be released.
Juveniles will not be discharged directly into the community; they will be
accompanied by an Esmor employee or appropriate law enforcement officer and
transported to an appropriate location for discharge.

ARTICLE NINE
INSURANCE AND INDEMNITY

9. 1 Insurance, Esmor will at all times keep its property and operations of
an insurable nature and of the character usually insured by companies engaged in
similar operations in amounts customarily carried, and against loss or damage
from such causes as are customarily insured against by similar companies, in
amounts not less than One (1) million dollars. All such insurance shall be
effected with responsible insurance carriers. Esmor shall obtain and maintain an
adequate plan of insurance, including insurance against civil rights violations,
covering the parties, their officers, employees and agents for all liability
claims arising from the services performed by Esmor. Said plan of insurance
shall be adequate to provide coverage to cover both parties for any and all
claims arising from the services by Esmor pursuant to the terms of this
Agreement and shall name the County as an additionally insured party.

The County shall maintain in full force during the term of this Agreement
all risk property damage insurance covering the Facility to the extent of their
full replacement value with an insurance company qualified to do business in the
State of Texas and having a Best Key Rating Guide general policy holder's rating
of A- or better and a financial rating of VII or better. If the Facility is
damaged by fire or other casualty, the County shall, at its sole cost and
expense, proceed immediately to rebuild or repair the Facility to its condition
prior to such fire or other casualty.

9.2 Indemnity. Except as expressly provided herein to the contrary, Esmor
agrees that it will at all times indemnify and hold harmless the County against
any and all losses which occur on the premises and which are caused or arise out
of Esmor's operation of the Programs; provided, however, Esmor shall not be
obligated to indemnify the County against losses resulting from the County's
fraud, negligence, willful misconduct or theft on the part of the County, its
officers, employees or agents.

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ARTICLE TEN
MISCELLANEOUS

10.1 Inspection. Esmor shall permit such employees or agents of the County
as the County may designate to visit the Programs and to examine, copy and make
extracts from Esmor's records relating to the Programs and to discuss its
affairs, operations and records with its officers, employees and agents, all at
such times and intervals and to such extent as the County may reasonably
require. Esmor shall promptly provide to the County such other information as
the County may from time to time reasonably request.

10.2 AIDS and HIV Infection. Esmor shall adopt and implement workplace
guidelines concerning persons with AIDS and HIV infection and shall also develop
and implement guidelines regarding confidentiality of AIDS and HIV-related
medical information for employees of Esmor and for juveniles served by Esmor in
accordance with the provisions found in Acts 1989, 71st Texas Leg., Ch. 1195,
Section 5.03 and Section 5.04.

10.3 Avoidance of Illegality. In the event that this Agreement or any
portion hereof should be found, deemed or judged by a judicial or regulatory
body to be illegal or to constitute an improper delegation of the County's
authority, the parties shall use all reasonable efforts and shall cooperate to
cure such illegality or impropriety.

10.4 Amendment. This Agreement may be amended only in writing.

10.5 Survival of Representations and Warranties. All representations and
warranties contained in this Agreement shall survive the execution and delivery
of the Agreement.

10.6 Assignment: Successors. This Agreement is a continuing obligation and
shall be binding upon the parties and their respective successors and assigns
and shall inure to the benefit of their respective successors and assigns. Esmor
shall make no assignment without first obtaining the County's written permission
to do so; however, Esmor may, without obtaining the County's consent, assign its
right to receive payments under this Agreement (but not its obligations) to any
of Esmor's current or future lenders.

10.7 Notices. All notices and other communications under this Agreement
shall be in writing with first class postage prepaid, addressed as follows:

If to Esmor:

President, Esmor Correctional Services, Inc.
1819 Main Street, Suite 1000
Sarasota, Florida 34236

If to the County:

<PAGE>

County Judge, Colorado County Court
Colorado County Courthouse
Columbus, Texas 78934

or as otherwise specified by notice from the appropriate party to the
other.

10.8 Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the State of Texas, and all obligations of the parties created hereunder are
performable in Colorado County, Texas.

10.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and it shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.

10.10 Severability. Any provision of this Agreement which is prohibited,
unenforceable or ' not authorized in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition, unenforceability
or non-authorization without invalidating the remaining provision hereof or
affecting the validity, enforceability or legality of such provision in any
other jurisdiction.

10.11 Telephone System. It is understood that Esmor intends to contract
with a third party provider to install the telephone system in the Facility.
Esmor may be paid royalties or fees for the use of the telephone system by
juveniles at the Facility and Esmor agrees to use such royalties and fees first
to offset the cost of installing the telephone system used in connection with
the administration of the Facility and thereafter, for the purpose of providing
program services for juveniles at the Facility.

In Witness Whereof, the Parties hereto have executed this Agreement as of
the date first above written.

ESMOR CORRECTIONAL SERVICES, INC.,
a Delaware corporation ("Esmor")

By:
-------------------------------
James Slattery, President and
Chief Executive officer

COLORADO COUNTY
("County")

By:
-------------------------------
Judge Vince Slominski

<PAGE>

EXHIBIT "A"

The Site

<PAGE>

EXHIBIT "B"

Services to be provided by City of Eagle Lake

1. Obtain Phase I Environmental Site Assessment for the Site.

2. Bring all necessary water and sanitary sewer facilities to the Facility
and waive all tap or connection costs for work and sewer services for the
Facility.

3. Purchase the Site from its current owner for $50,000.00 and convey the
Site to the County or lease the Site to the County for a term of at least twenty
(20) years after the Commencement Date.

4. Solicit community participation in vocational training opportunities,
religious services and ministries and health care services.

Exhibit 10.44

Epstein, Becker, & Green, P.C.
Attorneys at Law
250 Park Avenue
New York, NY 10177-0077

Mr. Lee Levenson
Correctional Services Corporation
1819 Main Street, Suite 100
Sarasota, Florida 34236

January 9, 1996

Re: Agreement of Lease dated as of October 1, 1 996 between
Creston Realty Associates, L.P., Landlord and Correctional
Services Corporation, Tenant
Premises: 2534 Creston Avenue, Bronx, New York

Dear Mr. Levenson:

I am enclosing two (2) fully executed copies of the Letter Agreement
confirming the Lease effective date of October 1, 1996.

Sincerely,

Raymond W. Goldfaden

<PAGE>

CORRECTIONAL SERVICES CORPORATION
1819 Main Street, Suite 100
Sarasota, Florida 34236

Mr. Sid Borenstein
Creston Realty Associates, L.P.
2532 Creston Avenue
Bronx, New York

November 22, 1996

Re: Agreement of Lease dated as of October 1, 1996 between
Creston Realty Associates, L.P., Landlord and Correctional
Services Corporation, Tenant
Premises: 2534 Creston Avenue, Bronx, New York

Dear Mr. Borenstein:

This letter will serve to confirm that the Tenant has occupied the Premises
and the Lease is effective as of October 1, 1 996 in accordance with its terms.
The Landlord acknowledges that $50,000 payment deposited upon the execution of
the Lease shall be applied to the rent as the same accrues pursuant to the terms
of the Lease.

Please acknowledge your assent to the foregoing by signing this letter in
the space provided for below.

ACKNOWLEDGED AND AGREED TO:
CRESTON REALTY ASSOCIATES

By:______________________________

CORRECTIONAL SERVICES CORPORATION

By:______________________________

CORRECTIONAL SERVICES CORPORATION
1819 Main Street, Suite 100
Sarasota, Florida 34236

<PAGE>

Mr. Sid Borenstein
Creston Realty Associates, L.P.
2532 Creston Avenue
Bronx, New York

November 22, 1996

Re: Agreement of Lease dated as of October 1, 1996 between
Creston Realty Associates, L.P., Landlord and Correctional
Services Corporation, Tenant
Premises: 2534 Creston Avenue, Bronx, New York

Dear Mr. Borenstein:

This letter will serve to confirm that the Tenant has occupied the Premises
and the Lease is effective as of October 1, 1996 in accordance with its terms.
The Landlord acknowledges that $50,000 payment deposited upon the execution of
the Lease shall be applied to the rent as the same accrues pursuant to the terms
of the Lease.

Please acknowledge your assent to the foregoing by signing this letter in
the space provided for below.

ACKNOWLEDGED AND AGREED TO:
CRESTON REALTY ASSOCIATES

By:

- ---------------------------------

CORRECTIONAL SERVICES CORPORATION

AGREEMENT OF LEASE dated as of October 1, 1996, by and between Creston
Realty Associates, L.P., whose address is 2532 Creston Avenue, Bronx, New York,
for itself, its heirs, executors, administrators, trustees, successors, assigns
and legal representatives (hereinafter referred to as "Landlord"), and
Correctional Services Corporation, a Delaware corporation whose address is 1819
Main Street, Suite 100, Sarasota, Florida 34236 (hereinafter referred to as
"Tenant").

<PAGE>

WITNESSETH:

Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord,
the entire building, and improvements erected, situate, lying and being in the
Borough of the Bronx, City and State of New York, bounded and described in
Exhibit "A" annexed hereto and hereby made a part hereof.

SAID PREMISES being known as 2534 Creston Avenue, Bronx, New York. The
premises shall be referred to herein as the "Demised Premises".

TOGETHER with the equipment, furniture, furnishings, fixtures, chattels,
stock of supplies and linens owned by Landlord and now contained in the Demised
Premises, if any, and used in the operation of the Demised Premises, all of
which are listed and described in Article 7B hereof.

IT IS FURTHER MUTUALLY COVENANTED AND AGREED that this Lease is made upon
the foregoing and the following terms, covenants, conditions, provisions,
agreements and limitations, all of which Tenant covenants and agrees to perform
and observe.

I . Service Contracts

The existing, service and other contracts entered into by Landlord in
respect of the Demised Premises, if any, are set forth in Exhibit "B" annexed
hereto and hereby made a part hereof.

2. Term

A. Except as set forth in Article 231 hereof, the term of this Lease shall
be two (2) years continuing as of October 1, 1996 (the "Commencement Date") and
terminating at 11:59 P.M. on September 30, 1998, both dates inclusive, unless
this Lease is sooner terminated or extended as hereinafter provided.

B. Provided the Tenant is not then in material default (after the
expiration of any applicable grace or cure periods) under the terms of this
Lease, the Tenant shall have the right to renew this Lease for an additional
term of one (1) year, commencing October 1, 1998, and terminating September 30,
1999, upon the same terms and conditions herein contained; except that the Base
Rent shall be increased by five percent (5%) over the rental payable in the
preceding year, payable in equal monthly installments. The Tenant agrees to
exercise such option on at least sixty (60) days prior written notice to
Landlord by certified mail. The failure to give such timely notice shall be
deemed a waiver by the Tenant of its right to exercise such option.

C. Provided the Tenant is not then in material default (after the
expiration of any applicable grace or cure periods) under the terms of this
Lease, the Tenant shall have the right to renew this Lease for an additional
term of one (1) year, commencing October 1, 1999, and terminating September 30,
2000 upon the same terms and conditions herein contained; except that the Base
Rent shall be increased by five percent (5%) over the rental payable in the
preceding year, payable in equal monthly installments. The Tenant agrees to
exercise such option on at least sixty (60) days prior written notice to
Landlord by certified mail. The failure to give such timely notice shall be
deemed a waiver by the Tenant of its right to exercise such option.

D. Provided the Tenant is not then in material default (after the
expiration of any applicable grace or cure periods) under the terms of this
Lease, the Tenant shall have the right to renew this Lease for an additional
term of one (1) year, commencing October 1, 2000, and terminating September 30,
2001 upon the same terms and conditions herein contained; except that the Base
Rent shall be increased by five percent (5%) over the rental payable in the
preceding year, payable in equal monthly installments. The Tenant agrees to
exercise such option

<PAGE>

on at least sixty (60) days prior written notice to Landlord by certified
mail. The failure to give such timely notice shall be deemed a waiver by the
Tenant of its right to exercise such option.

3. Use

Tenant shall at all times operate the Demised Premises in Occupancy there
for set forth in Article 13 hereof Subject to Landlord's prior written consent
or approval shall not be unreasonably withheld or delayed, Tenant shall have the
right to amend the Certificate of Occupancy to conform to its use of the
premises, provided that Tenant shall bear the entire cost of any alterations to
the Demised Premises resulting from Tenant's use, or intended use of the
premises.

4. Base Rent: Additional Rent

A. Except as otherwise expressly provided in this Lease, Tenant shall pay
to Landlord during the first two years of the term hereof a net rent (the "Base
Rent") of One Hundred and Eighty Thousand Dollars ($I 80,000) per annum, payable
in equal monthly installments in advance on the first day of each month, except
that no Base Rent shall be payable for the months of October and November of
1996. The Base Rent does not include real estate taxes imposed by the City of
New York on the Demised Premises, nor does it include any other taxes,
assessments, water rents, sewer rents and charges, duties, impositions, license
and permit fees, charges for public utilities of any kind, payments and other
charges of every kind and nature, together with interest and penalties thereon,
all of which shall be paid by Tenant when due as of the Commencement Date.
Nothing contained herein, however, shall obligate Tenant to pay any income,
transfer or corporate franchise taxes imposed upon Landlord, nor to pay any such
taxes, charges or assessments imposed upon the Demised Premises with respect to
periods prior to the Commencement Date of this Lease.

B. Contest of Taxes and Assessments

Tenant shall have the right to contest the validity or amount of real
estate taxes or assessment (if necessary, with the cooperation of Landlord),
Tenant shall bear the cost of any such application or contest.

C. Certificate or Statement of Authorities as Prima Facie Evidence

Any official certificate or statement issued or given by any sovereign,
governmental, city or municipal authority, or any department, bureau, board or
officer thereof or of any public utility, setting forth any tax, assessment,
water rents, sewer rents and charges, duties, impositions, license and permit
fees, charges for public utilities of any kind, payments and other charges of
every kind and nature, together with interest and penalties thereon, the payment
of which is the obligation of Tenant as herein before provided, shall be prima
facie evidence for all purposes of this Lease, of the existence, amount and
validity of such tax, assessment, water rents, sewer rents and charges, duties,
impositions, license and permit fees, charges for public utilities of any kind,
payments of and other charges of every kind and nature.

D. Interest On Required Payments Made by Landlord

<PAGE>

Any and all payments which may be required to be made by Tenant under this
Lease may be made by Landlord, whether for premiums on policies of insurance as
hereinafter provided for and required to be obtained and maintained by Tenant,
or in respect of any other provision under this Lease pursuant to which payments
other than insurance premiums may be made by Landlord for and on behalf of
Tenant, or which payments may be made by Landlord in default of Tenant's making
the same and as to which Tenant may be required to make any such payment under
this Lease. Landlord shall first give to Tenant five (5) business days written
notice by certified mail (unless the time available to make such payment is
shorter), of its intention to make such payment on behalf of the Tenant and if
the Tenant falls within such period to cure its default, Landlord may make same
as provided above. Any such amount paid by Landlord shall, in each such case, be
deemed to be and shall become, together with interest thereon at the rate of one
percent (1%) per month, Additional Rent, and the amount of such payment,
together with interest thereon, may, at Landlord's option exercised by notifying
Tenant of the amount due, be added to the Base Rent falling due on the first day
of the month next ensuing; the payment by Landlord of any sum or sums and shall
then and in such event be deemed Additional Rent payable by Tenant to Landlord
in addition to the foregoing provisions and payments required hereunder.

E. Real Estate Taxes

The Tenant agrees to pay as Additional Rent any real estate taxes assessed
or imposed against the Demised Premises, such taxes to be paid by the Tenant to
Landlord ten (10) days prior to the time that Landlord is required to pay same
to the taxing authority. Real Estate taxes shall mean all real estate taxes,
school taxes, water and sewer charges, vault taxes and charges assessed upon the
real property. Upon written request by Tenant made after its payment of such
Additional Rent, Landlord shall provide Tenant with proof of its payment of such
taxes.

F. Manner of Payment

All Base Rent, Additional Rent and other sums and charges to be paid by
Tenant to Landlord under this Lease shall be paid in such currency of the United
States of America as at the time of payment shall be legal tender for payment of
public and private debts, c/o Sid Borenstein, 1118 Avenue J, Brooklyn, N.Y.
11230, or at such other place(s) as Landlord may from time to time designate
upon written notice to Tenant.

5. Rent Payable Without Set-Off

Tenant will pay the Base Rent and Additional Rent (including real estate
taxes) as set forth in Article 4 hereof at the time and in the amount herein
before provided, by paying the same without any set-off, counterclaim,
deduction, notice or demand except as herein otherwise specifically provided, to
Landlord or to such person or entity as may from time to time be specified in
this Lease or designated in writing by Landlord. Tenant shall and will, during
the term hereby demised, well and truly pay, or cause to be paid, to Landlord,
all such other sums as may become due from, or payable by, Tenant, at the times
and in the manner herein provided; and Landlord, at its option, may deem all
other sums as Additional Rent payable hereunder, together with interest thereon
at the rate of one percent (1%) per month, payable from the tenth business day
after notice is given that any such sum is due and payable as Additional Rent
hereunder; and, in the event of nonpayment thereof, Landlord shall have the
rights and remedies herein provided for in the case of nonpayment of Base Rent
or Additional Rent, or of a breach of condition or covenant.

6. Tenant To Take Premises In An As Is Condition

A. It is specifically understood and agreed that the Tenant takes the

<PAGE>

premises in its present physical condition subject to any and all
violations whether of record or not after a full, complete and independent
inspection of the premises and Tenant agrees that during the term of this Lease
not to call upon the Landlord for any repairs, renovations, decorations,
alterations, except as herein specifically set forth in Articles 8 and 54
herein.

B. Except as otherwise set forth herein to the contrary, Tenant accepts the
buildings and improvements together with the furniture, furnishings, fixtures,
chattels and equipment (as described in Article 7B hereof), if any, in, on and
about the Demised Premises in their present condition, "AS IS", and without any
representation or warranty by Landlord as to the condition of said buildings or
improvements or as to the use or occupancy which may be made thereof, and
Landlord shall not be responsible for any latent defect or change of condition
in the buildings or improvements, furniture, furnishings, fixtures, equipment
and chattels, except to the extent that such items are the responsibility of
Landlord, as set forth in Article 8 hereof

C. Except as otherwise set forth herein to the contrary, the Base Rent,
Additional Rent and other sums and charges payable hereunder shall in no event
be withheld or diminished on account of any defect in the building, or of the
personal property and equipment contained therein, nor for any change in its
condition, nor for any damage occurring thereto nor because of the existence of
any violations in any municipal or other governmental departments.

7. Ownership and Repair of Personal Property

A. All personal property purchased or installed by the Tenant over and
above the personal property currently in the premises, if any, shall be and
remain the property of the Tenant at the expiration of the Lease or of any
renewal thereof, as set forth in Article 26 hereof

B. Except as otherwise provided herein, the property covered by this Lease
shall include all partitions, engines, motors, dynamos, boilers, elevators,
bathtubs, water closets, ranges, stoves, and heat, air conditioning, television
receivers and equipment, refrigeration, plumbing, gas and electric equipment and
fixtures, vacuum cleaning system, sprinkler system and other fire prevention or
extinguishing- equipment and materials, if any, all as now or hereafter
contained in the Demised Premises.

8. Repairs and Replacements

A. Tenant represents and covenants, at its own cost and expense, to make
any and all changes, alterations, repairs or replacements, ordinary or
extraordinary, structural or otherwise, foreseen or unforeseen, necessary to
keep in reasonable physical condition the buildings and improvements on the
Demised Premises now standing and hereafter erected, inside and outside,
including, but not limited to, repairs to foundations, sidewalks, walls, floors,
ceilings, elevators, vaults, window glass, gas pipes, wires or conduits for
electricity, whether inside, in front of, or appurtenant to the Demised
Premises, such repairs, replacements or renewals to be at least the equal in
quality of materials and workmanship as those replaced. Tenant will maintain,
repair and/or replace the elevator system (including all of its components), the
boiler and/or the roof, if necessary. Tenant will also be responsible to
maintain and/or repair the water and sewer connections to the Demised Premises.

<PAGE>

B. The Tenant, at its sole cost, shall have the right to renovate the
premises as it sees fit, providing, however, and on condition that all work is
done in full conformity with the various state, federal and municipal
departments having jurisdiction thereover. If any such renovations shall reduce
the number of rentable units in the Demised Premises, or shall limit the amount
of rent which may be otherwise charged for any unit(s), then, at the expiration
of the term of this Lease as set forth in Article 2 hereof or at the expiration
of any renewal of this Lease, or the termination of this Lease pursuant to
Article 23 or any other provision of this Lease, Tenant agrees, at its sole
cost, to restore the premises to its former condition, or, at Tenant's option,
to remit to the Landlord the reasonable cost of such restoration. In the event
that Tenant causes the Certificate of Occupancy set forth in Article 13 to be
amended, Tenant agrees, at its

sole cost, to cause such Certificate of Occupancy to be restored to its
former provision (provided that such former provision shall then be permitted by
law or by the zoning resolution then in effect) at the expiration of any renewal
of this Lease, or the termination of this Lease pursuant to Article 23 or any
other provision of this Lease. If such restoration shall not be permitted by law
at such time, Tenant shall reimburse Landlord for any losses occasioned to
Landlord as a result of such alterations.

C. Any structural changes to the Demised Premises that shall be required as
a result of generally applicable changes to governmental regulations of any
governmental body having jurisdiction thereover shall be the responsibility of
Landlord. If Landlord reasonably determines that the cost of such changes does
not warrant making such changes, Landlord may terminate this Lease upon sixty
(60) days prior written notice to Tenant without penalty and the otherwise
applicable provisions of this Lease regarding terminations shall be applied as
if the Lease had otherwise terminated on such date.

9. No Waste

Tenant shall not commit or suffer waste or injury to the Demised Premises
and shall keep the sidewalks, curbs and alleys adjacent to the Demised Premises
in good repair and unobstructed, clean and free of rubbish, ice and snow.

10. Waiver of NYL Section 227

If any buildings or improvements, now or hereafter constructed and
maintained upon the Demised Premises, shall be destroyed or so damaged or
injured by fire or other hazard or casualty as to be untenantable and unfit for
occupancy in whole or in part, then, except as otherwise provided in this Lease,
such fact shall not affect the provisions of this Lease, any law, rule or
regulation to the contrary notwithstanding, Section 227 of the Real Property Law
of the State of New York or any other law of similar nature, extent and context
expressly applicable hereto being hereby expressly waived by Tenant. Tenant
hereby agrees that its obligations, covenants and agreements, including the
payment of Base Rent, Additional Rent and other sums and charges with respect to
the portion of the Demised Premises that were not destroyed or injured shall
continue the same as though said buildings and improvements or any of them had
not been destroyed or injured, and without abatement of any kind, except as set
forth in Article 15 or as otherwise provided in this Lease. Tenant will obtain
insurance with respect to its obligations under this Lease, of the type known as
rent insurance or loss of business insurance.

<PAGE>

11. Compliance With Laws

Except as set forth in Article 8C hereunder, Tenant covenants to execute
and comply in all material respects with any and all laws, statutes, ordinances
and regulations, federal, state, county or municipal, now or hereafter in force
applicable to the Deposed Premises, relating to use or occupancy thereof or to
the making of repairs thereto or of changes, alterations or improvements
therein, ordinary or extraordinary, structural or otherwise, foreseen or
unforeseen, including without limitation the performance of any duty imposed
upon Landlord or

Tenant by such laws, statutes, ordinances or regulations in respect to the
sidewalk, curb, street, vault or alley adjacent to the Demised Premises. Tenant
also covenants to comply in all material respects with any and all rules and
regulations applicable to the Demised Premises issued by the New York Board of
Fire Underwriters and/or the New York Fire Insurance companies writing policies
covering the Demised Premises which are applicable thereto. Tenant shall pay all
costs, expenses, claims, fines, penalties and damages that may in any manner
arise out of or be imposed because of the failure of Tenant to comply with this
Article, and in any event, agrees to indemnify and save Landlord free and
harmless of and from all liability with reference to the same, except to the
extent that such costs, expenses, claims, fines, penalties and damages are
caused by Landlord's failure to perform its obligations under Article 8 hereof.

Landlord or Tenant shall each promptly give written notice to the other
party of any notice of violation received by it. Without diminishing the
obligation of Tenant, if Tenant shall at any time fail or neglect to materially
comply, to the extent reasonably appropriate and as expeditiously as reasonably
feasible, with any of said laws, rules, orders, requirements, directions,
ordinances or regulations concerning or affecting the Demised Premises, or the
use and occupation thereof, or of any building thereof, as herein before
provided, and, if a stay is necessary, shall have failed to obtain a stay or
continuance thereof, then Landlord, in addition to any other remedies hereunder
shall be free to comply therewith, and expenses resulting therefrom shall be
borne and paid by Tenant and upon Tenant's failure so to pay, then Landlord may,
at its sole option, pay the same, and any payments so made by Landlord, together
with interest thereon to be computed at the rate of one percent (1%) per month,
from the date of payment, shall be considered as Additional Rent, and shall
entitle Landlord to enforce any of the terms, provisions, conditions, and
covenants herein contained that may be applicable to such Additional Rent.
Tenant may, however, contest by means of due legal proceedings the validity of
any such law, rule, order, ordinance or regulations, and refrain from compliance
therewith during such contest, provided that such noncompliance shall not
constitute a crime or misdemeanor on the part of Landlord.

12. No Liens

A.Tenant will not create or permit to be created or to remain, and will
discharge, any lien, encumbrance or charge levied on account of any imposition
of any mechanic's, laborer's or material man's lien upon the Demised Premises or
any part thereof or the income therefrom, resulting from any work or alterations
performed by Tenant, having any priority or preference over or ranking on a
parity with the estate, rights and interest or Landlord in the Demised Premises
or any part thereof or the income therefrom, and Tenant will not suffer any
other matter or thing whereby the estate, rights and interest of Landlord in the
Demised Premises or any part thereof might be impaired.

<PAGE>

A. If any mechanic's, laborer's or materialman's lien shall at any time be
filed against the Demised Premises or any part thereof, Tenant, within thirty
(30) days after notice of the filing thereof, will cause the same to be
discharged of record by payment, deposit, bond order of a court of competent
jurisdiction or otherwise, provided that such lien arose as a result of Tenant's
activities at the Demised Premises after the Commencement Date. If Tenant shall
fail to cause such lien to be discharged within the period aforesaid, then, in
addition to any other right or remedy, Landlord may, but shall not be obligated
to, discharge the same either by paying the amount claimed to be due or by
obtaining the discharge of such lien by deposit or by bonding proceedings. In
such event, Landlord shall be entitled, if Landlord so elects, to compel the
prosecution of an action for the foreclosure of such lien by the lien or and to
pay the amount of the judgment in favor of the lienor with interest, cost and
allowances. Any amount so paid by Landlord and all reasonable costs and expenses
incurred by Landlord in connection therewith, together with interest thereon at
the rate of one percent (1%) per month, from the respective dates of Landlord's
making of the payment or incurring of such reasonable costs and expenses, shall
constitute Additional Rent payable by Tenant under this Lease and shall be paid
by Tenant to Landlord on demand. Nothing herein contained shall obligate Tenant
to pay or discharge any lien created by Landlord.

C. Nothing in this Lease contained shall be deemed or construed in any way
as constituting the consent or request of Landlord, express or implied, by
inference or otherwise, to any contractor, subcontractor, architect, laborer,
engineer or materialman for any specific improvement alteration to or repair of
the Demised Premises or any part thereof, and the personal property hereby
leased.

13. No Use In Violation of Certificate of Occupancy

During the term of this Lease, Tenant will not use or keep or allow the
Demised Premises or any portion thereof or any building or improvements now or
hereafter erected or maintained thereon, to be used or occupied for any unlawful
purpose or in violation of any Certificate of Occupancy covering or affecting
the use of the Demised Premises or any portion thereof, or any buildings or
improvements now or hereafter erected thereon, as the same may be amended from
time to time (the "Certificate of Occupancy"). Tenant will not suffer any act to
be done or any condition to exist on the Demised Premises or any portion thereof
or any building or improvement now or hereafter erected thereon, which shall in
law constitute a nuisance, public or private, or which shall make void or
voidable any insurance then in force on the Demised Premises. Tenant shall have
the right to amend the Certificate of Occupancy to conform to its use of the
premises, provided that Tenant shall bear the entire cost of any alterations to
the Demised Premises resulting from Tenant's use, or intended use of the
premises.

14. Assignment and Subletting

A. Except as provided in Paragraph C herein or otherwise in this Lease,
Tenant expressly covenants and agrees that Tenant shall not assign or underrate
all or substantially all of the Demised Premises, without the prior written
consent of Landlord in each instance, which consent shall not be unreasonably
withheld or delayed. If this Lease shall be assigned, or if the Demised Premises
or any part thereof be underrated or occupied by any person or entity other than
Tenant, Landlord may, after default in respect of the payment of rent by Tenant,

<PAGE>

collect rent from the assignee, under tenant or occupant, and apply the net
amount so collected to the rent herein reserved, but no such assignment,
underletting, occupancy or collection of rent shall be deemed a waiver of this
covenant, the acceptance of the assignee, under tenant or occupant as tenant, or
a release of Tenant from the further performance by Tenant of covenants on the
part of Tenant herein contained. The formal written consent by Landlord to an
assignment or underletting shall not in any manner be construed to relieve
Tenant from obtaining the express consent in writing of Landlord to any further
assignment or underletting of this Lease. If Tenant hereunder shall be a
corporation, the provisions of this Article 14 shall not apply to an assignee,
under tenant or occupant that owns 100% of the outstanding shares of Tenant or
to a corporation whose shares are owned 100% by Tenant.

B. Tenant further expressly covenants and agrees that notwithstanding
anything to the contrary contained in this Lease, the sale or transfer, by one
or more transfers at any time (if effected on a concerted basis), of more than
fifty (50%) percent of the total outstanding shares in any corporation which may
be the Tenant under this Lease, or the sale or transfer at any time of more than
fifty (50%) percent of the total equity interests in any partnership, joint
ventures or other unincorporated association which may be Tenant under this
Lease, shall, in each case, be deemed to be an assignment of this Lease within
the meaning and intent of the provisions of this Article. Notwithstanding the
foregoing, the transfer or assignment of any such shares of stock or equity
interests solely by reason of the death of a stockholder, partner, joint
venturer or member to his or her heirs, distributees or legal representatives,
or any inter vivos transfers or assignments of shares of stock or equity
interests to members of the immediate family of such stockholder or equity
holder, or any transfer among existing stockholders, partners, joint venturers
or members of any other unincorporated association, or any such transfer of
shares or equity interest to third parties aggregating less than fifty (50%)
percent of the total interests thereof, shall not, in any such case, be deemed
an assignment or sale of such shares of stock or partnership, joint venture or
other unincorporated association interest for purposes of this Article.

Any violation of the provisions of this Article shall entitle Landlord to
exercise any and all of the default and remedy provisions now contained in this
Lease after the applicable notice and grace periods.

C. Except as otherwise provided herein, Tenant may assign the Lease to any
unaffiliated person or entity, but only for the use of the Demised Premises for
the specific purposes set forth in Article 3 hereof and for no other purposes,
and Tenant may assign this Lease only subject to and by assignment shall be
binding upon Landlord nor shall it have any force or effect, either in law or in
equity, or convey any interest of Tenant in this Lease, unless and until each of
said following conditions are complied with:

(i) any such assignment hereof shall be subject to Landlord's prior written
consent,which consent Landlord covenants and agrees will not unreasonably be
withheld or delayed;

(ii) that at the time of any such assignment, the Tenant/assignor shall not
then be in default hereunder in respect of the payment of monies due the
Landlord for Base Rent or Additional Rent of any kind beyond the applicable
grace periods with respect thereto;

(iii) such assignment shall be evidenced by an instrument of assignment and
assumption duly executed and acknowledged in triplicate original copies by

<PAGE>

Tenant/assignor and its assignee ("such assignee"), pursuant to which
Tenant/assignor assigns this Lease to such assignee, and such assignee accepts
the assignment thereof and assumes and agrees to perform all the terms and
provisions in this Lease contained to be kept, observed and performed by Tenant
hereunder from and after the effective date of such assignment, and an executed
and acknowledged duplicate original of such instrument, together with the
address of such assignee, shall be delivered to Landlord and

(iv) Tenant shall pay to Landlord monthly as Additional Rent ten percent
(10%) of the amount by which the rent being paid to Tenant by such assignee
exceeds the amount payable by Tenant to Landlord as Base Rent under the terms of
this Lease.

Tenant covenants and agrees that no assignment made pursuant to the
provisions of this Article shall in any way release or be deemed to release
Tenant herein named, or any assignee of the interest of Tenant in this Lease,
and requires that Tenant and all assignees of Tenant's interest shall at all
times throughout the term of this Lease continue to be and remain jointly and
severally and primarily liable for the full performance of all of the
obligations of this Lease on the part of Tenant to be performed, observed and
complied with from the date of the execution of this Lease through the term
hereof.

D. Whenever Landlord's consent shall be required hereunder, Tenant shall
deliver to Landlord written notice by certified mail, return receipt requested,
of the proposed assignment of this Lease at least twenty (20) business days (the
term "business days" as used in this Lease shall mean consecutive days exclusive
of Saturdays, Sundays and legal holidays which are statewide in the State of New
York) prior thereto, which notice shall include and be accompanied by the
following information:

(i) the name and address of the proposed assignee; and

(ii) the names and business experience of principal or principals of the
proposed assignee who will be active in the operation of the business at the
Demised Premises by the proposed assignee and their respective percentages of
equity interest in the proposed assignee.

Landlord agrees, within a period of ten (10) business days after its
receipt of the aforementioned notice of the proposed assignment, to notify
Tenant in writing, by certified mail, return receipt requested, either: (a) that
Landlord is willing to thereafter give its formal written consent to the
proposed assignment of this Lease, provided that all of the conditions precedent
to the delivery of a formal consent in writing set forth in this Article are
first fully complied with; or (b) that Landlord is not willing to give its
consent to the proposed assignment of this Lease. In addition, if Landlord sends
no written notice at all to Tenant within said period of ten (1O) business days
as to whether or not Landlord is willing to thereafter give its formal written
consent to the proposed assignment of this Lease, then Landlord shall be deemed
to have given its formal written consent hereunder to such proposed assignment
of this Lease.

E. If Tenant shall deem itself aggrieved by Landlord's failure or refusal
to consent to the proposed assignment of this Lease by Tenant, Tenant shall have
the right to submit the issue of Landlord's failure or refusal to affirmatively
consent in writing to such assignment to arbitration in accordance with Article
34 hereof

15. Insurance: Repair and Restoration

<PAGE>

A. Tenant shall throughout the term of this lease, at its own cost and
expense, provide and keep in force for its own benefit, insurance against loss
or damage or injury or destruction to or of any building or buildings now or
hereafter erected on the leased premises, together with the furniture,
furnishings and equipment therein, if any, resulting from fire or from any
hazard included in the so-called extended coverage endorsement from such
insurance companies authorized to engage in insurance business in the State of
New York, which policies shall provide that the loss, if any, shall be payable
to Tenant, except as hereinafter provided. All such policies shall name Landlord
as additional insured and an original copy of such policy shall be provided to
Landlord. Tenant shall also insure that the interest of the holder of a Fee
Mortgage be protected by proper endorsement to any such policies. Tenant may
carry such insurance under blanket policies and shall in such case provide
Landlord with a certificate evidencing such coverage.

B. Tenant shall likewise observe and comply with the requirements of all
policies of insurance at any time in force with respect to the Demised Premises
and the personal property hereby leased.

C. No destruction of or damage, to the Demised Premises, or any part
thereof, by fire or other casualty, shall terminate or permit Tenant to
surrender this Lease or shall relieve Tenant from its obligation to pay the Base
Rent and Additional Rent and other sums and charges payable hereunder with
respect to the portion of the Demised Premises that were not damaged or
destroyed, or from any of Tenant's other obligations under this Lease, and
Tenant hereby waives any rights now or hereafter conferred upon it by statute or
otherwise to cancel or surrender this Lease or to quit or surrender the Demised
Premises, or any part thereof, or to any suspension, diminution, abatement or
reduction of Base Rent or Additional Rent with respect to the portion of the
Demised Premises that were not damaged or destroyed, on account of any such
destruction or damage, except as otherwise provided in this Lease. Tenant will
obtain insurance with respect to its obligations under this Lease, of the type
known as rent insurance or loss of business insurance.

D. If there shall be less than sixty (60) days remaining to the end of the
Lease term hereunder (including any extensions thereto as to which Tenant shall
have given Landlord the notice required by Article 2B, 2C, or 2D), Tenant may,
in lieu of making such repair and restoration terminate this Lease upon thirty
(30) days prior written notice to Landlord without penalty and the otherwise
applicable provisions of this Lease regarding terminations shall be applied as
if the Lease had otherwise terminated on such date. Tenant shall in such case
promptly remit to Landlord any insurance proceeds and payments received as a
result of such damage or destruction.

16. Comprehensive General Public Liability Insurance, Steam Boiler, War
Damage, Sprinkler and Rent and other Insurance

11 A. Tenant also covenants to obtain for the benefit of Landlord, at its
sole cost and expense, comprehensive general public liability insurance coverage
of the Demised Premises, including the sidewalks, alleys, curbs, and vaults, if
any, adjoining the Demised Premises, in the customary form, from insurance
companies satisfying the requirements of Article 15 hereof, in limits of
liability (including coverage under umbrella liability policies) of not less
than $2,000,000 per occurrence for property damage, and to pay all of the
premiums thereon.

B. Tenant, at its sole cost and expense, during the entire term of this
Lease will have professional insurance commercially available (such as
malpractice insurance or liability insurance) covering Landlord and Tenant for
any act of Tenant dealing with its activities in the premises.

C. Tenant will also obtain insurance with respect to its obligations

<PAGE>

under this lease, of the type known as rent insurance or loss of business
insurance.

D. All policies required to be obtained by Tenant under this Article or the
preceding Article shall name Landlord as additional insured and the Tenant
agrees to deliver to Landlord the original of such policies. Such policies will
contain a provision that same may not be canceled without giving to the Landlord
at least thirty (30) days prior written notice.

17. Compliance With Insurance Requirements

Tenant shall promptly perform and comply with the requirements of all fire
and liability insurance carriers obtained by Landlord within thirty (30) days
after written notice from Landlord, either personally or by certified mail,
return receipt requested.

18. Waiver of rights to Redeem

Except as otherwise expressly provided herein, Tenant hereby expressly
waives any and all right to redeem the Demised Premises under Sections 761 and
763, or any amendments, changes and additions thereto, of the Real Property
Actions and Proceeding Law of the State of New York or otherwise, after a
warrant of dispossess shall have been made or entered, or by virtue of any other
statute, law or decision of like import or effect now or hereafter in force.

19. Total Condemnation

If, at any time during the term hereof, the whole of the Demised Premises
shall be taken for any public or quasi-public use, under any statute, or by
right of eminent domain, or if any part of said Demised Premises shall be so
taken and the part not so taken shall be insufficient, in the reasonable
judgment of Tenant, for the operation of Tenant's business, then this Lease
shall immediately cease and terminate, and the Base Rent and Additional Rent
payable under this Lease shall be equitably apportioned and paid to the time of
such termination, and Tenant shall not be responsible for any payment of rent or
other obligation under this Lease after such termination.

In the event of such total condemnation, the entire award shall become the
property of the Landlord, and Tenant access that it shall not be entitled to,
nor shall it, file a claim for any portion of

such award. Nothing herein contained shall prevent Tenant from applying for
an award for the unamortized value of Tenant's leasehold improvements and
Tenant's relocation and moving expenses (or from joining in Landlord's
application for such award), provided that such award to Tenant does not cause
the diminution or reduction of the award otherwise payable to Landlord.

20. Partial Condemnation

A. If any buildings or improvements now or hereafter constructed on the
Demised Premises shall be damaged or partially destroyed by any such taking of
less than the whole or materially all thereof, then except as herein above or
after specifically provided, this Lease shall continue in full force and effect
as to the part not so taken, and the Base Rent shall be reduced by mutual
a-agreement of the parties, and if the parties fail to mutually agree upon a
fair Base Rent, the matter shall be determined by arbitration in accordance with
Article 34 hereof. Tenant shall give prompt notice thereof to Landlord, and
shall proceed with reasonable diligence to conduct any necessary demolition and
to repair and restore, at its own cost and expense, any remaining part of any
building and improvements not so taken, so as to constitute such remaining part

<PAGE>

or parts thereof a complete, rentable building in good condition and
repair, provided, however, that Tenant shall not be required to make any repairs
or restoration hereunder until the condemnation award shall have first been paid
or disbursed in accordance with the terms of this Article.

B. If there shall be less than sixty (60) days remaining to the end of the
Lease term hereunder (including any extensions thereto as to which Tenant shall
have given Landlord the notice required by Article 2B, 2C or 2D), Tenant may, in
lieu of making such repair and restoration tenant this Lease upon thirty (30)
days prior written notice to Landlord without penalty and the otherwise
applicable provisions of this Lease regarding terminations shall be applied as
if the Lease had otherwise terminated on such date. Tenant shall in such case
promptly remit to Landlord any insurance proceeds and payments received as a
result of such damage, destruction or taking.

21. Evidence of Payment By Landlord: Tenant's Right to Cure

A. Provided Tenant has complied with all the terms, covenants and
conditions of this Lease on Tenant's part to be performed, the Landlord agrees
to exhibit to Tenant, upon demand therefor, evidence of payment of the
installments of principal and interest under the bonds and/or mortgages covering
the said premises, and of taxes and of other impositions.

B. In the event Landlord shall at any time fail to pay any installment of
principal or interest upon any mortgage which shall constitute a lien upon the
Demised Premises or any other charge or sum not required by the provisions of
the Lease to be paid by Tenant, or in the event that a lien is placed on the
Demised Premises by any municipal, state or federal agency, or any other party,
due to the failure of the Landlord, or party or parties collectively comprising
the Landlord, or its assigns to discharge any and all obligations not assumed by
Tenant under this Lease, including, but not limited to, Article 54 hereof, and
if such failure to pay such sum or lien shall constitute a threat to the

right of Tenant to enjoy the use of the Demised Premises, Tenant shall have
the right forthwith to pay the amount due if it so elects together with any
costs or interest payable in connection therewith and Tenant may deduct the
amount of such payment together with interest from the date of Tenant's payment
from the rental next becoming due under the provisions of this Lease until the
amount of the credit to which Tenant shall be entitled shall be exhausted.
Tenant, upon making such payment, shall be entitled subject to the provisions of
the laws applicable thereto, to be subrogated to the rights of the holder of
such payment for or on behalf of the Landlord. Tenant shall first give to
Landlord five (5) business days written notice by certified mail (unless the
time available to make such payment is shorter), of its intention to make such
payment on behalf of the Landlord and if the Landlord fails within such period
to cure its default, Tenant may make same as provided above.

22. Mortgages - Subordination

A. This Lease, the lien thereof on the Demised Premises, and all rights of
Tenant hereunder, and of any persons claiming under or through Tenant, are
subject and subordinate to existing or future mortgages or leases which shall be
liens upon the premises and to any other mortgages or leases and to any
renewals, modifications, consolidations, extensions or replacements of such
mortgages or leases although such mortgage or mortgages may exceed in the
aggregate the original principal amounts of the mortgages which shall be liens
upon the premises at the time of the execution of the Lease, provided, however,
that the aggregate annual amount of principal and interest payments on all of
such mortgages (exclusive of the final

<PAGE>

principal payment) shall not exceed eighty (80%) percent of the annual Base
Rent. Landlord will use its best efforts to obtain the agreement of the holder
of any such existing or future mortgages either not to disturb the quiet
enjoyment of Tenant hereunder as a result of any default by Landlord or to
accept payment from Tenant to cure any such default by Landlord.

B. This a-agreement of subordination shall be self-operative but Tenant
covenants and agrees on demand at any time or times, to execute, acknowledge and
deliver to Landlord, any and all instruments which may be necessary or proper to
subordinate this Lease and Tenant's right hereunder to the lien or liens of any
such mortgage or lease or renewal, modification, consolidation, replacement or
extension. Tenant hereby authorizes and empowers Landlord to make, execute,
acknowledge and deliver the same as attorney in fact of Tenant coupled with an
interest in Tenant's name, place and stead upon ten (10) days written notice to
Tenant, the Tenant hereby making, constituting and appointing Landlord and its
successors and assigns as attorney in fact for that purpose.

C. Landlord will either provide Tenant with (i) a copy of any existing
mortgage upon the Demised Premises, as well as of any renewal, modification,
consolidation, extension or replacement thereof or the (ii) a written
description of Landlord's obligations under any such mortgage, renewal,
modification, consolidation, extension or replacement thereof. Tenant warrants
it will not perform any act or do anything which will cause a default under any
such mortgage or of any renewal, modification, consolidation, extension or
replacement thereof Whenever the obligations of Landlord (mortgagor) to the
holder of such mortgages or of such renewals, modifications, consolidations,
extensions or replacements require Landlord (mortgagor) to perform an act or do
a thing which coincides with an act or thing which Tenant is herein obligated to
Landlord to perform or do, Tenant warrants to perform said act or to do

said thing. Anything in any provision of this Lease to the contrary
notwithstanding, if the time given to Landlord by holders of said mortgages or
such renewals, modifications, consolidations, extensions or replacements to
perform said act or to do said thing is shorter than the time given to Tenant by
this Lease to perform or do the same act or thing, then if Landlord promptly
gives Tenant notification of any notice given to Landlord in respect of said act
or thing by the holder of said mortgages or by the holders of such renewals,
modifications, consolidations, extensions or replacements, Tenant shall perform
said act or do said thing within the time specified in the notice so given by
the holder of any mortgage or by the holder of such renewals, modifications,
consolidations, extensions or replacements. If Tenant fails to perform said act
or do said thing., within the time as specified, and Tenant has not commenced
and proceeded to remedy such act or thing, Landlord may enter the premises and
perform said act or do said thing without further notice. There shall be
applicable thereto all the provisions hereof in respect of Landlord performing
said acts and/or doing said things at the expense of Tenant and recovering said
expenses from Tenant as Additional Rent. Notwithstanding anything herein to the
contrary, Tenant shall be under no obligation to make any payments hereunder if
the total of such payments would exceed Tenant's obligation to pay Base Rent and
Additional Rent to Landlord.

23. Default

A. Any one or more of the following events shall be deemed to be "Events of
Default" under this Lease:

(i) if this Lease or the estate of Tenant hereunder shall be transferred,
assigned, subleased or mortgaged to any person or party, except in the manner
herein permitted, subject to Tenant's right to cure such Event of Default within
thirty (30) days thereof, or

<PAGE>

(ii) if Tenant shall default in making payment of any installment of Base
Rent or Additional Rent or other sums or charges, as and when the same shall
become due under and payable and/or required to be deposited by Tenant under
this lease, and such default shall continue for a period of twenty (20) days
after written notice given by Landlord; or

(iii) if Tenant shall materially fail to perform any of its obligations and
any such default shall continue for a period of thirty (30) days after written
notice by Landlord, except that, in connection with a default not consisting
solely of the payment of rent and not susceptible of being cured with due
diligence, the applicable cure period, the time of Tenant within which to cure
the same, shall be extended for such time as may be necessary to cure the same
with reasonable diligence, provided Tenant shall commence promptly and proceed
diligently to cure the same; or

(iv) an execution or attachment shall be issued against Tenant's leasehold
estate, and such execution or attachment shall not be vacated or removed by
court order, bonding or otherwise, within a period of sixty (60) days after the
issuance thereof

B. Upon the occurrence of an Event of Default, the Landlord may, at its
election, and in addition to any other remedies available to it under law or in
accordance with any other provision of this Lease, serve a written ten (10) day
notice of cancellation and termination of this Lease upon Tenant, and upon the
expiration of said ten (10) days (during which time Tenant may cure any monetary
default, together with interest, if any, accrued thereon in accordance with the
provisions of this Lease, and thereby nullify any such cancellation or
termination based only upon such monetary default), the Lease and the terms
hereunder shall ten-terminate and expire as fully and completely as if the date
of expiration of such ten (10) day period were the day herein fixed for the end
and expiration of this Lease and the term thereof, and Tenant in such case shall
then quit and surrender to Landlord the Demised Premises and each and every part
thereof and Landlord may enter into or repossess the Demised Premises each and
every part thereof, either by force, summary proceedings or otherwise. No
cancellation and termination of this Lease under this Article shall relieve
Tenant of its liability and obligations to pay the Base Rent and Additional
Rent, and other sums and charges theretofore accrued or thereafter accruing, and
such liability and obligations shall survive any such expiration or termination.

C. All sums which Tenant has agreed to pay by way of real estate taxes,
maintenance and all other sums and charges required to be paid by Tenant
hereunder, becoming due from time to time under the terms of this Lease, shall
all be deemed Additional Rent reserved in this Lease within the meaning of this
Article.

In the event this Lease is terminated by Landlord pursuant to any of the
provisions of this Article or otherwise terminated pursuant to any express
provision of this Lease, Landlord shall be entitled to retain and set off
against its damages any proceeds being held as deposits or as trust funds
hereunder.

D. In the event of any termination of this Lease, whether the same be by
expiration, cancellation, surrender or by operation of law, by issuance of a
dispossessory warrant, or by service of notice of cancellation and termination
as herein provided, Landlord may at any time re-enter the Demised Premises using
such force for that purpose as may be necessary without being liable to
prosecution therefor, and thereupon Landlord shall be entitled to retain
possession of the Demised Premises free from any estate or interest of Tenant

<PAGE>

therein.

E. Tenant hereby expressly waives the service of any notice of intention to
re-enter provided in any statute or of the institution of legal proceedings for
such purpose and Tenant for and on behalf of itself and all persons claiming
through or under Tenant, including any assignee or creditor of Tenant, also
waives any and all right of redemption or re-entry or repossession or to restore
the operation of this Lease in case Tenant shall be dispossessed by summary
proceedings or otherwise or in case of reentry or repossession by Landlord or in
case of any expiration or termination of this Lease in accordance with its
terms. The term "enter", "entry", "re-enter" as used in this Lease are not
restricted to their technical legal meaning.

F. Except as otherwise provided in this Article, no receipt of funds by
Landlord from Tenant after the termination or cancellation

hereof in any lawful manner shall reinstate, continue or extend the term,
or affect any notice theretofore given to Tenant, or operate as a waiver of the
right of Landlord to enforce the payment of Base Rent, and Additional Rent, and
other sums and charges then due or which thereafter become due, or operate as a
waiver of the right of Landlord to recover possession of the Demised Premises by
proper suit, action, proceedings or other remedy, it being agreed that (i) after
the service of notice of cancellation and termination as herein provided; (ii)
after the commencement of any suit, action, proceedings or other remedy; or
(iii) after a final order or judgment for possession of the Demised Premises,
Landlord may demand, receive and collect any funds which thereafter become due,
without in any manner affecting such notice, suit, action, proceedings, order of
judgment; and any and all such proceeds so collected shall be deemed to be
payments on account of the use and occupation of the Demised Premises, or, at
the election of Landlord, on account of Tenant's liability hereunder.

G. If this Lease shall be terminated and canceled as provided in this
Article, Tenant covenants and agrees, any other covenant in this Lease to the
contrary notwithstanding, that the Deposed Premises shall be then in the same
condition as that in which Tenant has agreed to surrender the same to Landlord
at the expiration of the term hereof, as more fully described in Article 5B
hereof.

H. Tenant shall pay upon demand all reasonable costs, charges and expenses,
including reasonable fees and expenses of counsel retained by Landlord, incurred
by Landlord in enforcing Tenant's obligations hereunder in the event of a
default of Tenant's obligations under this Lease.

I. In the event that Tenant shall fail to occupy the Demised Premises on or
before December 31, 1996, or in the event that Tenant shall give landlord prior
written notice of its intention not to occupy the Deposed Premises on or before
December 31, 1996, Tenant shall pay to Landlord as liquidated damages the sum of
Fifty Thousand Dollars ($50,000) and shall have no further obligation or
liability under this Lease.

24. Cumulative Remedies

Any material violation or attempted material violation or threatened
material violations of any covenant or condition of this Lease by Tenant, or
anyone claiming under Tenant, shall be remediable by injunction which shall be a
cumulative remedy in addition to every other remedy given by this Lease or now
or hereafter existing by law, either independently of or in connection with the
execution of this Lease, it being expressly agreed that the various rights,
remedies, powers and elections given to Landlord in this Lease are distinct,
separate and cumulative remedies, and no one such remedy thereunder, whether or

<PAGE>

not exercised by Landlord, shall be deemed to be in exclusion of any of the
other remedies, or of such other rights, remedies, powers or elections as are
now or may hereafter be available to Landlord under this Lease or by law.

25. Indemnity

A. Tenant hereby agrees to indemnify and to save and hold Landlord harmless
against any and all claims, damages, suits or causes of action for damages
arising after the commencement of the term hereof and

any orders, decrees or judgments which may be entered therein, commenced as
a result of any injury to person or property or from loss of life sustained in
or about the said Demised Premises and the building and improvements thereon, or
in or upon the sidewalks, curbs, alleys, vaults, or streets in front of or
appurtenant thereto by any person or persons whatsoever, as a result of Tenant's
negligence. Landlord hereby agrees to indemnify and to save and hold Tenant
harmless against any and all such claims, damages, suits or causes of action for
damages arising as a result of Landlord's negligence. It is the intention and
agreement of the parties that Landlord shall not be liable for any personal
injuries or damages to Tenant or its officers, agents and employees or to any
other person or to any occupant of any part of the Demised Premises, or for any
injury or damage to any goods, wares, merchandise or property of Tenant or of
any occupant of any part of the said premises, irrespective of how the same may
be caused.

B. Tenant hereby agrees to indemnify and to save and hold Landlord harmless
and free of and from any and all liability, loss, damage or expense, causes of
action, suits, claims and judgments, including reasonable legal expenses in
connection with defending against any such action, suit or claim arising from
injury or alleged injury to persons or property of any and every nature, or
arising out of the use, occupation, management or possession of the Demised
Premises, or of any building thereon, or any part thereof, or of the vaults,
alleys, sidewalks adjacent thereto, occasioned by the actual or alleged
negligence or willful acts of Tenant, its agents, employees, assigns or
occupants of any part of the Demised Premises, or by their agents or employees
respectively, at any time during the term of this Lease.

26. Improvements Owned by Landlord

Any and all improvements to said Demised Premises or any part thereof
during the term of this Lease shall belong to Landlord upon the expiration or
termination of this Lease, and without payment of any kind therefor.

27. Limit of Liability of Landlord and Tenant

Tenant agrees that, if Landlord shall be an individual, corporation,
trustee, joint venture, tenancy in common, co-partnership, unincorporated
association or other unincorporated aggregate of individuals and/or entities,
then Tenant shall look solely to such Landlord's estate and property in the land
and buildings (or the proceeds thereof for the satisfaction of Tenant's remedies
for the collection of a judgment (or other judicial process) requiring the
payment of money by Landlord in the event of any default by Landlord hereunder,
and no other property or assets of such incorporated or unincorporated Landlord
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of Tenant's remedies under or with respect to this Lease, the
relationship of Landlord and Tenant hereunder, or Tenant's use and occupancy of
the Demised Premises.

28. Signs

With respect to any future signs, Tenant shall only use, erect and maintain

<PAGE>

signs, flagpoles, marquees or other forms of advertisement or display on
the Demised Premises by and with the written consent of the Landlord, which
consent shall not be unreasonably withheld or delayed,

and to the extent that such erection, use and/or maintenance may be
approved by and be in all respects satisfactory to the municipal and other
governmental authorities having jurisdiction thereof, and conform in all
material respects to all laws, ordinances and regulations pertaining thereto;
but Tenant shall include in the insurance coverage to be carried by Tenant
hereunder, full insurance against any hazard, loss or damage to person or
property by reason of said signs and structures, including indemnity in favor of
Landlord against damages or injury due to, or in any way connected with, the
erection, maintenance and/or operation of any such signs and structures.

29. Access rights by Landlord to Show Premises

Subject to rights of tenants and occupants, Tenant shall permit Landlord or
its agents, on reasonable advance notice of not less than five (5) business days
to Tenant, to show the Demised Premises on business days to persons wishing to
purchase or mortgage the same; and during the six months next preceding the
expiration of the term hereby granted (including any extensions thereto as to
whether Tenant shall have given Landlord the notice required by Article 2B, 2C
or 2D), Landlord or its agents shall have the right to show the premises to
persons wishing to hire the same upon such notice.

30. Inspection and Access Rights

Subject to rights of tenants and occupants of the Demised Premises,
Landlord and its agents and other representatives shall have the right to enter
into and upon the Demised Premises or any part thereof at all reasonable hours
and upon reasonable notice for the purpose of examining the same or making such
repairs or alterations therein as may be necessary for the safety and
preservation thereof, which right to make repairs or alterations shall, however,
be subject and subordinate to each and every provision contained in this Lease
applicable to repairs or alterations, and Landlord agrees that except for
emergencies (in Landlord's reasonable opinion), Landlord will give Tenant ten
(10) business days' prior notice before making any repairs upon the Deposed
Premises and in the event that Tenant shall dispute the necessity for such
repairs, such disputes shall be subject to arbitration pursuant to Article 34
hereof Except as otherwise specifically provided elsewhere in this Lease,
Landlord shall not be under any obligation to make any repairs, alterations
and/or improvements of any kind whatsoever, structural or otherwise, but Tenant
shall make all such repairs, alterations and improvements at its own cost and
expense. However, in case of the neglect or default of Tenant in making the
same, Landlord may do so during the term hereby granted or after its expiration,
subject to the provisions of Article 23.F hereof, and all reasonable costs and
expenses paid or incurred in connection therewith, plus interest thereon at the
rate of one percent (1%) per month, shall be repaid by Tenant to Landlord on
demand as Additional Rent. The recipient bills of the mechanics or contractors
employed by Landlord showing,-, the payment by Landlord for the making of such
repairs, alterations or improvements, shall be prima facie evidence of the
reasonableness of such charges therefor, and that the same have been paid by
Landlord.

31. Quiet Enjoyment

Upon payment of the Base Rent, Additional Rent and all other sums and
charges herein reserved and upon the due performance of all the terms, covenants
and conditions and agreements herein contained on its

<PAGE>

part to be kept and performed, Tenant shall and may at all times during the
term hereby granted peaceably and quietly enjoy the Demised Premises, subject,
however, to the terms of this Lease; provided, however, that this covenant shall
run with the land, shall be binding upon the grantee of the Demised Premises
from time to time, as the case may be, but that there shall be no personal
liability hereunder as against Landlord, or, if Landlord is a corporation,
against its stockholders, or if it is a partnership, against any of its
constituent partners, or any successor corporation or partnership or firm or
joint tenancy, and Tenant will look solely to the Demised Premises for its
protection.

32. Surrender at End of Term

A. At the expiration of the term of this Lease as set forth in Article 2
hereof, or upon the sooner termination of the term pursuant to Article 23 or any
other provision of this Lease, Tenant shall surrender and deliver up to Landlord
the Demised Premises, buildings and improvements and the sidewalk, vaults and
streets and appurtenances in front of or appurtenant to the Demised Premises,
and also all elevators, pipes, plumbing, electric wires, boilers and steam
heating plant, and all machinery, in the same condition existing on the date
hereof, ordinary-y wear and tear excepted, to which end Tenant herein
specifically contracts, under penalty of forfeiture and damages, that, except to
the extent that such items are the responsibility of Landlord, as described in
Article 8 hereof, Tenant shall at all times not only keep all building on the
said premises, adjacent sidewalk and vaults, if any, in the same condition
existing on the date hereof, ordinary wear and tear excepted, whether inside and
outside, and whether structural or otherwise, extraordinary or unforeseen, and
will from time to time, if necessary, renew the same to the end that deliver-y
of the aforesaid Demised Premises and sidewalks, vaults and streets and all
pipes, plumbing, electric wires, boilers and steam heating plant, elevators and
machinery, within, in front of, or appurtenant to the Demised Premises, may be
at the expiration of this Lease in the same condition existing on the date
hereof, ordinary wear and tear excepted.

B. Tenant hereby covenants and agrees that at the expiration of the term of
this Lease as set forth in Article 2 hereof, or upon the sooner termination of
the term pursuant to Article 23 or any other provision of this Lease, it will
restore the Demised Premises to the condition that they were in on the day
before the Commencement Date of this Lease (normal wear and tear excepted), or,
at Tenant's option, rent to the Landlord the reasonable cost of such
restoration, as more fully described in Article 8B hereof In the event that
Tenant causes the Certificate of Occupancy set forth in Article 13 to be
amended, Tenant agrees, at its sole cost, to cause such Certificate of Occupancy
to be restored to its former provision at the expiration of any renewal of this
Lease, or the termination of this Lease pursuant to Article 23 or any other
provision of this Lease.

33. No Waiver

It is understood and agreed that neither delay on the par-t of Landlord or
Tenant in invoking any remedy to which such party may be entitled because of any
breach on the part of the other party hereto of any covenant or condition herein
nor the acceptance of rent herein by

Landlord, either from Tenant or any subtenant, whether or not such delay or
acceptance is with or without knowledge on the part of Landlord of such breach,
shall prejudice Landlord's or Tenant's (as the case may be) privilege to invoke
such remedy, which remedy shall continue until such breach is cured.

<PAGE>

Landlord or Tenant may, as often as it elects, waive any one or more
violations or defaults in any of the terms, covenants, conditions and provisions
set forth in this Lease, in case any such violations or defaults occur, without
thereby losing or impairing the right subsequently to enforce fully each and all
of such terms, covenants, conditions and provisions in the manner herein
provided in case of new or continued violation or default in any of such terms,
covenants, conditions and provisions.

34. Arbitration

If a matter is to be determined by arbitration pursuant to the specific
provisions of this Lease,then such matter shall be settled by arbitration in New
York City before the American Arbitration Association and in accordance with its
procedural rules then obtaining (or if the American Arbitration Association is
not then in existence, such matter shall be settled by arbitration in accordance
with the laws of the State of New York), and the award rendered shall be final,
conclusive and binding upon the parties and judgment thereon may be entered in
any court having jurisdiction thereof. Each party to the arbitration shall pay
half the cost thereof and its own counsel fees and expenses. It is further
expressly understood and agreed that arbitration shall not be available to any
party to this Lease except in the cases in which it is expressly provided for in
this Lease.

35. Excavation

If any excavation shall be made or contemplated to be made for building or
other purposes upon property adjacent to the Demised Premises, Tenant shall,
subject to Landlord's approval, and if applicable, Landlord's payment (as set
forth in Article 8) either:

(i) afford to the person or persons causing or authorized to cause such
excavation the right to reasonably enter upon the Demised Premises and any
building and improvements now or hereafter erected thereon for the purpose of
doing such work as such person or persons shall consider to be necessary to
preserve any of the walls or structures thereof from injury or damage and to
support the same by proper foundations, or

(ii) do or cause to be done all such work as may be necessary to preserve
any of the walls or structures of any building and improvements now or hereafter
erected upon the Demised Premises from injury or damage and to support the same
by proper foundations. Tenant shall not, by reason of any such excavation or
work, have any claim against Landlord for damages, or indemnity or for
suspension, diminution, abatement or reduction of rent under this Lease or any
renewal thereof This Article is intended to benefit only the Landlord and
permitted mortgagees and is not intended to create any rights not conferred by
law on any adjoining owner or lessee.

36. No Service or Repairs

Except as set forth in Article 8, Landlord shall not be required to furnish
any service to the Demised Premises, including, without limitation, heat, water,
electricity and power, and shall in all events not be liable for any failure of
water supply or electric current or of any service by any utility, nor for
injury or damage to person (including death) or property caused by or resulting
from falling plaster, steam, gas, electricity, water, rain or snow which may
flow or leak from any part of the Demised Premises, or from any pipes,
appliances or plumbing works of the same, or from the street or subsurface or
from any other place, nor from interference with light or other incorporeal
hereditament or easements, however caused, except if due to negligence on the
part of Landlord. Tenant agrees to pay all charges for gas, electricity, water,
light, heat, power and/or other services used or charges imposed in or about or
supplied to said

<PAGE>

building. If there is no meter to measure the consumption of water, the
Tenant, at its own cost, will install same. Landlord shall not be required to
furnish any services or facilities or to make any repairs or alterations in or
to the Demised Premises. Tenant hereby assumes the full and sole responsibility
for the condition, operation, repair, replacement, maintenance and management of
the Demised Premises from and after the date hereof, except as otherwise
provided herein.

37. Party Wall Agreements, If Any

Tenant covenants, in connection with the making of repairs or
alterations, to observe and perform the covenants and conditions contained in
any party wall agreement affecting the Demised Premises, if any

38. Definition of Landlord

The term "Landlord" as used in this Lease means only the owner of the land
and buildings which constitute the Demised Premises, so that in the event of any
transfer of said land and buildings by Landlord, the said Landlord shall be and
hereby is entirely freed and relieved of all covenants and conditions of
Landlord hereunder, and it shall be deemed and construed without further
agreement between the par-ties or their successors in interest, or between the
parties and the transferee at any such transfer, that the transferee has assumed
and agreed to carry out any and all covenants and obligations of Landlord
hereunder. This provision shall apply to each and every sale and transfer.

39. Notice

Notice wherever provided for herein shall be in writing and be given by
certified mail, return receipt requested at the address herein specified by the
party to whom such notice is to be given, unless a different address has been
published by such a party to the party giving such notice, in which case the
latter address shall be used. Every notice shall be deemed to have been given
the earlier of (i) three (3) business days after the time of deposit thereof in
any branch of the United States Post Office or (ii) upon receipt thereof by the
addressee.

Any and all notices required to be given to Landlord under the terms of
this Lease shall be given only to one such individual, firm or corporation who
shall have been duly designated by an instrument or

instruments executed and acknowledged by Landlord and until such further
designation, all notices to be given to the Landlord shall be given to Landlord
at the address set forth above, with a copy to Landlord's attorney, Avrohom P.
Dubin, Esq., 1140 East 19th Street, Brooklyn, New York 11230.

Any and all notices required to be given to Tenant under the terms of this
Lease shall be given only to one such individual, firm or corporation, who shall
have been duly designated by an instrument or instruments executed and
acknowledged by Tenant, and until such further designation, all notices to be
given to Tenant shall be sent to the address set forth above, with a copy to
Tenant's attorney, Raymond W. Goldfaden, Esq., Epstein, Becker & Green, P.C.,
250 Park Avenue, New York, N.Y. 10177.

40. Sprinkler System

A. If there now is or shall be installed in the building a "sprinkler
system" and such systems or any of its appliances shall be damaged or injured or
not in reasonable working order, Tenant shall forthwith restore the same to
reasonable working condition.

<PAGE>

B. If the New York Board of Fire Underwriters or the Fire Insurance
Exchange or any bureau, department or official of the federal, state or city
government or any fire insurance carrier insuring the Demised Premises requires
changes, modifications or alterations to the sprinkler system, Tenant shall be
responsible for same. Tenant shall in all events be required to maintain the
sprinkler system and replace sprinkler heads as necessary.

C. Tenant shall pay all costs for the contract price for superior
supervisory service during the term of this Lease, if required.

41. Estoppel Certificate - Tenant

Tenant agrees at any time and from time to time upon not less than ten (10)
days' prior notice by Landlord to execute, acknowledge and deliver to Landlord
or fee mortgagee a statement in writing certifying that this Lease is unmodified
and in full force and effect (or if there have been modifications, that the
Lease is in full force and effect as modified and stating the modification), and
the dates to which the Base Rent and Additional Rent have been paid, and stating
whether or not Landlord is in default in keeping, observing or performing any
term, covenant, agreement, provision, condition, or limitation contained in the
Lease and, if in default, specifying each such default, it being intended that
any such certificate delivered pursuant to this Article may be relied upon by
Landlord or any prospective purchaser of the fee or any mortgagee thereof.

42. Estoppel Certificate - Landlord

Within ten (10) days after receipt of written request therefor, Landlord
will certify in writing to Tenant or any assignee or proposed assignee or
mortgagee of this Lease, or proposed permitted sublessee, that as of the date of
such certification, Tenant has or has not, as the case may be, faithfully and
fully made all payments then and theretofore due to Landlord and that Landlord
knows or does not know, as the case may be, of any default by Tenant in the full
and faithful performance by

Tenant of all covenants, conditions and agreements on Tenant's part to be
performed. Upon the failure of Landlord to execute and deliver such certificate
within the time above specified, such failure shall be deemed tantamount to the
delivery of the certificate by Landlord, to the effect that Tenant has
faithfully and fully met all payments thereunder and theretofore due to
Landlord, and that Tenant is not in default under the terms of this Lease.

43. Severability Provision

If any term or provision of this Lease or the application thereof to any
person or circumstances shall, to any extent, be invalid or unenforceable, the
remainder of this Lease, or the application of such term or provision to persons
or circumstances other than those as to which it is held invalid or
unenforceable, shah not be affected thereby, and each term and provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.

44. Landlord's right to Mortgage Fee

Subject to the provisions of Article 22 hereof, Landlord may, from time to
time, mortgage its fee and estate in the Demised Premises and its reversionary
interest in and to the furniture, chattels, furnishings, fixtures and equipment,
or renew, modify, consolidate, replace or extend any such mortgage and this
Lease and all rights of Tenant shall be subject and subordinate to any such
mortgage, and any renewal, modification, consolidation, replacement or extension
agreement thereof Landlord agrees that promptly upon receipt by Landlord of any
written notice of default from any fee mortgagee, Landlord shall send a true
copy of such notice of default to Tenant.

<PAGE>

45. Covenants

Whenever in this Lease any words of obligation or duty are used, such words
or expressions shall have the same force and effect as though in the form of
covenants.

46. Waiver of jury Trial

It is mutually agreed by and between Landlord and Tenant that the
respective parties hereto shall and do hereby waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other on any matters whatsoever arising out of or in any way connected with this
Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the
Demised Premises and/or any claim or injury or damage. It is further mutually
agreed that in the event Landlord commences any summary proceeding for
possession of the premises by reason of nonpayment of the Base Rent, Additional
Rent or other sums and charges, Tenant will not interpose any counterclaim of
whatever nature or description in any such proceeding.

47. Adjustments upon Expiration of Lease Term

Upon expiration or termination of this Lease, whether by lapse of time or
otherwise (except if Tenant is dispossessed by Landlord or abandons the Demised
Premises) appropriate adjustments shall be made between Landlord and Tenant of
taxes, water and sewer charges, fuel and

any other items customarily adjusted between parties to similar
transactions and in accordance with the customs in respect to hotel title
closings usual in New York, New York. Further, upon the expiration of the term
of this Lease, whether by lapse of time or otherwise, and upon the payment of
the net adjustment due to Tenant, if any, Tenant shall turn over to Landlord, at
Landlord's written request therefor, the originals of all subleases, all other
applicable agreements, service contracts, union agreements, maintenance
agreements, insurance policies, licenses and permits (to the extend
transferable) in Tenant's possession and shall make available to Landlord
payroll schedules and such other operating data as Landlord may reasonably
request and shall transfer to Landlord all lease security deposits.

48. Governing Law

The parties hereby covenant and agree that this Lease shall be governed by,
and construed in accordance with the Internal laws of the State of New York,
without giving effect to principles of conflicts of law.

49. Article Headings

The Article headings are inserted only as a matter of convenience and for
reference, and in no way define, limit or describe the scope or intent of this
Lease, nor in any way affect this Lease.

50. Successors and Assigns, Survival

The covenants and agreements herein contained shall, subject to the
provisions of this Lease, bind and inure to the benefit of Landlord and Tenant
and their respective heirs, executors, administrators, personal representatives
and assigns and Tenant and its respective successors and assigns.
Notwithstanding anything to the contrary contained herein, the terms and
provisions of this Lease shall survive the assignment or transfer at any time of

<PAGE>

Landlord's rights under this Lease, or the sale or transfer at anytime of
the fee estate in the Demised Premises or of any interest therein.

51. No Employees

The Landlord agrees to deliver the premises to the Tenant that no employees
and the Landlord will turn the building over to the Tenant with the
understanding that the Tenant will hire its own employees. Landlord agrees to
indemnify Tenant from and against any claims by employees that relate to periods
prior to the Lease Commencement Date.

52. Net Rental

It is the intention of the parties that except as herein specifically set
forth, the rent payable hereunder shall be net to the Landlord and that all
costs, expenses and obligations, except as herein specifically set forth, of
every kind and nature, relating to the Demised Premises, shall be payable by
Tenant.

53. Current Occupants

Tenant takes the Lease with the understanding that certain, or all of the,
units of the Demised Premises may be occupied by tenants on the

Commencement Date of this Lease. A listing of such occupied units and the
terms of such tenancies is attached hereto as Exhibit "C." Tenant expressly
takes subject thereto.

54. Landlord's Renovation Obligations

Landlord shall be under no obligation to renovate, repair or restore any
part of the Demised Premises.

55. Opportunity to Consult with Counsel

Tenant acknowledges that it has been afforded a full and fair opportunity
to review this Lease with its legal counsel prior to its execution of this
Lease.

IN WITNESS WHEREOF, the parties have set their hands and seals the year and
date first above written.

----------------------------
Date:

CRESTON REALTY ASSOCIATES, L.P.

By_____________________________

CORRECTIONAL SERVICES CORPORATION

By______________________________

<PAGE>

Exhibit A

<PAGE>

Exhibit B

No Service Contracts.

<PAGE>

Exhibit C
Existing Tenancies

1. Deseus, Apt. 2N, Rent $293.50 per month, no security, no arrearages,
Landlord provides heat and hot water.

2. Altman, Apt. 4N, Rent $253.00 per month, no security, no arrearages,
Landlord provides heat and hot water.

3. Torres, Basement Apt., Rent $143.00 every two weeks, no security, one
rental payment in arrears ($143.00) plus $255.00 back arrears, Landlord provides
heat, hot water, gas and electricity.

BY FEDERAL EXPRESS

Mr. James Slattery
Correctional Services Corporation
1819 Main Street, Suite 1000
Sarasota, Florida 34236

Dear Jim:

Re: Lease between Creston Realty Associates, L.P., Landlord and
Correctional Services Corporation, Tenant
Premises: 2532 Creston Avenue, Bronx, New York

I am enclosing a fully executed copy of the Lease for the above Premises.
We are preparing corporation resolutions with respect to the authorization for
your Company to enter into this Lease. These resolutions will be sent to you
shortly.

<PAGE>

Sincerely yours,

Raymond W. Goldfaden

Exhibit 10.45.1

ASSIGNMENT OF LEASE
AND OWNER'S CONSENT

Agreement made this 13th day of June 1996 between ESMOR, INC., a
corporation of the State of Delaware located at 1819 Main Street, Suite 1000,
Sarasota, Florida 34236 (hereinafter "Esmor"), and CORRECTIONS CORPORATION OF
AMERICA, a corporation of the State of Delaware located at 102 Woodmont
Boulevard, Nashville, Tennessee 37205 (hereinafter "CCA").

RECITALS

Esmor entered into a lease (hereinafter the "Lease") as Tenant, on December
15, 1993, effective December 15, 1993, with Elberon Development Co. of 235
Birchwood Avenue, Cranford, New Jersey 07016 (hereinafter "Elberon") with
respect to premises 625 Evans Street, Elizabeth, New Jersey (a portion of Block
8, Lot 428-Y-11 on the Tax Map of the City of Elizabeth), a true copy of the
Lease being attached hereto and incorporated herein as Exhibit A. Esmor desires
to assign and CCA desires to assume, the rights, duties and liabilities of Esmor
as Tenant under the Lease. Elberon, as Owner under the Lease, is willing to
consent to the assignment by Esmor to CCA of all of Esmor's rights, title and
interest as Tenant under the Lease and to the assumption by CCA of all
obligations under the Lease, except as to the deposit security as provided in
paragraph 24 of the Lease which matter is otherwise herein provided for.

NOW, THEREFORE, for valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:

(1) Esmor does hereby assign, transfer and set over to CCA all of its
rights, title and interest as Tenant under the Lease except as to the deposit
security provided in paragraph 24 of the Lease, the subject of a separate
Agreement between Elberon and Esmor.

(2) CCA herewith deposits with Elberon security in the amount of Fifty One
Thousand Four Hundred Nine and 04/100 Dollars ($51,409.04) to be held and
applied by Elberon as provided in paragraph 24 of the Lease and hereby assumes
each and every other Lease obligation and agrees to perform and discharge these
obligations in full and timely accordance with all of their terms. -CCA
performance of the Lease obligations

ATTEST: ESMOR, INC.

Aaron Speisman James F. Slattery
Secretary President

ATTEST:

Secretary CORRECTIONS CORP OF AMERICA.

By: Chairman & CEO

CONSENT OF OWNER

<PAGE>

Elberon, as Owner under the Lease, effective upon receipt of the sum of
Fifty One Thousand Four Hundred Nine and 04/100 Dollars ($51,409.04) security
from CCA as above provided, consents to the assignment by Esmor of Esmor's
rights, title and interest as Tenant under the Lease to CCA and to the
assumption by CCA of all obligations under the Lease.

This consent to the assignment and assumption shall not be deemed a release
of Esmor from any liability or responsibility under the Lease incurred or
existing either prior to, as of the date of this consent or subsequent thereto,
any such release to be the subject of a separate independent agreement with
Esmor.

Excepting only as above provided with respect to deposit security
(paragraph 24 of the Lease), no provision of this consent alters or modifies any
of the terms and conditions of the Lease, including the requirement that the
written consent of Owner be obtained with respect to any future assignment of
the Lease.

WITNESS: ELBERON DEVELOPMENT CO.

By: Anne E. Estabrook
Dated: June 12 1996

<PAGE>

AGREEMENT

Agreement made this 12th day of June 1996, between Elberon Development Co.
of 235 Birchwood Avenue, Cranford, New Jersey 0701 6 (hereinafter "Owner") and
Esmor, Inc., a Delaware Corporation of 1819 Main Street, Suite 1000, Sarasota,
Florida 34236 (hereinafter "Tenant").

RECITALS

Owner and Tenant entered into a lease covering premises 625 Evans Street,
Elizabeth, New Jersey, dated December 13, 1993, effective December 15, 1993
(hereinafter the "Lease"), which Lease Tenant desires to assign to Corrections
Corporation of America (hereinafter "CCA"), CCA to deposit with Owner new
security to be held and applied as provided in paragraph 24 of the Lease. All
other obligations of Tenant under the Lease also to be assumed by CCA.

Owner is willing to release Tenant from future performances of Lease
obligations and to refund the security heretofore deposited by Tenant in
accordance with paragraph 24 of the Lease but only upon the terms and conditions
herein set forth.

For valuable consideration, Owner will release Tenant from future
performances of Lease obligations and return the $47,454.50 security within
thirty (30) days after:

1. the receipt by Owner of replacement security from CCA;

2. the payment in full to Owner by Tenant of all outstanding invoices;

3. the receipt by Owner from Tenant of a true copy of its application for a
Letter of Non-Applicability (LNA) from the New Jersey Department of
Environmental Protection (DEP) evidencing that the assignment from tenant to CCA
is not a covered transaction under the New Jersey Industrial Site Recovery Act;

4. the receipt by Owner of the required consent of Phoenix Mutual Insurance
Co., mortgagee of the premises, to the assignment of the Lease by Tenant to CCA
and to this Agreement;

5. the receipt by Owner from Tenant of its agreement to indemnify and hold
Owner harmless of any and all claims, actions, proceedings, judgments, awards,
charges and all costs and expenses, including, but not limited to, attorneys'
fees and costs arising out of or in any way related to the tenancy of Tenant
under the Lease, and evidence in form satisfactory to Owner of the Lease general
liability insurance coverage continuing in effect for any claims made within two
(2) years from the effective date of the assignment of the Lease by Tenant to
CCA; and

6. the receipt of payment by Owner from Tenant in reimbursement of Owner's
attorneys Owner's attorneys' invoice for services rendered in connection with
the Lease assignment and assumption agreement between Tenant and CCA, Owner's
consent thereto and this conditional release agreement.

Tenant hereby agrees to promptly perform items 2, 3, 5 and 6 above.

WITNESS: ELBERON DEVELOPMENT CO.

By: Anne E. Estabrook

ATTEST: ESMOR, INC.

Aaron Speisman By: James F. Slattery-President
Secretary

<PAGE>

INDEMNITY AND HOLD HARMLESS

Esmor, Inc. agrees, for good and valuable consideration including but not
limited to Anne E. Estabrook, T/A Elberon Development Co.'s ("Owner") consent of
the assignment of Esmor's lease of 625 Evans Street, Elizabeth, New Jersey to
Corrections Corporation of America ("CCA"), that Esmor will indemnify and hold
Owner harmless from any and all claims, actions, or proceedings, judgments,
awards, charges, costs and expenses, including but not limited to, reasonable
attorney fees, (1) arising out of Esmor's occupation and use of the premises,
(2) any work or thing done in or about the premises by or on behalf of Esmor,
(3) any breach or default by Esmor in performing any obligation under the lease,
or (4) any act or negligence of Esmor or its agents, contractors, servants,
employees, and licensees, through the effective date of the lease assignment.
CAA will assume all rights and responsibilities under the lease after that date.

Esmor, Inc.:

By: James F. Slattery, President

Date: 5/6/96

Accepted
Anne E. Estabrook,
T/A Elberon Development Co.:
Date: June 12, 1996

Exhibit 10.46

MANAGEMENT AGREEMENT FOR OPERATION OF THE
BELL COUNTY JUVENILE RESIDENTIAL FACILITY

This Management Agreement (as amended or supplemented as herein provided,
the "Agreement") is made and entered into by and between Correctional Services
Corporation, a duly organized corporation of the State of Delaware ("CSC"), Bell
County, Texas, a political subdivision of the State of Texas (the "County"), and
with the advise and consent of the Bell County Juvenile Board.

WITNESSETH:

WHEREAS, the County has acquired approximately 43 acres of land and all
buildings presently located upon said land, as may be more particularly
described in a Deed filed of record in Volume 3497, Page 10 of the Deed Records
of Bell County, Texas, to which reference is made, said land being generally
located at 4800 East Rancier Road, Killeen, Bell County, Texas. The County
desires to utilize the property as a juvenile detention facility initially
containing a total of sixty-four (64) juvenile detention beds and ultimately
containing a total of ninety-six (96) juvenile detention beds. This operation,
henceforth known as the "Facility", which term shall include all existing and
future improvements made to such property, shall be operated in conformity with
all applicable state, federal and local law, rules, regulations and ordinances;
and

WHEREAS, the Juvenile Board and County desire to engage CSC to manage and
operate the Facility and to provide the program services described herein (the
"Programs") under the terms and conditions contained herein, and

WHEREAS, Texas law allocates various duties and responsibilities pertaining
to juvenile justice and detention to various respective governmental entities
and officers, including Bell County, acting by and through it's Commissioners
Court, and where indicated and as required by applicable law, the Juvenile Board
of Bell County, acting by and through it's chief administrative officer, and
where indicated and as required by applicable law to the Bell County Juvenile
Court-t, acting by and through the presiding judge of said Court in both his
judicial and administrative capacities. This Agreement in no means, manner or
form shall be construed to interfere with, alter or otherwise affect the
independent exercise of discretion vested upon each statutory authority given
duties and responsibilities under Texas law, whether for fiscal, administrative
or judicial functions. Likewise, nothing in this agreement shall be construed to
enlarge, diminish, adversely affect, impair, or limit any applicable rights,
powers, duties, authority, immunities or privileges previously held, possessed
or exercised

<PAGE>

by the various governmental entities or officers implicated in statutory
provisions which pertain to juvenile justice and/or detention.

NOW, THEREFORE, for an in consideration of the promises and the mutual
covenants hereinafter contained, and subject to the conditions herein set forth,
the parties hereto covenant, agree, and bind themselves as follows:

ARTICLE ONE
DEFINITIONS

1.1 Interpretation. For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:

1.1.2 The words "herein", "hereof', and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section, Exhibit, or other subdivision.

1.1.3 This Agreement contains references to documents and other instruments
that are not in existence on the date of execution hereof. When and as such
instruments are prepared and are approved by CSC and the County (or where
applicable such other statutorily empowered entities, including the Bell County
Juvenile Board and/or the Bell County Juvenile Court as may be required by
applicable law) the references herein to such instruments and to any capitalized
terms used therein shall have the same effect as though such instruments existed
on the date of execution hereof.

1.1.4 CSC is an independent contractor, and is not delegated any duty,
responsibility or authority of a governmental entity by way of this Agreement.
Likewise, the services provided under this Agreement are professional services,
and are not subject to the provisions of Article 262.023, Texas Local Government
Code.

1.2 Service Commencement Date. Shall mean the date upon which CSC commences
the provision of operational and management services of the Facility.

ARTICLE TWO
Representations and Warranties

2.1 Representation of CSC. CSC represents and warrants to and for the
benefit of the Juvenile Board and the

<PAGE>

County, with the intent that the Juvenile Board and County will rely
thereon for purposes of entering into this Agreement, as follows:

2.1.1 Organization and Qualification. CSC has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the State
of Delaware with power and authority to own or lease its properties and conduct
its business as presently conducted. CSC shall attach to this Agreement a
current certificate of good standing, issued by the State of Delaware, and shall
annually supplement said certificate during the term of this Agreement.
Additionally, CSC shall attach to this Agreement a current certificate of
authority to engage in business in the State of Texas, and shall annually
supplement said certificate during the term of this Agreement.

2.1.2 Authorization. This Agreement has been duly authorized and executed
by CSC and delivered to the County for execution. Upon approval of the agreement
by the Bell County Juvenile Board and the execution thereof by the County Judge
on behalf of the County, and delivery of the executed agreement to CSC
constitutes a legal, valid, and binding agreement enforceable against CSC in
accordance with its terms.

2.1.3 No Violation of Agreements, Articles of Incorporation, or Bylaws. The
consummation of the transactions contemplated by this Agreement and the
fulfillment of the terms hereof will not conflict with, or result in a breach of
any of the terms and provisions of, or constitute a default under any indenture,
mortgage, deed of trust, lease, loan agreement, license, security agreement,
agreement, governmental license or permit, or other agreement or instrument to
which CSC is a party or by which its proper-ties are bound, or any order, rule,
or regulation of any court or any regulatory body, administrative agency, or
properties, except any such conflict, breach, or default which would not
materially and adversely affect CSC's ability to perform its obligations under
this Agreement, and will not conflict with, or result in a breach of any of the
terms and provisions of, or constitute a default under, the Articles of
Incorporation (or other corresponding charter document) or Bylaws of CSC.

2.1.4 No Defaults Under Agreements. CSC is not in default, nor is there any
event in existence which, with notice or the passage of time or both, would
constitute a default by CSC, under any indenture, mortgage, deed of trust,
lease, loan agreement, license, security agreement, agreement, governmental
license or pen-nit, or other agreement or instrument to which it is a party or
by which any of its properties are bound and which default would materially and
adversely affect CSC's ability to perform its obligations under this Agreement.

2.1.5 Compliance with Laws. Neither CSC nor its officers and directors
purporting to act on behalf of CSC have been advised, and have no reason to
believe, that CSC or such officers and directors have not been conducting
business in compliance with all applicable laws, rules, and regulations of the
jurisdictions in which CSC is conducting business including all safety laws and
laws with respect to discrimination in hiring, promotion or pay of employees or
other laws affecting employees generally, except where

<PAGE>

failure to be so in compliance would not materially and adversely affect
CSC's ability to perform its obligations under this Agreement.

2.1.6 No Litigation. There is not now pending or, to the knowledge of CSC,
threatened, any action, suit, or proceeding to which CSC is a party, before or
by any court or governmental agency or body, which might result in any material
adverse change in CSC's ability to perform its obligations under this Agreement,
or any such action, suit, or proceeding related to environmental or civil rights
matters; and no labor disturbance by the employees of civil rights matters; and
no labor disturbance by the employees of CSC exists or is imminent which might
be expected to materially and adversely affect CSC's ability to perform its
obligations under this Agreement.

2.1.7 Taxes. CSC has filed all necessary federal, state, and foreign income
and franchise tax returns and has paid all taxes as shown to be due thereon; and
CSC has no knowledge of any tax deficiency which has been or might be asserted
against CSC which would materially and adversely affect CSC's ability to perform
its obligations under this Agreement.

2.1.8 Disclosure. There is no material fact which materially and adversely
affects or in the future will (so far as CSC can now reasonably foresee)
materially and adversely affect CSC's ability to perform its obligations under
this Agreement.

There is presently no known fact which materially and adversely affects, or
which in the future will (so far as CSC can now reasonably foresee) materially
and adversely affect CSC's ability to perform its obligations under this
Agreement. During the term of this Agreement or any extension hereof, CSC agrees
to disclose in writing to the County in a timely manner any material fact,
including insolvency or bankruptcy, which might reasonably prevent CSC from
performing its obligations under this agreement.

2.2 Representations of the County. The County represents and warrants to
and for the benefit of CSC with the intent that CSC will rely thereon for
purposes of entering into this Agreement as follows:

2.2.1 Authorization. The Juvenile Board and County have the requisite power
to enter in to this Agreement and perform all obligations hereunder and by
proper action have duly authorized the execution, delivery, and performance
hereof.

2.2.2 No Violation of Agreements. The consummation of the transaction
contemplated by this Agreement and the fulfillment of the terms hereof will not
conflict with, or result in a breach of any of the terms and provision of, or
constitute a default under any other agreement or instrument to which the County
is party or by which its proper-ties, except any such conflict, breach or
default which would not materially and adversely affect the ability of either
the Juvenile Board or the County to perform its obligations under this
Agreement.

2.2.3 Disclosure. There is no material fact which materially and adversely
affects or in the future will (so far as

<PAGE>

either the County or Juvenile Board can now reasonably foresee) materially
and adversely affect the County's ability to perform its obligations under this
Agreement, which has not been accurately set forth in this Agreement or
otherwise accurately disclosed in writing to CSC by the Juvenile Board and/or
County prior to the date hereof.

ARTICLE THREE
EFFECTIVE DATE, INITIAL TERM, EXTENSIONS

3.2 Renewal. The Juvenile Board and County and CSC shall have the option to
renew the term of this Agreement for three (3) successive option terms of five
(5) years each by agreeing to each renewal in writing on or before ninety (90)
days prior to the expiration of the preceding option period.

ARTICLE FOUR
THE FACILITY

4.1 Construction. The County, with the advise and consent of the Juvenile
Board, will make certain improvements to the Facility (including without
limitation, fencing and security upgrades) to initially cause the Facility to be
capable of containing sixty-four (64) juvenile detention beds, and subsequently
to cause the Facility to be capable of containing ninety-six (96) juvenile
detention beds, all in compliance with Texas Juvenile Probation Commission
("TJPC") physical plant/construction standards. The County shall use its
reasonable best efforts to cause the Facility to be capable of containing
sixty-four (64) juvenile detention beds in compliance with TJPC standards on or
before October 1, 1996 and shall use its reasonable best efforts to expand the
number of juvenile detention beds in the Facility (in compliance with TJPC
standards) to ninety-six (96) on or before May 1, 1997. However, the County
shall not be otherwise obligated under this Agreement for any failure of the
Facility to meet these arbitrary completion dates.

4.2 Compliance with Codes, Standards and Guidelines. The County will
remodel the Facility in compliance with all state, local and generally
recognized building and construction codes, including, without limitation, all
applicable standards and guidelines promulgated by the Texas Juvenile Probation
Commission Standards for Pre and Post Adjudication Facilities. In addition, the
County shall make available for use by CSC all personal property, fixtures,
furniture and equipment contained in the list attached as Exhibit "A" hereto.
The County shall obtain all

<PAGE>

permits and licenses required by any governmental entity having power to
control or regulate the operation of the Facility. Upon the completion of the
stated remodeling, the County shall notify the Bell County Juvenile Board and
the Bell County Juvenile Court, that the Facility is ready for inspection as
required by Article 51.12(c) of the Texas Family Code. The County shall, if
necessary, make every reasonable effort to remedy any condition of the Facility
which prevents certification by the County Juvenile Board and the County
Juvenile Court that the Facility is suitable for the detention of children in
accordance with:

(1) the requirements of Subsections Article 51.12(a), (f), and (g); and

(2) minimum professional standards for the detention of children in
pre-adjudication or post-adjudication secure confinement promulgated by the
Texas Juvenile Probation Commission (TJPC) or, at the election of the juvenile
board, the current standards promulgated by the American Correctional
Association.

4.3 Repairs and Maintenance. The County shall, at its own expense, maintain
the physical structure of the Facility, and make all necessary structural
repairs and improvements to the Facility including, but not limited to, repairs
and improvements to the foundation, walls, roof, underground and concealed
plumbing, heating, ventilating and air conditioning system, drives, parking
areas, fixed furniture fixtures and equipment, fire protection systems, wiring
and electrical systems, to keep the Facility in good repair working order and
condition, subject to normal wear and tear. CSC will, at its sole cost and
expense, replace all light bulbs and ballasts as necessary, be responsible for
janitorial and cleaning services at the Facility and perform routine maintenance
and repairs at the Facility resulting from normal wear and tear. In addition,
CSC agrees to repair any and all damage to the Facility caused by the use of the
Facility by CSC, its employees, detainees or visitors, except to the extent such
damage is covered by insurance maintained by the County, in which event CSC will
repair such damage and the County shall pay CSC insurance proceeds received by
the County in connection with such damages, not to exceed CSC's actual cost of
repair.

Within thirty (30) days after the date hereof, the County and CSC shall
make a list of the personal property, fixtures, furniture and equipment
presently located at the Facility and divide such property into two separate
categories: (1) "non-accountable property", which may be used by CSC without
need to replace or repair same, and (2) "accountable property", which may be
used by CSC but shall be repaired or replaced by CSC and maintained in good
working order and condition by CSC. Upon the termination or expiration of this
Agreement, the "accountable property" shall be delivered by CSC to the County in
good working condition, reasonable wear and tear excepted.

<PAGE>

4.4 Utilities. CSC shall pay for the use of all utilities necessary and/or
required for the operation of the entire Facility such as electricity, gas,
water and sewer. The County agrees to pay for waste and trash removal and pest
control services to the Facility. It is understood that the County may use a
portion of the Facility as set forth in Section 4.6 below. CSC and the County
will each maintain separate telephone systems and each will be responsible for
the cost of their own telephone service.

4.5 Taxes and Charges. CSC shall pay or discharge, or cause to be paid or
discharged, before the same become delinquent, all income, payroll and worker's
compensation taxes assessed against CSC in connection with its operation of the
Facility.

4.6 Administrative Offices. CSC shall make the buildings at the Facility
which are currently designated for use as administrative offices and classrooms
available for use by the Juvenile Board as the Juvenile Board may from time to
time deem appropriate and necessary, including but not limited to use by the
Juvenile Probation Department, Juvenile Court and JJAEP. Within reasonable
limitations based upon security of the Facility and its residents, and with the
exception of the secure residential areas of the Facility, the Juvenile Board
shall be permitted to use the Facility for appropriate juvenile activities and
programs, subject to advance scheduling with CSC in a manner which will cause
minimal disruption to CSC operations. In the event any additional construction
or improvements are made on the surrounding County owned land, the County shall
have the right to use such additional space in its entirety without limitation
by CSC.

ARTICLE FIVE
OPERATION AND MANAGEMENT OF THE FACILITY

5.1 General Duties and Obligations; Standards. CSC shall provide the
operations and management services described herein and operate, maintain and
manage the Facility in compliance with all applicable federal and state
constitutional requirements and laws, with all applicable provisions and
standards (and/or any variances originally granted by the County), with all
applicable standards of the Texas Juvenile Probation Commission, subject to
approval by the Juvenile Board.

5.2 Policies. CSC shall establish written policies, procedures and
operation manuals in regard to the Facility operation and juvenile supervision
for which it is responsible pursuant to the terms of this Agreement. Said
written policies, procedures and operation manuals shall comply with all
applicable federal and state constitutional requirements and laws, all

<PAGE>

applicable standards of the Texas Juvenile Probation Commission. Said
written policies, procedures and operations manuals shall be the property of
CSC, and shall continue to be the property of CSC. CSC shall furnish the
Juvenile Board and the County a copy of its policies, procedures and operations
manuals for its review and comment upon execution of this Agreement and shall
furnish the Juvenile Board and County a copy of any subsequent changes to such
manual.

5.3 Specified Duties and Obligations. CSC's duties and obligations shall
include, but not be limited to, each of the activities specified below. CSC's
written system of policies, procedures and operation manuals described in
Article V, Section 5.2 shall address these specified duties and obligations.

5.3.1 Administration of the Facility. CSC shall appoint a Facility
Administrator to manage on-site CSC's day-to-day operation of the Facility. The
position of Facility Administrator shall be staffed by a professional
experienced in the administration of a like correctional facility.

5.3.2 Staffing. CSC shall at all times provide adequate staffing of the
Facility in compliance with applicable standards and TJPC policies. CSC shall be
responsible for employee benefits, including medical insurance, worker's
compensation insurance, and other benefits. The County shall have no obligation
to provide any staffing under this Agreement.

5.3.3 Personnel Recruitment and Selection. CSC's recruitment, selection and
employment of all personnel shall conform to the rules and regulation of the
Equal Employment Opportunity Commission. CSC shall adopt and implement a
non-discriminatory policy with respect to handicap, race, color, religion, sex,
age and national origin. CSC shall provide access to records required by law to
be maintained of such non-discriminatory action upon request by the County. A
notice evidencing CSC's adoption and commitment to this policy shall be posted
in a conspicuous location at the Facility.

5.3.4 Employee Training. CSC shall provide, at its own expense, adequate
training, which shall meet all applicable TJPC standards, for each of its
employees. To the extent necessary, CSC shall train employees to assure their
ability to comply with applicable policies, procedures and operation manuals as
specified by CSC.

<PAGE>

BELL COUNTY, TEXAS

BY: Judge John Garth
On Behalf of the Commissioners Court
Of Bell County, Texas

EXHIBIT "A"

List of all personal property, fixtures, furniture and equipment to be
available for CSC's use at the Facility.

Exhibit 10.41

AG. Contract D.C. Contract
No: KR 96-2426 No: DC-PO-PRIV-96/97-6790

STATE OF ARIZONA
DEPARTMENT OF CORRECTIONS
1601 West Jefferson
Phoenix, Arizona 85007

AGREEMENT
PROVISION, OPERATION AND MANAGEMENT OF A
PRIVATE SECURE PRISON

This Agreement is entered into between Correctional Services
Corporation, hereinafter referred to as CSC and the Director of the Arizona
Department of Corrections, hereinafter known as the Department.

This document, including the General Provisions, Scope of Services, Special
Provisions, attachments, including any amendments or modifications, shall
constitute the entire Agreement between the parties and supersedes all other
understandings, oral or written.

IN WITNESS WHEREOF, the parties hereto agree to carry out the terms of this
Agreement.

CORRECTIONAL SERVICES CORPORATION ARIZONA DEPT. OF
CORRECTIONS

Signature of Authorize Individual Date
James F. Slattery
Typed Name
President, Chief Executive Officer
Typed Title
1819 Main, Suite 1000
Sarasota, Florida 34236
Address

Signature

<PAGE>

Typed Name

Typed Title

Additional Signatures as Applicable

Date

Charles L. Ryan
Typed Name

Charles L. Ryan
Typed Name
Deputy Director, Prison Operations
Typed Title

Approved as to form this 7th day of November, 1996.

GRANT WOODS
The Attorney General

By:
Assistant Attorney General

<PAGE>

FIFE SYMINGTON
GOVERNOR

Arizona Department of Corrections

1601 WEST JEFFERSON
PHOENIX, ARIZONA 85007
(602) 542-5536

December 18, 1996

James F. Slattery, President
Correctional Services Corporation
1819 Main Street, Suite 1000
Sarasota, Florida 34236

RE: Contract Document DC-PO-PRIV-96/97-6790

Dear Mr. Slattery:

Enclosed for your signature are two copies of the referenced contract between
the Department of Corrections and Correctional Services Corporation.

In the interest of avoiding any delay in processing this contract, you are
requested to make no changes in the enclosed documents. Any unauthorized
alterations to the enclosed will necessitate reprocessing through the Attorney
General's office for a second review and approval. The attendant delay can be
avoided by discussing any concerns or questions with me at 542-3245.

Contract award is made at the time the contract is fully executed and, as such,
the Department shall not be liable for any expense incurred in conjunction with
this contract prior to your notification by a representative of the Department
that services have been authorized.

Once the signed document has been returned and the Hollenbach sealed survey with
the table of equivalent bearing is received, per attached letter to Russell Rau,
the contract shall be forwarded internally for final Department signatures.

<PAGE>

For your information, the required insurance documentation received from CSC has
been approved per the attached letter from the Department of Administration's
Risk Management office.

A Notice to Proceed shall be issued once the Department has received and
reviewed the construction documents identified in Article III and V of the
Agreement.

Please sign both copies of the transmitted documents and return them to this
office at the following address:

Department of Corrections
Contracts Administration, M/C 802
1645 West Jefferson, 4th Floor
Phoenix, Arizona 85007

<PAGE>

Page 2
Mr. Slattery
December 18, 1996

When the contract has been fully executed, a copy will be forwarded for your
files.

If you should have questions or concerns please direct communications to me or
Steve Spangler at (602) 542-3245.

Sincerely,

Maureen Rogers, Assistant Contract Administrator

cc: Carl Nink, Assistant Director, Prison Operations, Support
Services Division John Kohl, Manager, Privatization
Contracts, Support Services Division Russell Rau, Senior
Vice President, Correctional Services Corporation
Contract File
Chrono File

<PAGE>

FIFE SYMINGTON
GOVERNOR

Arizona Department of Corrections
1601 WEST JEFFERSON
PHOENIX, ARIZONA 85007
(602) 542-5536

December 18, 1996

Russell S. Rau, Senior Vice President
Correctional Services Corporation
6601 Sands Point, Suite 54
Houston, Texas 77074

Re: Request for Sealed Proposals (RFP) No. 6702
Agreement #DC-PO-PRIV-96/97-6790

Dear Mr. Rau:

Anthony Zelenak, Lead Project Director in the Departments Facility Activation
Bureau, has examined the two surveys of the 18 acre land parcel and has advised
that the following information needs to be provided.

The Hollenbach Survey Company, Inc., sealed survey #96-03649 (A) dated December
1996, and the accompanying legal description also sealed, have been reviewed
against the unsealed Arrinaton Watkins Architects (AWA) survey. The area and
location described by both are identical. The major difference is that the
Hollenbach survey is based on the G7SRM and was not adjusted or rotated to match
the Pinal County Coordinate System (north side of property to match the north
line of the southeast quarter of section 36). CSC needs to direct the Hollenbach
Survey Company to add a table of equivalent bearings to the survey for each side
of the property comparing the bearings shown on the survey with the equivalent
rotated bearing to match the Pinal County Coordinate System. This survey must be
sealed and an explanation describing the need for the table of equivalent
bearing needs to be evident on the survey.

This will provide clarity with the deed when it is compared to the AWA DNA
Survey which will become part of the "Contract Documents" for the project as
such documents are defined in the

<PAGE>

Fourteenth Edition of the AIA Document A201 - General Conditions for contracts
for construction.

Please ensure the Hollenbach sealed survey to include the table of equivalent
bearings is forwarded to my attention by no later than Tuesday, December 24,
1996.

In addition, please note that in accordance with terms of the referenced
contract, CSC must provide the Department with the following documentation
before the Department will issue the Notice to Proceed once the contract is
executed:

<PAGE>

Page 2
Letter - Russell S. Rau
December 18,-1996

Contract documents for the construction project between Arrington Watkins
Architects, Dominion Leasing, Inc., and CSC. . Such contract documents are
defined in the Fourteenth Edition of the AIA Document A201 - General Conditions
for contracts for
construction.

Should you have any questions or concerns, please direct communications to Steve
Spangler or me at (602) 542-3245.

Sincerely,

Maureen J. Rogers
Assistant Contracts Administrator

cc: Mike Smarik, Assistant -Director, Administrative
Services VIA Judith Kilgus, Administrator, Bureau of
Business & Finance
Mary Laverdure, Contracts Administrator -
Carl Nink, Assistant Director, Support Services, Prison
Operations
John Kohl, Manager, Privatization Contracts, Support
Services
Contract File
Chrono File

James Slattery, President, Chief Executive Officer
Correctional Services Corporation
1819 Main, Suite 1000
Sarasota, Florida 34236

ARIZONA DEPARTMENT OF ADMINISTRATION
RISK MANAGEMENT SECTION

<PAGE>

MEMORANDUM

DATE: November 1, 1996

TO: Mary Laverdure, Contracts Administrator Department
of Corrections

FROM: Kurt Wilian, Insurance Analyst

SUBJECT: RFP 6702 Correctional Services Corp.

Mary, this is to confirm our conversation today. We have received acceptable
documentation and evidence of insurance coverage from the above contractor and
can confirm they comply with the RFP Attachment #7 at this time.

As we proceed we will want to monitor two areas:

1) They must provide Risk Management with acceptable certificates of insurance
for Professional Liability coverage for those positions which they intend to
out- source, and are excluded from the CSC program, specifically, surgeons and
lawyers;

2) They must comply with your guidelines to submit public financial information
on an interim basis, with compliance of the contract subject to an ongoing
approval of their financial condition.

Mary, I appreciate your patience and support of Risk
Management through this process

<PAGE>

TABLE OF CONTENTS

ARTICLE 1. Definitions ................................................ l-5

ARTICLE II. Term of the Agreement

A. Requirements for the Agreement to be Effective........... 5
B. Term .....................................................5
C. Renewal Term Option...................................... 6

ARTICLE III. Governing Law/Policies and Procedures

A. Compliance with Law, Department Policies/Procedures,
RFP 6702, etc. ........................................ 6
B. Department's Option to Purchase........................ 7
C. Construction Parameters................................ 7
D. Submittal and Approval of CSC's Procedures............. 10
E. Responsibilities of Department Staff................... 11

F. Classification/Disciplinary Actions
Guidelines for CSC's Staff............................. 11

ARTICLE IV. Recruitment/Hiring/Staff Training

A. Recruitment/Hiring ...................................... 11
B. Staff Training........................................... 19

ARTICLE V. Provision, Operation & Management of the Secure Facility

A. Construction/Renovation and Operation ................... 24
B. Inmate Management Services............................... 28

ARTICLE VI. Payment Obligations & Procedures/Financial Reports

A. Requirements Governing All Cost Increases................ 39
B. Per Diem................................................. 39
C. Invoices and Records..................................... 39
D. Inmate Wages/Disbursements/A.R.S. 31-255................. 40
E. Requirements of A.R.S. 31-201.01......................... 42
F. Costs To Be Paid by CSC.................................. 43
G. Costs To Be Paid by the Department....................... 45
H. A.R.S. 41-1609.01 D...................................... 46
I. A.R.S. 41-1609.01 E...................................... 46
J. Financial Reports........................................ 46

ARTICLE VII. Department Monitoring/Performance Evaluation

A. Monitoring............................................... 46
B. Performance Evaluation................................... 48

ARTICLE VIII. Performance Bond/Insurance/Indemnification

A. Performance Bond......................................... 48
B. Plan of Insurance........................................ 49

<PAGE>

C. Indemnification.......................................... 51

<PAGE>

Table of Contents Continued ...

ARTICLE IX. Notices & Amendments

A. Notices............................................. 53
B. Amendments..........................................

1. Process.......................................... 54
2. Annual Cost Adjustments......................... 55
3. Other Cost Adjustments/Modifications............. 56

ARTICLE X. Default

A. Default of CSC............................................ 56
B. Remedies of the Department................................ 58
C. Default of the Department................................. 60
D. Remedies of CSC........................................... 60

ARTICLE XI. Force Majeure

A. Explanation............................................... 60
B. Remedies.................................................. 60
C. Exceptions................................................ 61

ARTICLE XII. Termination

A. Department Funding........................................ 61
B. Annual Performance Bond-CSC............................... 62

GENERAL PROVISIONS

ATTACHMENTS:

1 CSC Staffing, Pattern

2 Position Description Form

3 Subcontractors

4 Pre-Service Security Training

5 Pre-Service Non-Security Training, - Required and
Optional Courses

6 Inmate Time Sheet - Payment detail that accompanies
the CSC deposit to the Alcohol Abuse Treatment Fund

7 Monthly Per Diem Invoice Forms Monthly Report for
Inmate Health Care Services

8 Insurance Requirements

<PAGE>

9 Definitions - Types of written instructions required
by the Department, i.e. Department Orders, Technical
Manuals, Institutional Orders and Post Orders. Cross
Reference Index

10 Per Diem and Sliding Scale

11 Suspension or Debarment Status or Certification

12 Fee Schedule and Budget Narrative Forms

13 Legal Description for Secure Prison Site

14 Negotiation Parameters for Purchase of Secure Prison

<PAGE>

D.C. Contract SCOPE OF SERVICES
No: 6790 Page 1

Procurement Authority: Authority to Contract Authority to Contract
A.R.S. 41-2534 D. C: A. R. S. Contractor: Expiration Date: Three
41-1604 et. seq. years from date of
receipt of first inmate.

WITINESSETH

WHEREAS, Arizona Remised Statutes 41-1609 and 41-1609.01, as amended by the
forty-first Legislature of the State of Arizona, First Regular Session, 1993,
authorized the Department to enter into contracts with private enterprise for
the operation and management of secure prison beds, and

WHEREAS, the Department issued Request for Sealed Proposal (RFP) Number
6702 for the construction, operation, management and maintenance of a secure 600
bed prison for the housing and treatment of 200 adult male releases who are
awaiting due process hearings for allegedly violating conditions of release and
400 adult male inmates committed to the Department under A.R.S. 28- 692.01 or
28-697 who have demonstrated a need for substance or alcohol abuse intervention,
and

WHEREAS, CSC (formerly known as Esmor Correctional Services, Inc.) did
respond to the solicitation and was subsequently determined to have the
expertise, experience and resources to provide such services, and

WHEREAS, public hearings were conducted in accordance with A.R.S.
41-1609.02 C. and the Town of Florence did subsequently authorize the selected
site to be used as a Level II, secure prison,

NOW, THEREFORE, the Department and CSC do hereby agree as set forth herein.

ARTICLE I

<PAGE>

DEFINITIONS

For the purposes of this Agreement, the following definitions as well as those
definitions provided in the General Provisions which do not conflict shall
apply:

ACA - The American Correctional Association

ACA STANDARDS - The standards for Adult Correctional Institutions as published
by ACA (third edition, Part Two, Physical Plant, January 1990) as may be
subsequently supplemented.

ADAAG - Americans with Disabilities Act Accessibility Guidelines provided by the
Americans with Disabilities Act and the Arizona's with Disabilities Act. The
guidelines are applicable to the
construction of the secure prison and any subsequent renovation, modifications
or additions made to the secure prison during the term of the Agreement.

Contract No: 6790
Continuation Sheet

ADDITIONAL SERVICES - Those operation or management services that may be
required to be furnished by CSC pursuant to Court Orders/Decrees or Department
written instructions that are in addition to those in effect as of the date of
execution of this Agreement and cause an increase in the cost of operating and
managing, the secure prison.

ALCOHOL ABUSE TREATMENT FUND (AATF) - A fund authorized by A.R.S. 31-255, as
amended, into which the Department deposits 67 % of wages received by DUI
inmates for work performed under inmate public work contracts. The remaining 33%
of wages earned is deposited in the inmate's individual trust account.

ARIZONA POST - Arizona Peace Officers Standards and Training. The council that
approves the correctional officer training curriculum, establishes minimum
standards for correctional officers and issues certificates of completion to
persons successfully complying with established standards and training.

A.R.S. - Arizona Revised Statutes.

ARIZONA STATE PRISON-FLORENCE WEST (ASP-FW) - The official name of the
privatized prison to be constructed, owned, operated, maintained and managed by
CSC for the Department under the

<PAGE>

authority of this Agreement and referred to herein as the Secure
Prison.

CAPITAL EQUIPMENT - Item(s) acquired by CSC with monies from the Welfare and
Benefits Fund with a unit cost of $5,000 or more and a useful life of at least
one year. Unit cost includes applicable sales tax, freight and other ancillary
costs to place the asset in its intended location.

CONTRACTS ADMINISTRATION OFFICE - Office within the Department of Corrections
charged with the responsibility of managing and maintaining professional
services contracts and, as such, serves as the official repository for all
professional service contracts entered into between the Department and private
entities.

COTA - Correctional Officer Training(y Academy of the Department.

COURT ORDERS - Any orders or judgments issued by a court of competent
jurisdiction and any stipulations, agreements or plans entered into in
connection with litigation that are applicable to the operation, management or
maintenance of Department or privatized prisons and to the treatment or
custodial care of inmates.

CSC POST ORDERS - Orders related to CSC's procedures that have been prepared by
CSC and approved by the Department. Post Orders provide direction to CSC's staff
regarding responsibilities assigned to specific posts in the secure prison.

CSC PRISON WARDEN - Title of CSC employee charged with managing the daily
operations of the secure prison.

CSC INSTITUTIONAL ORDERS - Those procedures prepared by CSC and approved by the
Department that are based on Department Written Instructions. The procedures
provide broad direction to CSC's staff in the operation, management and
maintenance of the secure prison.

CSC PROPOSAL - Proposal dated November 15, 1995, submitted by CSC in response-to
the Department's Request for Sealed Proposals (RFP) Number 6702. The proposal is
inclusive of updated proposal information, to include additional information
dated February 15, 1995 and April 1, 1996, CSC's best and final offer dated July
17, 1996, additional clarifying information and Staffing Patterns provided on
August 5, 1996, CSC's second best and final offer date stamped November 7, 1996,
and clarifying information dated November 22, 1996.

DEPARTMENT - Arizona Department of Corrections.

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DEPARTMENT MONITOR - Department employee who serves as the liaison between the
Department and CSC regarding matters that arise as a result of the daily
monitoring of the services authorized by this Agreement.

DEPARTMENT WRITTEN INSTRUCTIONS - Department regulations and management
directives issued by executive staff of the Department which govern the
administration and operation of the Department as a whole and the individual
institutions consistent with statutes, rules and sound correctional practices.
Unless otherwise specified, Department Orders or Manuals when used herein, shall
mean all forms of written instructions as identified in Attachment #9 and
applicable to the specific situation. Refer to Attachment #9 for definitions of
all types of written instructions used by the Department to include a table of
contents and cross reference index.

DEPUTY DIRECTOR. PRISON OPERATIONS (Deputy Director) Department employee charged
with managing this Agreement and providing direction to CSC relative to the
Agreement.

DIRECTOR - The Director of the Arizona Department of Corrections

DPS - Arizona Department of Public Safety. The State agency
responsible for licensing Security Agencies and Security Guards
(Officers).

DUI INMATE - An inmate committed to the Department under A.R.S.
28-692.01 or A.R.S. 28-697 for drivin- while under the influence
of intoxicating liquor or drugs.

EVENT OF DEFAULT - Events or circumstances relative to the failure of either
party hereto to perform a legal or contractual duty as set forth in this
Agreement.

GENERAL PROVISIONS - Those standard contract provisions required by the
Department and made a part of this Agreement.

INMATE - Any adult male committed to the Department who qualifies in accordance
with Department screening criteria for assignment to the privatized secure
prison operated under the authority of this Agreement.

INMATE DAY - Each calendar day, or part thereof, during which an inmate is
assigned to the secure prison. The Department shall pay for the day an inmate is
received at the secure prison, but not for the day an inmate is released from
the secure prison.

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INMATE SCREENING CRITERIA - Department requirements for the assignment of an
inmate to the secure prison.

INMATE WAGES - Compensation that can be earned by inmates in
accordance with A.R.S. 31-254 and the Department's Work Incentive
Pay Plan (WIPP).

INMATE WELFARE AND BENEFIT FUND - Fund established and managed by CSC which
shall be used to the benefit of assigned inmates to pay for equipment or
services in accordance with the Department's policy regarding the Inmate
Activities and Recreation Fund. Monies for the fund shall be generated from
profits resulting from the sale of commissary inventory items and the revenue
received by CSC from the Department vendor for the inmate telephone system.

INMATE WORK AGREEMENTS - Multi-party agreements entered into between the
Department, CSC and other parties for the provision of inmate labor for work
activities with public or private entities as authorized by the Department.

IN-SERVICE TRAINING - Training required by the Department to be provided by CSC
on an annual basis to meet the recurring training needs of staff.

INVENTORIAL EQUIPMENT - Any item acquired by CSC with monies from the Inmate
Welfare and Benefits fund with a unit cost of $1,000.00 and a useful life of at
least one year.

JLBC - Joint Legislative Budget Committee of the State of
Arizona.

NON-APPROPRIATION - The failure by the Arizona Legislature, as part of its
budgetary process, to appropriate money requested by the Department for payments
due under this Agreement.

OPERATION AND MANAGEMENT SERVICES - Consulting, operation, management and
maintenance services necessary to provide for the care, custody, control and
treatment of inmates in accordance with Department written instructions and the
terms and conditions of this Agreement.

PHYSICAL FORCE - That degree of force that is directed toward the body of
another person that is not likely to result in death.

PRE-SERVICE NON-SECURITY TRAINING - Orientation training to be provided to all
nonsecurity staff, including volunteers, subcontractors, independent
contractors, as well as the employees, agents or representatives of
subcontractors or

<PAGE>

independent contractors, who will work for or provide services to
CSC at the secure prison.

PRE-SERVICE SECURITY TRAINING - Training specified by the Department as
equivalent to that provided by the Department for security officers and required
to be provided by CSC to all staff designated by CSC as security officers. Such
training shall consist of 215 academy hours followed by at least 40 hours of
on-the-job (OJT) training under direct supervision of an experienced security
officer.

PROPERTY - All buildings, eighteen (18) acres of land, as described herein,
and all fixtures, fixtures, equipment and chattel located at the secure prison
90 days in advance of CSC's receipt of the Department's notice of its
intent to exercise its purchase option.

PUBLIC WORKS ACTIVITIES - Activities performed by inmates for other public
entities relevant to the maintenance, construction or adaptation of public land
or any building, structure, erection or improvement on public land including
roads, flood control projects and parks.

RETURN TO CUSTODY (RTC) INMATE - A convicted male felon committed to the
Department and awaiting due process hearing for allegedly violating conditions
of release.

RFP 6702 - Solicitation to include amendments and
modifications, issued by the Department of Corrections for the privatization of
200 Return to Custody and 400 DUI secure prison beds to be used for the housing
and treatment of inmates committed to the Department and assigned to the secure
prison.

SECURE PRISON - Level 2 privatized prison to be constructed, owned, operated,
maintained and managed by CSC for the Department under the authority of this
Agreement and officially named the Arizona State Prison-Florence West (ASP-FW).

SECURITY AGENCY - An agency to whom a license has been granted by the Arizona
Department of Public Safety in accordance with A.R.S.
Title 32, Chapter 26, Article 2.

SECURITY OFFICER - An employee of CSC to whom a "registration certificate" has
been issued by the Arizona Department of Public Safety in accordance with A.R.S.
Title 32, Chapter 26, Article 3.

<PAGE>

SERVICE SPECIFICATIONS - The Service Specifications entitled "Secure Return to
Custody Prison" and "Secure DUI Prison, " included with RFP 6702 which set forth
the minimum requirements of the Department for delivery of services relative to
RTC and DUI inmates.

SPECIAL PURPOSE RECORDS - Department records that are transferred through the
correctional system with the inmate and provided to CSC for those inmates
assigned to the secure prison. Special Purpose Records include, at least, the
field file as well as medical and visitation records.

SPECIAL SERVICES FUND (Activities and Recreation Fund [A & R Fund]) -
Nonappropriated funds generated from such sources as sales from inmate stores
(canteen/commissary), contraband funds, vending machines sales and commissions,
donations, etc., that are to be used for the benefit of the inmates.

ARTICLE II
TERM OF THE AGREEMENT

2.1 This Agreement shall be fully executed when all signatures
are affixed.

2.2 The Agreement shall terminate three (3) years from the date CSC
receives the first Department inmate, unless terminated earlier as
permitted by the General Provisions or the terms set forth herein or
renewed, as indicated below.

2.3 At the Department's option, this -Agreement may be renewed
in accordance with A.R.S. 41-1609.01 J.,, K. and L.

2.3.1 Twelve (12) months after receipt of the first inmate, the Department
shall initiate a comparative analysis of the secure prison to Level
II units within the Department.

2.3.2 At least an analysis of those analytical factors listed in Article
VII of this Agreement shall be presented to -the Director and JLBC
relative to the performance of CSC during the previous period.

2.3.3 If it is determined by the Director that the option to renew the
Agreement shall be exercised, negotiations for cost or price
adjustments may be conducted by the Department with CSC relative to
the provision of contracted services superior in quality to service
provided by the State at essentially the same cost as the State.

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2.3.3.1 If cost or price adjustments are recommended as a result
of negotiations, such recommendations shall be made in
accordance with A.R.S. 41-1609.01.

2.3.4 If the Agreement is to be renewed, a formal Amendment shall be
prepared and executed in accordance with Article IX prior to the
expiration date of the Agreement. The amendment shall reflect any
negotiated change in services and the amended expiration date as well
as authorized price or cost adjustments, if any.

2.3.4.1 If the Agreement is not renewed, the Department shall remove all
inmates from secure prison no later than the date of termination.

ARTICLE III
GOVERNING LAW/POLICIES AND PROCEDURES

3.1 This Agreement shall be construed in accordance with Arizona law,
including the Arizona Procurement Code along with its implementing
rules and the Arizona Administrative Code (A.A.C.) Title 2, Chapter 7.
Each provision of law and any terms required by law to be in this
Agreement are a part of this Agreement as if fully stated herein.

3.2 CSC, a licensed security agency in accordance with A.R.S.
Title 32, Chapter 26, Article 2, Sections 32-2611 through
32-2615 shall remain licensed for the term of this
Agreement, including the ten-n of renewal, if exercised.
The requirements of A.R.S. Title 32, Chapter 26, Article 2,
Section 32-2613 C.2. shall not limit in any way the
requirements of this Agreement.

3.3 CSC shall construct the secure prison on 18 acres of land
within a 39.73 acre parcel of land owned by CSC and located
in Pinal County, within the city limits of Florence,
Arizona. The 18 acre secure prison site shall be located on
the 18 most westerly acres within the 39.73 acre parcel as
described in the legal description provided as Attachment
#13 of this Agreement. The legal boundaries of the entire
39.73 acres are described in the certified ALTA survey
completed preliminary to the CSC purchase of the land
parcel. The survey is on file with the Department and is
hereby made a part of this Agreement by reference.

3.4 The Department shall have the option, during the term of this
Agreement, to purchase the secure prison, the 18 acre site on which the
secure prison is located and all capital

<PAGE>

equipment utilized in the daily operation of said prison. If the option
is exercised, the Purchase Agreement provided as Attachment #14 shall
be executed and shall occur within a time frame to ensure the
transaction is complete prior to the expiration of this Agreement. The
purchase price shall be negotiated in accordance with the formulas set
forth in Attachment #14.

3.4.1 The Purchase Agreement may be altered and amended prior to its
execution with the mutual agreement of the parties (CSC, DOA and the
Department), provided that any such alteration or amendment shall not
materially adversely affect the rights of the parties to this
Agreement.

3.4.2 CSC shall ensure that Property located at and used to operate the
secure prison at the time the first inmate is assigned to the secure
prison, shall remain available to the Department at the time of
purchase. The equipment shall be maintained in good working order,
outside of normal wear and tear, and shall be replaced as necessary
in accordance with CSC's replacement schedule.

3.4.3 The secure prison shall be constructed within the cost lines of the
per them as shown on the Fee Schedule submitted by CSC with
correspondence dated October 25, 1996.

3.4.4 CSC shall, during the construction phase of this Agreement,
provide to the Deputy Director, or designee copies of complete
construction documentation to include at least the below listed
items. As-built drawings and warranties applicable to the secure
prison shall be delivered to the Deputy Director within thirty (30)
days after CSC receives the Department's notice of intent to
purchase.

Architectural Drawings Structural Drawings and Calculations Electrical
Drawings Plumbing Drawings HVAC Drawings Mechanical Calculations
Domestic Water System Documentation Security Systems Drawings Fire
Protection System Drawings On-site Utilities Civil Plans Complete
Specifications All Addenda

<PAGE>

All Architect's Supplemental Instructions
All Change Orders
All Requests for Information
A Complete Copy of all Operation and Maintenance Manuals

3.5 The secure prison to include any subsequent modifications or
additions to the secure prison, shall accommodate at least those
functional areas listed in Objective II of the Service Specifications,
provided as Attachment #1 of RFP 6702. The secure prison and associated
support systems shall be constructed in accordance with Department
requirements, applicable laws, rules, standards, codes, etc., to include
at least the following:

3.5.1 Department requirements:

3.5.1.1 Air Conditioning- (other than evaporative cooling) and carpeting
shall not be used for inmate living space.

3.5.1.2 Those items listed in Article V, Paragraph 5. 1.

3.5.2 Applicable laws, rules, standards, codes, etc.:

3.5.2.1 ACA Standards as defined herein.

3.5.2.2 Contract documents as defined in Paragraph 5.1.1 sealed
by a licensed registrant.

The site plan and construction design shall be as discussed on
November 5, 1996. Contract Documents, inclusive of the items listed in Paragraph
3.4.4 and an updated Table of Construction Costs - 600 Bed/Private Prison, shall
be reviewed by the Department prior to issuance of the Notice
to Proceed.

3.5.2.3 Applicable Federal, State and local building, health,
safety and fire codes.

3.5.2.4 All requirements and guidelines as provided by the Americans
with Disabilities Act and the Arizona's with Disabilities Act
as prescribed by the current version of Americans with
Disabilities Act Accessibility Guidelines (ADAAG) and any
subsequent versions issued before construction of the facility
is completed or, subsequent to completion, at the time
renovations, modifications or additions are made to the secure
prison. Initially, no inmates will be assigned to the secure
prison until the prison is determined to be in compliance with
all ADAAG relating to inmate accessibility to programs and
services or to public accessibility. This determination will
be made by independent inspection of the completed facility,-
as arranged by the Department.

<PAGE>

3.5.2.5 Requirements of Federal and State regulatory agencies.

3.5.3 Failure to corn . ply with any of the above
requirements shall require remediation. and/or correction by
CSC at no cost to the State or the Department.

3.6 If, during the term of this Agreement (to include term of renewal), the
secure prison is sold by CSC, it shall be understood that the new
owner(s) shall be obligated by the terms and conditions of this
Agreement to include current schedules, i.e., Fee Schedule,
amortization schedule and depreciation schedule.

3.7 CSC shall operate the secure prison in compliance with all Federal,
State and local laws, rules, regulations and codes relative to fire,
health and safety issues and shall be responsible for all taxes
applicable to their use of the said facility.

3.7.1 CSC shall, during the term of this Agreement, ensure that the secure
prison provides full accessibility to all programs and services by
inmates as well as full public accessibility as specified by ADAAG.

3.7.2 CSC shall timely pay and discharge, without offset, deduction or
abatement for any cause, all duties, taxes, charges,
assessments, impositions and payments, extraordinary as well as
ordinary, unforeseen as well as foreseen, of every kind and
nature (under or by virtue of any current or subsequently
enacted law, ordinance, regulation, action or order of any
public or governmental authority), which during the term of this
Agreement are due, imposed upon, charged against, measured by or
become a lien on the secure prison or any improvements or
personal property therein.

3.8 This Agreement, which incorporates by reference the requirements of
RFP 6702, applicable Department written instructions and CSC's proposal
as each is defined herein, shall govern CSC's performance relative to
the construction, operation, management and maintenance of the secure
prison as well as govern the care, custody, treatment and supervision of
inmates assigned to the secure prison. The Department's written
instructions shall prevail over the Scope of Services unless
specifically addressed within the Scope of Services in which case the
Scope of Services shall prevail. The Agreement's Scope of Services shall
prevail over the Special Provisions, General Provisions or any
attachments hereto and the requirements of the RFP. The requirements of
R-FP 6702 shall prevail over CSC's proposal.

<PAGE>

3.8.1 It shall be understood that throughout this Agreement, as
reference is made to numbers of specific Department written
instructions, e.g., Director's Instructions, Department Orders, or
Technical Manuals, CSC shall comply with the Department's
requirements relative to the subject matter, notwithstanding the
reference to a specific type of written instruction or document
number.

3.8.2 Unless otherwise specified herein, at least sixty
(60) days prior to receipt of the first Department inmates

3.8.2.1 CSC shall submit for Department approval written
institutional orders, post orders and manuals as specified in
RFP applicable Department written instructions and the
Service, Specification.

3.8.2.2 Commissioning, procedures for prison
activation

3.8.2.3 Preventative maintenance schedules to be used
for all capital equipment.

3.8.2.4 Capitalization policy.

3.9 During- the term of this Agreement, when changes occur to existing
Department written instructions, Administrative Rules, courses or
curriculum that are determined to be relevant to the operation of the
secure prison, the Department shall, via the Department Monitor, notify
CSC in writing.

3.9.1 After the Department's initial approval of CSC required institutional
orders and post orders, subsequent Department requested changes to CSC
documents shall be made within the time frames stipulated in the
Department issued document.

3.9.2 Requests initiated by CSC to change institutional orders or post
orders previously approved by the Department shall be directed to the
Department Monitor by CSC for approval or disapproval action by the
Deputy Director, or designee. Each request shall be accompanied by
written information that details the reason for the desired change(s)
and a description of the impact on the current operation if the
change(s) is or is not authorized.

3.10 When NEW Department written instructions or Administrative Rules
are issued, or if NEW Court Orders/Decrees are issued by a Court of
jurisdiction that have a bearing on this Agreement, the Department
shall provide CSC with a copy of the executed document.

<PAGE>

3.10.1 CSC shall prepare new institution orders or post orders
for approval by the Department's Deputy Director, or designee, in
order to ensure implementation within the time frames stipulated in
the Department issued document.

3.10.2 Payment for costs relative to additional
services required of CSC as a result of Department written
instructions, Court Orders/Decrees or Administrative rules
implemented after execution of this Agreement shall only be
authorized if approved in accordance with the requirements
of A.R. S. 41-1609.01 and Article IX of this Agreement.

3.11 The following responsibilities shall be administered by
Department staff only:

3.11.1 Calculating inmate release and parole eligibility
dates.

3.11.2 Calculating and awarding sentence credits.

3.11.3 Approving inmate furloughs and work releases.

3.11.4 Granting, denying or revoking inmate sentence
credits.

3.11.5 Invoking. any disciplinary action.

3.11.6 Placing, an inmate under less restrictive custody
or more restrictive custody.

3.11.7 Accessing criminal background information
developed from the Arizona Criminal Justice Information
System (ACJIS).

3.11.8 Processing, Inmate grievances

3.12 Actions and activities provided by CSC staff in accordance with
Department written instructions regarding Inmate Classification, shall
require final signatory authorization from appropriate Department staff
prior to implementation. CSC shall submit recommendations for
classification actions to the Department Monitor for acquisition of
approval.

3.13 Actions and activities provided by CSC staff in accordance with
inmate disciplinary rules for the Department shall be submitted to the
Department's Discipline Coordinator. The Department shall conduct
disciplinary hearings and impose sanctions in accordance with the
Inmate
Rules of Discipline.

<PAGE>

ARTICLE IV
RECRUITMENT/HIRING/STAFF TRAINING

Recruitment/Hiring

4.1 CSC shall comply and shall ensure that authorized subcontractors
comply, during the term of this Agreement, with all federal and state
laws, regulations, rules, executive orders, etc. relative to
recruitment and hiring practices.

4.1.1 All advertisements for employment issued by CSC and its authorized
subcontractors shall state that unless there is a bona fide
occupational qualification, all qualified applicants will receive
consideration for employment without regard to race, color, religion,
sex, national origin, age (except as provided by law), marital
status, political affiliation or disability status.

4.1.2 CSC shall conduct employee recruitment and hiring activities for all
positions, inclusive of security staff, in accordance with
information provided in Section 8 of CSC's Proposal.

4.1.2.1 Prior to CSC's selection of the final candidate for the position
of Warden, CSC shall permit the Deputy Director, or designee, to
review and provide comment regarding information pertinent to the
qualifications of the individual recommended by, CSC for the
position.

4.1.3 The Position Descriptions contained in Exhibit 8 C of
CSC's proposal provide descriptions of essential work'
tasks, responsibilities, skills, knowledge -and
abilities as well as minimum qualifications for each
type of position indicated on Attachment #1, Staffing
Pattern. Only those applicants who possess the required
minimum qualifications, licenses, certifications,
diplomas or degrees specified on the Position
Descriptions and who also pass the required background
investigation shall be hired by CSC or authorized
subcontractors.

4.1.3.1 Security officers hired by CSC shall be at
least 21 years of age and shall not have a
record of any felony convictions.

4.1.3.2 Personnel hired by CSC for the positions
listed below shall be registered by DPS as a
security guard (officer) in accordance with

<PAGE>

the requirements of A.R.S. Title 32, Chapter
26, Article 3 prior to initiation of
service. Additionally, prior to assuming job
responsibilities, CSC shall ensure that each
security officer has received a passing,
score on all required physical and
psychological examinations as well as
attended and successfully completed required
pre-service security officer training, to
include non-lethal weapons training,
physical fitness training and 40 hours of
OJT.

CSC's designated security officer positions:

Chief of Security
Shift Supervisor
Housing Unit Officer
Intake/Release Officer
Recreation Officer
Central Control Center Officer
Public Works Supervision Officer
Visitation Officer
Transportation Officer

4.1.3.3 If applicable, CSC staff employed at other
secure facilities operated by CSC may submit
applications to be transfer-red to the secure
prison authorized herein provided that such
staff are qualified as indicated in this
Article. An applicant for transfer to a
security position must have at least one year
current experience equal to a Correctional
Officer, or experience that includes
custodial responsibilities for incarcerated
inmates and pass all requirements listed
below to be considered for employment as a
security officer authorized by this
Agreement.

A medical examination at the twenty-five
percent (25 %) level. (Employee must achieve
the fifty percent (50%) level at the
completion of training

A psychological examination.

Demonstrated proficiency in self-defense as
well as physical fitness at the fifty percent
(50%) level.

<PAGE>

A competency exam based on the COTA curriculum.

A background investigation.

4.1.3.4 All I health care professionals, to include
technicians, clinical I psychologists as well as
other mental health professionals, must be
licensed or certified in accordance with Arizona
Revised Statutes. The Department Monitor shall
obtain written approval from the Department's
Deputy Director, Health Services, or designee,
regarding acceptable qualifications of each
provider before initiation of services under this
Agreement.

CSC shall submit through the Department
Monitor, a current curriculum vitae for each
proposed physician and a current resume for
all other proposed health care professionals
along with verification of Arizona license
or certification.

4.1.3.5 Instructors of adult inmate education
courses as defined by Department written
instructions shall be certified as
instructors by the Arizona Department of
Education (DOE) prior to initiation of
services.

4.1.3.6 Qualifications of CSC personnel who serve as
chaplains must be approved by the
Department's Administrator of Pastoral
Activities whether such personnel are
employees, volunteers, subcontractors or
independent contractors. Department approval
of qualifications must be obtained prior to
initiation of services.

CSC shall submit through the Department
Monitor, a current resume from the proposed
service provider. The resume shall at least
indicate that the provider is a
representative of the professed faith system
who is either ordained or a lay person who
meets the approval of leaders in that faith
system. The proposed provider must have
experience in leading worship services, as
well as experience in teaching ceremonial or
meditation services and counseling services
of a non-medical Inmate.

<PAGE>

4.1.4 If CSC or an authorized subcontractor desires to
establish a position(s) in addition to those identified on
Attachment #1, a Position Description form provided with this
Agreement as Attachment #2 shall be completed and submitted to
the Department Monitor along with a letter stating- the reason
for the proposed position(s). Completed Fee Schedule and
Budget Narrative forms (Attachment #12) must be included which
clearly identify: (i) expense categories impacted by adding
the position(s), and (ii) the proposed per them rates.

4.1.4.1 The Department Monitor shall forward requests
from CSC for additional position(s) to the
Deputy Director, or designee, for
approval/disapproval.

4.1.4.2 Approved changes shall not be implemented
unless authorized in accordance with Article IX
of this Agreement.

4.1.5 If CSC or an authorized subcontractor desires to reallocate
a position(s) identified on Attachment #1 and the proposed
reallocation shall result in a decrease in per them rates
shown on Attachment #10, CSC shall submit to the Department
Contract Monitor a description of the proposed action(s), a
revised Attachment #1 to reflect the reallocation,
completed Budget Narrative forms identifying expense
categories impacted by the reallocation of the position(s),
and a revised Fee Schedule reflecting the reduced per them
rates as a result of the proposed reallocation(s).

4.1.5.1 The Department Contract Monitor shall forward information
received from CSC to the Deputy Director, or designee, for
approval/disapproval.

4.1.5.2 If approved, the revised Attachment #1 Staffing Pattern and a
revised Attachment #10 reflecting- the reduced per them rates
will replace the existing Attachments #1 and #10. The former
Attachments shall be kept on file to indicate the previous
agreement. A formal written Amendment shall not be required.

4.1.6.If CSC or an authorized subcontractor desires to reallocate positions
identified on Attachment #1 which do not result in a decrease or
increase in the per them rates shown on Attachment #10, CSC shall
submit a request for such proposed reallocation to the Department
Monitor. Such requests shall be accompanied by information that: (i)
thoroughly describes the reason and purpose for such changes, and
(ii) that the proposed chances will not

<PAGE>

negatively impact the mission of the secure prison as set forth in
this Agreement, and (iii) that the changes shall permit all
Department requirements to be met. A revised Attachment #1 indicating
the reallocation of the position(s) shall be attached to the
information submitted by CSC.

4.1.6.1 The Department Monitor shall forward all such requests to the
Deputy Director, or designee for approval/ disapproval.

4.1.6.2 If requested changes are approved, the Department's
Contracts Administration Office shall incorporate the revised
Attachment #1 Staffing Pattern, into this Agreement by replacing
the existence, Attachment. The former Attachment #1 shall be
maintained on file to reflect the previous agreement. The revised
Attachment #1 shall be effective on the date of approval by the
Deputy Director. A formal written amendment shall not be
required.

4.1.7 CSC shall conduct recruitment and hiring activities to ensure, staff
vacancies, including subcontractor staff vacancies, are filled within
thirty (30) days after the date the vacancy occurs. CSC shall ensure
that authorized subcontractors have plans to actively recruit and
fill vacant positions within the specified time frame.

4.1.7.1 Positions required to be registered as security
officers as well as positions that provide food
services and health services are deemed critical
positions and shall be filled at all times. All posts
classified , as critical posts shall be staffed at all times
consistent with the Department approved schedule.

4.1.7.2 If unforeseen or unavoidable circumstances
prevent hiring of positions within thirty
(30) days after the vacancy occurs, CSC shall
provide documentation to the Contract Monitor
which reflect due diligence on the part of
CSC or the subcontractor to fill the vacant
position(s) from time of vacancy until the
position(s) is filled.

4.1.7.3 Failure by CSC to hire positions or fill
post vacancies as described above may result
in an Event(s) of Default being- declared in
accordance with Article X.

4.2 Those positions listed on Attachment #1 of this Agreement reflect the
staffing- pattern for all positions funded by per them to include
security, non-security, food service, substance abuse treatment
services, medical, dental, mental

<PAGE>

health services as well as positions to be provided by the
subcontractor(s) authorized by this Agreement. Prior to CSC's receipt
of the first Department inmate, staff hired for the listed positions
shall have attended and successfully completed pre-service training
required by this Agreement as applicable to each type of position,
e.g., security/non-security.

4.2.1 Staffing patterns for providers of medical (to include
optometric), dental and mental health services shall be
continent upon patient waiting times to be seen by the
respective health professional. Medical, to include
optometric, dental and mental health providers shall be
available for scheduled appointments a minimum of two days
per week and shall be on-call and available within 30
minutes of the secure prison, 24 hours per day, 7 days per
week for coverage in emergency situations. If waiting
times are determined by the Department to be excessive, CSC
shall increase the availability of the providers to ensure
that waiting times are at acceptable levels, as approved by
the Department's Deputy Director, Health Services, or
designee. Any costs associated with increased availability
of health providers shall be borne by CSC.

4.2.2 CSC shall ensure that mental health services/evaluations shall be
provided a minimum of two days per week by a licensed clinical
psychologist. A licensed psychiatrist shall be provided as needed or
required.

4.3 Services and benefits similar to those identified in CSC's proposal in
Section 8 under Personnel Policies and Procedures, shall be available
to CSC's employees during the term of this Agreement.

4.4 CSC shall ensure that ACIC/NCIC background investigations as well as ,
reference checks are conducted and completed prior to hiring any
employee, subcontractor, independent contractor or volunteer assigned
to the secure prison.

4.4.1 CSC shall be responsible for all costs related to licensure as a
security agency and registration of staff as security officers (see
paragraph 4.1.4.2) in in accordance with the requirements of A.R.S.,
Title 32, Chapter 26, Articles 2, 3 and 4, Sections 32-2611 through
32-2637.

4.4.2 The Department shall conduct ACIC/NCIC background investigations for
CSC's security and non-security positions at a cost to CSC of $4 per
investigation.

<PAGE>

4.4.3 The Department shall supply fingerprint cards for CSC non-
security positions at no cost to CSC.

4.4.4 CSC shall be responsible for the cost of fingerprinting non- security
staff, to include potential employees, volunteers, subcontractors,
independent contractors and the employees and agents of
subcontractors and independent contractors who will work at the
secure prison.

4.4.5 The Department shall process fingerprint cards for non- security
positions at a cost to CSC of $8 per card.

4.4.6 Total cost to CSC for the Department to conduct ACIC/NCIC background
investigations and process fingerprint cards for CSC's staff shall be
$12 per individual.

4.4.6.1 The Department shall send CSC an invoice documenting each
background investigation charge at the end of each month. CSC
shall render payment in accordance with Article VI.

4.4.7 The processing of information for non-security positions
shall be coordinated by the Department Monitor.

4.4.7.1 The Department Monitor shall provide CSC with approval or
disapproval for each name submitted, based on ACIC/NCIC results.
If subsequent criminal information is obtained as a result of
research relative to the fingerprint card, the Department Monitor
shall advise CSC that the individual is disqualified and cannot
be employed at the secure prison.

4.4.8 CSC shall ensure that security and non-security positions to include
subcontractor positions complete the forms listed below. CSC shall
provide the completed forms and information to the Department
Monitor. Originals of Form #30400005 and #70501097 shall be provided
to CSC by the Department. CSC shall be responsible for duplicating
the forms as necessary.

4.4.8.1 Completed fingerprint card, Form FD-258

4.4.8.2 Department Background Investigation Supplement 33, Form
#30400005

4.4.8.3 Consent to Search Form #70501097

4.5 CSC staff shall attend Periodic Department meetings
to include but not limited to the following:

Meeting Frequency Required Attendance

<PAGE>

Administrators Quarterly Warden
Corporate Prison Admin Monthly Warden
Business Managers Quarterly Business Manager
Security Managers Monthly Chief of Security
Records Managers Quarterly Records Supervisor
Food Service Managers Quarterly Food Service Manager

4.6 From time of execution of this Agreement until one year after
receipt of the first inmate, CSC shall not be permitted to
subcontract any service not authorized by Attachment #3.
Subsequent to the prescribed period, if CSC proposes to use a
subcontractor in addition to or other than the subcontractor
shown on Attachment #3, CSC shall follow the steps prescribed
below. The aforementioned time restriction does not preclude
CSC from taking necessary corrective action, to include
terminating the existing subcontract agreement, if the
subcontractor fails to perform adequately. CSC remains
responsible for the provision of all services required by
this Agreement.

4.6.1 Prior to submittal of information to the Deputy Director, or designee
CSC shall ensure that the proposed subcontractor has the staff and
resources within its own capabilities to provide the specified
services, further subcontracting shall not be permitted.

4.6.1.1 Each proposed subcontractor, must be able to provide, if
requested, appropriately executed documents to reflect the legal
formation of their business structure and must remain in good
standing with respective entities where business documents are
filed. If the subcontractor is incorporated, good standing with
the Arizona Corporation Commission must be maintained.
Out-of-state firms who are incorporated must file necessary
documents with the Arizona Corporation Commission to conduct
business in Arizona and ensure a statutory agent is identified in
said documents.

4.6.1.2 Each proposed subcontractor must be in good standing with
any state, federal or local agency that has a contracting
relationship with the subcontractor. If, during the previous 12
months, any contractor has terminated or otherwise ended the
contracting relationship in a manner other than expiration of the
contract, the subcontractor may not be approved by the
Department.

4.6.2 CSC shall submit all required documentation as indicated
below at least 90 calendar days prior to the projected

<PAGE>

initiation of services in order to acquire Department approval of the
proposed subcontracting entity as well as the proposed subcontract
agreement. Services shall not be initiated unless approved by the
Department. Each request to use a subcontractor shall be accompanied
by the following:

4.6.2.1 A statement signed by authorized signatories of CSC and
the 'proposed subcontractors reflecting that the
subcontractor(s) has read RFP 6702, as well as applicable
Department written instructions, the CSC proposal, as
defined herein and this Agreement, as each document
pertains to the service to be subcontracted. The
statement shall indicate that the subcontractor arrears
to comply with all requirements to include all security
requirements relative to access to the secure prison and
completion of employment and criminal history checks for
each employee, agent or representative of the
subcontractor who will require such access.

4.6.2.2 Documentation to reflect the qualifications of the
proposed subcontracting- entity to include the business name,
business address, telephone number, type of service to be
provided and the name of a contact person for the proposed
subcontractor. Additional information shall include i) written
personnel procedures addressing that personnel information listed
on page 37 of RFP 6702, ii) a signed statement acknowledging good
standing with any Federal, State or local agency as indicated in
Paragraph 4.6.1.2 above and, iii) the name of contracting
entities who have received services from subcontractor within the
last five years; types of services provided for each identified
contracting entity; number of clients served for each contracting
entity, name of contact person with each contractor who would
have first hand knowledge regarding the operation of the services
provided by the proposed subcontractor.

4.6.2.3 The proposed subcontractor must complete Attachment #1 1
Suspension or Debarment Status Certification provided with this
Agreement. If the proposed subcontractor has been debarred,
suspended or otherwise lawfully precluded from participating in
any public procurement activity, the subcontractor shall disclose
that information. Failure to provide such information or to
complete Attachment #1 I shall result in lack of approval of the
subcontractor by the Department.

<PAGE>

4.6.2.4 Certificates of insurance (ACORD Form) reflecting
insurance coverages as required by Attachment #8 of this
Agreement as well as certified copies of each policy as directed
by Article VIII of this Agreement.

4.6.3 CSC shall provide a revised Fee Schedule and Budget
Narrative using the forms as provided by Attachment #12 to
indicate the costs of the subcontracted services and a
revised Attachment #1, Staffing Pattern, listing positions
to be provided by the subcontractor(s). If a per them cost
adjustment (increase) is required, a formal amendment must
be executed in accordance with Article IX of this
Agreement. If a cost decrease is required, Attachment #1,
3 and 10 shall be revised. The former Attachments shall be
maintained on file to reflect the former Agreement.

4.6.3.1 If a cost adjustment is not required and the subcontractor is by
the Department, Attachment #1 Staffing Pattern and Attachment #3
Subcontractors shall be updated to reflect approved chanaes
without requiring a formal amendment to the Agreement. The former
Attachments shall be maintained on file to reflect the previous
agreement.

Staff Training

4.7 CSC shall be required to provide staff training as follows:

4.7.1 Pre-service security officer training for personnel hired for
designated security officer positions (See Paragraph 4.1.4.2).

4.7.1.1 Attachment #4 of this Agreement lists the Functional Areas and
Course Titles to be contained in the pre-service training for
security officers. All courses, except those marked with an
asterisk shall be taught in accordance with Department
provided curricula and lesson plans. Those Course Titles
marked with an asterisk may be taught utilizing CSC's
curricula and lesson plans, subject to approval by the
Department's Administrator, Staff Development/Training Bureau
or designee.

4.7.2 Required and optional pre-service non-security training courses
(New Employee Orientation [NEO]) are listed in Attachment #5.
Department curricula and lesson plans shall be utilized for the
required courses. Curricula for optional courses may be
developed by CSC, subject to content being approved by the
Department's Administrator, Staff Development/Training Bureau.
On the first day of employment, new employees, volunteers,
subcontractors, independent contractors, etc. shall receive at

<PAGE>

least Phase I of the required training, i.e., Initial Orientation and
Occupational Safety. Phase 11 of the required training shall be
presented within sixty (60) days after the initial training.
Employees who will have significant contact with inmates shall be
scheduled for Communicable Disease, Basic Life Support and First Aid
training within sixty (60) days after their date of hire.

4.7.3 The Department shall provide to CSC, at no cost, copies of video
tapes developed by the Department for staff training purposes. CSC
shall purchase direct from identified vendors any other video tapes
required for staff training. The Department shall provide CSC with
the address and telephone number of designated vendors.

4.7.4 Refresher training shall be provided annually to all staff to
include subcontractor(s) and their employees, agents or
representatives. Security Officers shall be required, as part of the
annual training to receive the below listed refresher training at the
frequencies indicated. Basic Life Support and First-Aid refresher
training shall be provided as indicated to all staff who have
continual contact with inmates.

4.7.4.1 Non-Lethal Weapon Certification (annually)

4.7.4.2 Basic Life Support (every 2 years)

4.7.4.3 First-aid (every three years)

4.7.4.4 Use of Force (annually)

4.8 All Department training information (curricula, lesson plans, computer
disks, etc.) provided to CSC is proprietary information and CSC shall
utilize the information only for purposes of this Agreement. CSC shall
not disseminate the information to others for any purpose.

4.8.1 If, during the term of this Agreement, the Department makes
subsequent chances to the curriculum, copies of said changes shall be
provided to CSC. CSC shall return all media, to include any copies
made by CSC, no longer applicable as a result of the change within
thirty (30) days after the change is implemented.

4.8.2 Within 45 days after termination of this Agreement, all
documents, computer disks, manuals, etc. provided to CSC by the
Department as well as all copies made by CSC shall be returned to the
Department.

<PAGE>

4.9 CSC's instructors must be certified by one of the following
before providing training.

4.9.1 Arizona POST (Peace Officer Standards and Training)
Staff Instructor

4.9.2 Arizona Department of Corrections Staff Instructor

4.9.3 Other - as approved by the Department

4.10 The Department, if requested, may provide instructor certification
training for CSC in the following areas. Participation by CSC staff
shall remain at the discretion of the Department.

4.10.1 Staff Instructor - Instructors who must attend and
successfully complete a 16 hour instructor training
program conducted by a senior instructor in order to
be recommended for certification. An evaluation by a
Senior Instructor is required every three years to
maintain certification.

4.10.2 Senior Instructor - Instructors who are required
to attend and successfully complete an initial 40
hour training program conducted by a professional
trainer. Completion of the program will qualify
senior instructors to conduct training and
recommend certification for regular instructors.
Senior Instructors must complete an 8 hour
professional instructor training course every
three years and are required to teach 36 hours
each year to maintain their certification.

4.10.3 Specialty Instructors - Instructors who have received
additional training in specialty areas, e.g., Basic
Life Support (BLS), Firearms Qualifications training,
First Aid, Cultural Diversity, Incident Management
System, etc. In addition to maintain staff Instructor
certification, Specialty Instructors must maintain
certification in their specialty area, depending on course
requirements.

4.11 CSC shall submit the following information to the Department Monitor
within sixty(60) days prior receipt of the first inmate. Any changes to
the initial training plan after approval by the Department shall be
submitted by CSC at least 30 days prior to a scheduled training,
session.

4.11.1CSC's plan for the provision of security and non-security
pre-service training to include at least the following
information:

<PAGE>

4.11.1.1 Location where training will be
provided, including OJT training.

4.11.1.2 Time frames for presentation of the training,

4.11.1.3 A description of the instructional methods to be
used, e.g., lecture, video tape, workbooks, etc.

4.11.1.4 A description of CSC recordkeeping methods
relative to staff training to include samples of
forms, computer data, etc.

4.11.1.5 Curricula and lesson plans for required courses of
non-security preservice training as well as
curricula and lesson plans for any other courses
CSC may provide at their option.

4.11.1.6 A description of how and where medical, physical
and psychological examinations shall be
provided.

4.11.1.7 Curricula and lesson plans for those course titles
marked with an asterisk as shown on Attachments #4
and #5.

4.11.1.8 Identification of the instructors that will be
used to teach each course to include:

The name of each instructor.

Qualifications of each instructor by type of
certification.

Date certification was received and
subsequent refresher courses completed, if
any (applies to law enforcement training
only).

List of course topics each instructor will
teach.

4.12 CSC shall submit to the Department Monitor an Annual
Training Work Plan for inservice training within sixty (60)
days prior to the need to deliver in-service training.
Subsequently the Annual Training Work Plan shall be provided
no later than May 15 of each year of the term of the
Agreement and period of renewal, if any. The Annual

<PAGE>

Training Work Plan shall be submitted in the following format:

4.12.1 Work plan introduction
4.12.2 Institutional demographics
4.12.3 Needs assessment
4.12.3.1 Line staff needs.
. 4.12.3.2 Supervisor/Manager needs.
4.12.3.3 Department needs and mandates, including
required training
4.12.3.4 Institutional needs and mandates.
4.12.4 Annual calendar for trail
4.12.5 List of certified instructs
4.12.6 Training recommendation
4.12.7 Approval/signature page

4.13 The Deputy Director, or designee, in conjunction with the Department's
Administrator, Staff Development/Training Bureau, shall respond in
writing to CSC indicating approval or disapproval within thirty (30)
days after receipt of the
information.

4.13.1 If any proposed training segment is disapproved, reasons for
such disapproval shall be stated and CSC shall be allowed to make
required changes and resubmit the proposed training segment within
thirty (30) days after receipt of the disapproval.

4.14 The Department shall provide two components of training to
CSC staff prior to the assignment of the first inmate to the
secure prison, as listed below. CSC positions with duties
assigned relative to the specialty training topics are
critical to the successful operation of the secure prison.
CSC staff in positions with duties assigned relative to the
inmate systems shall be expected to develop a basic
understanding of the various systems and to be knowledgeable
of the role each position shall serve relative to each
inmate system.

4.14.1 Specialty Training

4.14.1.1 Management Information Services: Training on the Department's
Adult Information Management System (AIMS), i.e., system access,
data entry requirements, system security. The Department will
provide any refresher training resulting from changes made to the
system.

4.14.1.2 Inmate Records: Training on the requirements and
processes for maintenance of inmate records as well as
responsibilities of record-keeping personnel.
Inexperienced CSC records staff shall be required to

<PAGE>

participate in six [6] weeks of training in an ADC prison prior
to receipt of the first inmate. The trainer may then spend up to
an additional week at the CSC facility with the trainee(s).

4.14.1.3 Inmate Accounting System: Training specific to the management of
inmate funds, i.e., deductions from inmate wages, discharge and
clothing allowances, and Work Incentive Pay Plan (WIPP). CSC's
Inmate Accounting System staff shall be required to participate
in one week of training- in an ADC prison prior to receipt of the
first inmate.

4.14.1.4 Case I work Management Training: This training is specific to the
duties and responsibilities equivalent to those performed by the
position of a Correctional Officer III with the Department. Staff
assigned case management duties will be required to participate
in four (4) weeks of on-the-job training in a Department
institution.

4.14.2 Inmate Systems

4.14.2.1 Inmate classification system: This training will
provide staff with the basic understanding of the
Department's Inmate Classification system.

4.14.2.2 Inmate disciplinary system: This training,, will provide staff
with an understanding of the inmate disciplinary process, the
rules of discipline, and their role in the enforcement of the
rules of discipline.

4.14.2.3 Inmate grievance system: The training will provide staff with an
understanding of the inmate grievance process and their role in
the process.

4.14.3 Initial training for the specialty training and inmate systems
as well as supplemental training required due to the introduction by
the Department of procedural revisions shall be provided by the
Department at no cost to CSC. The Department shall furnish to the CSC
Warden at the conclusion of each training, technical manuals or
curriculum for use by CSC in the provision of training to replacement
staff or as refresher training, except for training for the Inmate
Accounting System. Technical manuals relative to the Inmate
Accounting System shall be used by CSC staff relative to required
procedures. The Department shall not provide further no cost training
to CSC staff.

4.14.3.1 CSC shall not be required to train staff relative to the In-
mate Accounting System. Department Central Office staff shall
provide initial training and necessary supplemental training

<PAGE>

to those CSC staff assigned responsibilities for inmate
accounting activities. The Department shall charge CSC as
described below if requested to repeat Inmate Accounting System
training for the same CSC staff within six months after a
training session has been conducted.

4.14.4 CSC requests to the Department for training relative
Specialty Training or Inmate Systems in excess of what is described
above shall require, if approved, CSC to reimburse the Department
for staff time and any other associated costs, e.g., travel
expenses and overtime (as such costs are applicable). The
Department shall, within thirty (30) days after training is
provided, invoice CSC based on actual costs as determined from
travel receipts, Positive Attendance Reports (PAR) and salary for
each employee providing training. CSC shall submit payment to the
Department within ten (10) days after receipt of invoice at the
following address:

Arizona Department of Corrections
Attention: Administrator, Bureau of Business & Finance
1601 West Jefferson Mail Code 210
Phoenix, Arizona 85007

4.14.5 A CSC staff vacancy in a position providing- services
required by the specialty training topics will severely
impact the management of the assigned inmate population.
CSC shall ensure that adequate numbers of CSC staff are
trained and have the knowledge, skills and ability to
complete daily tasks required for the specialty training
topics. CSC shall be responsible for the adequacy of the
CSC provided training, e.g., qualifications of trainers,
timeliness of each training segment and presentation,
based on Department provided technical manuals and
curriculum. Failure on the part of CSC to provide the
required staff or the required training may result in an
Event of Default being declared in accordance with Article
X.

4.15 CSC staff, approved by the Department, may participate in the
Department Train-theTrainer program to allow CSC staff to provide
on-going training in technical areas as authorized by this Agreement.

4.16 CSC shall hold the Department, harmless from liability claims of third
parties arising recruitment/hiring/staff training,, processes set forth
in this Article.

ARTICLE V
PROVISION, OPERATION AND MANAGEMENT

<PAGE>

OF THE SECURE PRISON

5.1 CSC shall construct the secure prison's infrastructure and
support systems as soon as possible in accordance with the
segments of time specified in CSC's milestone chart as
submitted on November 6, 1996. The Department may declare
an Event of Default, as permitted by Article X of this
Agreement, if any time segment specified in CSC's milestone
chart is not met and a Force Majeure occurrence has not been
declared.

5.1.1 The secure prison shall be constructed by CSC's architect
and construction contractor in accordance with the Contract
Documents for the project as defined in the Fourteenth
Edition of the AIA Document A201 - General Conditions for
contracts for construction, as well as Department
requirements and applicable laws, rules, standard, codes,
etc., as specified in Article III, Paragraph 3.5. 1.
Simultaneous submission of the Contract Documents by CSC to
the local planning and zoning office and to the Deputy Director shall
occur. The secure prison shall be located on an 18 acre site in Pinal
County within the city limits of Florence, Arizona as described in
Article III and shall have,, at least:

5.1.1.2 One 14 foot loop top perimeter fence with "no-climb" (1/4 inch
hardware cloth) at the top six (6) feet of the fence on the
inside. The mesh at the bottom of the fence shall be embedded in
a concrete base.

5.1.2.3 Eighteen inch (18") razor wire on the top of the
fence at feast at , those points where the perimeter fence
abuts to a building and where. fences adjoin the
perimeter.

5.1.3.4 Adequate security to ensure that inmates remain within the
perimeter and to prevent access by the general public.

5.1.4.5 Secure locks on all outside doors.

5.1.5.6 A par course.

5.2 Notwithstanding the milestone chart referenced in Paragraph 5.1 above,
CSC shall, after receipt of notice to proceed from the Department, use
due diligence to construct the secure prison within the stated time
frames.

5.2.1 It is understood that the CSC proposal was submitted and
contract award was made with the understanding that the

<PAGE>

Town of Florence sewer system would serve the secure prison. On
November 5, 1996 CSC and the Department received notice from the Town
of Florence that there was not adequate capacity within the existing
sewer lines to accommodate the secure prison as well as other users
and, that until the problem was resolved by the Town of Florence, the
secure prison could not be connected to the sewer system. It is
mutually agreed that it is critical to both parties for this project
to progress in a timely manner. CSC will work with the Town of
Florence toward a solution that allows the secure prison to be
connected to the Florence sewer system. There shall be no costs to
the Department for CSC to rectify this problem.

5.2.2 The secure prison shall be constructed solely for the
purpose of housing and the treatment of inmates assigned to
the secure prison by the Department. CSC shall not house
other jurisdictions within the secure prison and shall not
in any way alter the size, configuration or mission of the
secure prison nor allow the perimeter fence of the secure
prison to be adjoined to another facility without a formal
amendment to this Agreement.

5.2.3 During the construction phase, CSC shall provide to the Department's
Contracts Administration Office via the assigned Department Monitor,
one copy of each approval required by statute or regulation received
from a regulatory agency and one
copy of each waiver granted.

5.2.4 When notified in writing by CSC that the secure prison is ready to
receive inmates, the Department shall transport a mutually agreed
number of inmates to the secure prison at agreed upon intervals.
CSC's written notice shall be directed to the Deputy Director, or
designee with a copy to the Department's Contracts Administration
Office.

5.2.4.1 The number of inmates delivered shall be determined by the Department
with consideration of the capability of CSC and the secure prison to accept the
inmates, e.g., receipt of certificate of substantial completion from CSC's
architect, prison capacity, adequate staffing levels, adequate security systems
and - inmate management services to accommodate the inmates.

5.2.5 Subsequent to initial occupancy, the Department shall deliver inmates
as CSC notifies the Department Monitor of availability of beds.

5.3 CSC shall maintain the secure prison in accordance with
existing federal, state and/or local building,, health,

<PAGE>

safety and fire codes. The secure prison shall meet ACA Standards and
ADAAG as each is defined herein.

5.3.1 The Department shall not assume any expense for the maintenance of the
physical structure or any tangible personal property attached to or
contained within the secure boundaries and physical plant of the
prison.

5.3.1.1 If the secure prison is damaged or destroyed by fire or
acts of nature during the term of this Agreement, CSC shall be
responsible for all costs to rebuild, restore or repair the
secure prison, including costs to relocate and manage the
assigned inmates during repair or restoration. CSC relocation and
management of the assigned inmates shall be subject to Department
approval.

5.3.2 CSC shall be responsible for all costs to correct potential or real
risks as such relate to the secure prison structure or the secure
perimeter.

5.4 CSC shall provide buildings equipment, materials and personnel necessary for
the housing of assigned inmates as well as for the maintenance and repair of the
secure prison.

5.5 The Department shall have sole authority to determine: (i) which
inmates shall be assigned to the secure prison; and (ii) whether an
inmate shall be removed from the secure prison after initial
assignment. Such determinations may be based on, among other things,
the Department's inmate classification system, the screening criteria
relative to the secure prison, the committing- offense and the inmate's
ability to participate in CSC treatment program as each factor is
applicable to RTC or DUI inmates.

5.6 CSC's security manual, procedures and post orders as
required by Department Service Specifications, Objective
III. E. shall include at least:

5.6.1 A "secure" armory, i.e., hardened walls and ceiling, to store
non-lethal weapons, ammunition and chemical agents in compliance with
Department written instructions. Plans for hardening the armory shall
be subject to review by the Deputy Director prior to issuance of a
notice to proceed.

5.6.2 In accordance with the Department's Incident Management System, CSC
shall remain in control of the situation until relieved by the
Department.

5.6.2.1 Agreements with local law enforcement authorities may
be executed. The Agreements shall stipulate that such

<PAGE>

authorities shall assist in providing outside perimeter security, but shall not
enter the secure prison to assist in controlling the inmate population. Such
Agreements shall be submitted to the Deputy Director, or designee; for review
and approval prior to execution.

5.6-2.2 Providers of firefighting and emergency medical services shall
have access to the secure prison during emergency situations as
requested by CSC and in accordance with CSC's security
requirements.

5.6.3 Direction to staff regarding the use of restraints and physical
force in accordance with the Department's Use of Force Policy in
relation to at least the following circumstances:

5.6.3.1 On the grounds of the secure prison

5.6.3.2 Supervising inmates outside the secure prison

5.6.3.3 At times of an escape

Inmate Management Services

5.7 CSC's institutional orders and post orders shall address each category
listed under Objectives III through VI of the Service Specifications.
Institutional orders and post orders regarding the inmate management
services identified below shall incorporate the requirements herein as
well as the requirements of Department written instructions.

5.8 Transportation - Eligible inmates shall be transported to
the secure prison by the Department. The Department shall
also transport any inmate(s) being returned to the
Department. CSC may be required to transport inmates who
are returned to the Department if the transportation does
not correspond to the Department's normal transportation
schedule.

5.8.1 Department or County Sheriff personnel shall transport inmates to the
appropriate Court jurisdiction relative to detainees for new charges.

5.8.2 Department staff shall transport inmates who are transferred from the
secure prison to increased custody within the Department prison
system.

5.8.3 CSC shall provide all other transportation services for inmates
assigned to the secure prison to include operational support of the
secure I e prison and transportation services described below:

<PAGE>

5.8.3.1 Delivery and pick up of inmates assigned to outside work
assignments, unless the Department is able to negotiate alternate
transportation arrangements in agreement with outside entities.

5.8.3.2 Delivery and pick up of inmates for outside court, hospital,
medical, dental, mental health appointments, etc.

5.8.3.3 Emergency medical transportation.

5.8.3.4 Any other transportation needs of the secure prison.

5.9 Management Information System (communicating, inmate records, data
processing and information services). CSC shall emulate existing
Department computer equipment as described in the computer equipment as
authorized staff shall allow CSC Computerized Adult Information Men
(AIMS) relative to those inmates assigned to the secure prison. CSC's
computer hardware shall be located in a secure area of the prison to
ensure access only by personnel authorized by the Department. CSC shall
provide, at no cost to the Department: (i) one dedicated printer and
one check protector for the purposes of inmate banking,-; (ii) at least
one computer terminal to be used exclusively for inmate banking.

5.9.1 Prior to system access, CSC shall submit a listing of staff names for
security password clearance. Identified staff shall be required to
attend training provided by the Department relative to the basics of
AIMS. Only authorized staff of CSC shall be permitted to use AIMS.

5.9.1.1 Department MIS staff shall perform periodic audits
relative to system access.

5.9.2 Data contained in the Department's AIMS System shall not be
downloaded to CSC's independent information system.

5.9.3 The Department shall deliver special purpose records to the secure
prison at the time each inmate is delivered. Any document or
information maintained in the special purpose records which is also
maintained in the Department's official Master File is subject to the
same privacy and security regulations as the Department's Master
File.

5.9-3.1 CSC shall maintain confidentiality in accordance with
A.R.S. 31-221, Master Record File: information from other
agencies; confidentially of files as well as Paragraph 7 of the
General Provisions of this Agreement.

<PAGE>

5.9-3.2 Special purpose records provided by the Department are to
be maintained in a locked and secure area with limited access in
accordance with Department written instructions.

5.9.4 The Department's special purpose records are transferred
through the correctional system with the inmate; therefore, CSC is
required to maintain such records in good order and in the format
required by Department written instructions. Upon an inmate's release
from the secure prison either by transfer to another Department shall
be returned to the Department.

5.9.5 CSC shall be required to maintain electronic data as well as manual
inmate records in accordance with Department written instructions.
The establishment and maintenance of inmates files (electronic or
hard copy), other than those specifically authorized by Department
written instructions, is prohibited.

5.9.6 CSC shall utilize the Department's Inmate Accounting System and shall
be accountable for inmate banking transactions from the date of
receipt of an inmate until the date the inmate is released from the
secure prison and the account is closed.

5.9.7 It is expressly understood that pursuant to Paragraphs 7
and 8 respectively of the General Provisions provided with
this Agreement and the requirements of A.R.S. 35-214, CSC
shall be required to ensure confidentiality of information
maintained. All source documents and other relevant hard
copy records relating to in-mate banking transactions shall
be maintained by CSC during the term of this Agreement, and
for five (5) years after the date of termination or
expiration of this Agreement.

5. 10 Inmate Work Activities

5.10.1 Prison Work Activities - Inmates assigned to the secure
prison shall be required to work in compliance with A.R.S. 31-251
Hard labor require of prisoners; labor classification; definition.
All prison work activities shall be performed within the perimeter of
the secure prison, except that the Department may consider,
consistent with Department written instructions, allowing selected
inmates to work outside the secure perimeter of the prison. CSC shall
comply with A.R.S. 31-251 by implementing a Prison Work Program
whereby jobs within the secure prison will be created for RTC and DUI
inmates.

<PAGE>

5.10.1.1 The Department Monitor shall approve the jobs
identified in CSC's Prison Work Program and the allocation of
said jobs by skill level to ensure that each is in compliance
with Department objectives
regarding pay and work assignments. After initial approval of
jobs, skill levels and wages, changes shall not be initiated by
CSC without prior written approval of the Department Monitor.

5.10.1.2 Wages earned by inmates participating in the Prison Work Program
shall be in compliance with Department written instructions,
regarding inmate wages.

5.10.1.3 During the term of this Agreement, CSC shall process inmate
payroll sheets for payment of inmate wages on a bi-weekly basis
and in accordance with the inmate accounting system. All payroll
sheets are to be processed through the Department's Contract
Monitor for verification of payroll charges prior to submittal
to the CSC inmate banking technician.

5.10.1.4 Each month, during the term of this Agreement, a list of all jobs
within the CSC Prison Work Program shall accompany the second inmate payroll
request. The list shall indicate which jobs have been filled during the last
thirty-day period, total inmate wages earned for each job, and the average wage
earned for the thirty-day period. The list shall also identify any problems or
concerns CSC may have regarding the Prison Work Program in any given thirty-day
period. The Department Contract Monitor may request CSC to provide additional
information to verify that the CSC Prison Work Program is meeting the intent of
A.R.S. 31-251 and the mission of the secure prison.

The Department Monitor shall immediately advise the CSC Warden of concerns
identified in review of the monthly listing of inmate jobs, average pay or level
of work activity based on the content of the report or based on observation of
inmate performance as part of the routine monitoring of inmate activity within
the secure prison.

5.10.2 Inmate Work Agreements - Work activities authorized by multiparty
agreements between and among the Department, CSC and other entities
that will allow provision of inmate labor off the grounds of the
secure prison (A.R.S. 31252 or A.R.S 41-1624.01).

5.10-2.1 Entities interested in using DUI labor shall be
identified. Negotiations conducted by the Department
regarding such agreements shall include concerns of CSC.
The Department shall be responsible for preparation,
finalization and maintenance of all DUI inmate work

<PAGE>

agreements generated in support of the secure prison. This does
not restrict CSC from seeking and developing work arrangements
for Department consideration.

5.10.2.2 CSC shall be responsible, if required by the terms of each inmate
work agreement, for providing security supervision,
transportation, lunches, etc., for such work activities.

5.10.2.3 CSC shall be responsible for ensuring the provision of medical
services for injuries or illnesses incurred by inmates while
participating in a work program, contracted or other-wise, unless
otherwise specified in an agreement.

Emergency medical services required due to an injury or illness that occurs at a
contracted work site may be provided or arranged for by the work Contractor in
order to protect the life or limb of an inmate.

5.11 Inmate Education Services shall be provided in accordance with
Department written instructions and the requirements set forth in the
Secure DUI Service Specification provided as Attachment #1 to RFP 6702.

5. 11. CSC shall ensure the availability of a certified GED
tester at no extra cost to the Department.

5.11.2 CSC shall be required to comply with the requirements of
A.R.S. 31-229, Functional Literacy Program: Evaluation;
Certificate: Exemptions; Wages; Definition

5.11.2.1 The Department shall administer an educational
evaluation in accordance with the requirements of A.R.S.
31-229, to include a standardized assessment test, prior
to assignment of an inmate to the secure prison.

5.11.3 CSC's education services for DUI inmates shall include, in addition
to the Functional Literacy Program, the following educational
components:

5.11.3.1 GED Preparation - To be provided to DUI inmates who do
not have a high school diploma or GED. The classes shall
be conducted by a DOE certified instructors

5.11-3.2 Life Skills - Classes shall be open-entry/exit and self-
paced.

5.11.3.3 Release Preparation - Classes shall be open-
entry/exit and self-paced.

<PAGE>

5.11.4 During the term of this Agreement, CSC shall endeavor
to utilize the resources of a local Community College
District via contract or grant to enable District
instructors to provide the educational services described
herein, thereby affording more economical service to the
Department. CSC shall provide information as required by
Article IV, Paragraph 4.1.6 and Paragraphs 4.6 through
4.6.3.1 on all positions.

5.11.4.1 Any per them rate reduction as a result of utilizing Community
College District instructors shall not require a written
amendment.

5.11.5 Inmates shall not be paid for participation in the
Functional Literacy Program or any other educational program
provided by CSC.

5.12 shall be provided for all assigned inmates by CSC in accordance
with Department written instructions. An institutional chaplain or
equivalent shall be on duty eight (8) hours each Saturday and Sunday.
The chaplain shall be hired in accordance with the requirements of
Article IV, Recruitment Hiring

5.13 Inmate Clothing, including replacement clothing, shall be provided
by CSC in accordance with Department written instructions. Personal
clothing consistent with the referenced policy can be worn by assigned
Inmates.

5.13.1 The Department shall provide discharge allowance for clothing to
eligible inmates in accordance with Department written
instructions.

5.14 Food Services shall be provided. by CSC in accordance
with the requirements contained in RFP 6702.

5.14.1 CSC shall evaluate the food service delivery operation
within 60 days after the close of the first year of this
Agreement. The evaluation shall include an analysis, on a
monthly basis, of at least the following: number of meals
prepared, number of meals served, amount of waste, economy
of food usage, inmate complaints regarding food service,
quality of food content, menu content and the per meal
costs. The completed evaluation shall be provided to the
Department Monitor.

5.14-1.1 If the evaluation demonstrates the need for a
cost increase relative to the provision of food services,
said change shall be made in accordance with A.R.S. 41-

<PAGE>

1609.01 E. and Article IX of this Agreement. If a need for a cost
decrease is presented, CSC shall provide the Department Monitor
with completed Fee Schedule and Budget Narrative forms provided
as Attachment #12 to this In Agreement, along with an explanation
of the decrease and the proposed reduced per them rates. The
Department Monitor shall forward the request to the Deputy
Director for approval/disapproval. A formal amendment shall not
be required for a cost decrease.

5.14.2 Meals shall be provided which follow the Department's six week
cyclical menus and that meet the Department's Standard Menu
Nutritional Guidelines. Department shall be used for all raw foods
used in preparation of meals. Changes relating to food specifications
and the cyclical menu must be approved by the Department in writing
prior to implementation excepting those infrequent situations where
unavoidable delays in shipments of food products require innovative
short-term actions by CSC. In these situations a report shall be
submitted to the Department Monitor for review. The Department's
specifications and menu shall be updated to reflect any approved long
term change. The Deputy Director shall approve/disapprove any
chances.

5.14.3 The Department reserves the right to require CSC to effect
changes in the food service operation at any time during the term of
this Agreement, if provided services are determined by the Department
to be inadequate.

5.15 earth Services shall be provided by CSC, to include medical,
optometric, dental, pharmaceutical and mental health
services. Health services shall be provided by the
subcontractor shown on Attachment #3 in accordance with: (i)
existing community standards of care and the requirements
contained herein; (ii) those requirements specified in RFP
6702; and (iii) Department written instructions relative to
the provision of Health Services which CSC has received from
the Department.

5.15.1 CSC shall provide Registered Nurses, to serve as the Head Nurse who shall
work 40 hours per week, on-site at the secure prison and shall be available on
call, 24 hours per day, 7 days per week to provide coverage of the secure prison
for emergency situations. Shift nurses may be Registered Nurses or Licensed
Practical Nurses. Nurses shall be trained in emergency First-Aid and possess Red
Cross, certification to perform Basic Life Support.

<PAGE>

5.15.1.1 CSC shall ensure inmate access to non-emergency health
care a minimum of five (5) days per week. Inmates in detention
status shall have non-emergency health care available seven (7)
days per week.

5.15.1.2 Staffing patterns for providers of medical, optometric, dental
and mental health services shall be in accordance with Attachment
#1 and requirements set forth in Article IV of this Agreement,
Recruitment and Hiring. CSC shall provide a licensed clinical
psychologist to provide Mental Health Services.

5.15.1.3 CSC shall ensure that health service staff shall not be used to
collect urine samples for the purpose of testing for illegal
substances as part of the institution monitoring and surveillance
program.

5.15.1.4 CSC shall identify any inmate(s) who becomes seriously mentally
ill after assignment to the secure prison and advise the
Department Monitor who shall coordinate appropriate action with
Department health staff-relative to the identified inmate(s).

5.15.2 CSC shall ensure that, whenever possible, medications prescribed by
health providers shall comply with the Department's formally.

5.15.2.1 Medications shall be packaged either in unit dose, daily dose or
weekly amounts, depending upon the type of medication.

5.15.3 CSC shall enter into contracts with hospitals located within 30
minutes transport time from the secure prison in order to ensure the
availability of emergency services 24 hours per day, 7 days per week.
CSC shall ensure availability of services with a hospital capable of
providing a secure ward to house inmates in need of in-patient care
and treatment.

5.15.3.1 CSC shall, consistent with Departmental written instructions, be
responsible for providing security staff coverage at the hospital
for inmates transferred for in-patient or out-patient care.

5.15.4 CSC shall ensure availability of emergency medical
transportation to handle emergencies as they occur.

5.15.5 Medical records provided by the Department to CSC shall be
maintained in a secure, locked area.

<PAGE>

5.15.5.1 CSC shall duplicate Department medical record forms for
inclusion in the inmate medical record while the inmate is
assigned to the secure prison.

5.15.5.2 Information contained in a medical record shall not be
released to I anyone who is not legally authorized to receive
it. Health and mental health records shall not be made available
to security staff.

5.15.6 Except for assigned RTC inmates, the Department shall
assume high cost health care in cases where CSC has
incurred costs which exceed $10,000 for a single diagnosis
per inmate per contract year. As used herein, "diagnosis"
shall mean the determination of the nature of a disease or
injury. Multiple diseases or injuries arising, from the
same event or root cause shall be considered a single
diagnosis, whether such diseases or injuries occur at the
same time or at separate times. An inmate whose health
care costs fall into the category of high cost shall be
returned to a Department institution or contracted medical
care facility after CSC has incurred cost in excess of
$10,000 as described above, or as soon thereafter as
feasible.

5.15.6.1 CSC shall pay for an inmate's "high cost health care"
(defined in Paragraph 5.15.6) up to $10,000 and return an invoice
reflecting any balance over $10,000 to the medical provider to
forward to the Department for payment.

5.15.6.2 Any non-emergency medical care for an inmate which
requires hospitalization shall require compliance with
the Department's outside review committee procedures and
meet the Constitutional mandate of the 8th and 14th
amendments. Prior to initiation of service delivery,
CSC's primary medical care provider shall participate in
the Department's Health Services Provider Orientation
Program.

5.15.6.3 Regarding RTC inmates, the Department shall pay for
costs of hospitalization of RTC inmates admitted after emergency
medical treatment and for medical costs of RTC inmates with
chronic conditions requiring regular medical examinations and/or
treatment. The Department shall assume supervision of RTC inmates
admitted to the hospital within eight (8) hours after admission.
For the purpose of this Agreement, the following conditions are
considered chronic: Cancer, Insulin Dependent Diabetes, Seizure
Disorders, Heart Disease, Respiratory Disease, Tuberculosis,
HIV/AIDS, Serious Mental Illness (as

<PAGE>

defined by Department written instructions). The inmate's health
condition shall be determined by the Department's Health Service
staff.

5.15.7 CSC shall provide quality assurance and utilization review activities and
processes relative to the delivery of inmate health services as described in
Section 11 of CSC's proposal, Quality Assurance Program, page 16 of 18.

5.15.7.1 Statistical data relative to the utilization of health services shall
be -maintained by CSC who shall prescribe the collection of basic health, mental
health and dental service information, utilization, summary, program cost and
time distribution data.

5.15.8 CSC shall charge inmates for Healthcare services in accordance with
A.R.S.31-201.01 and Department written instructions.

5.16 Substance Abuse Treatment Services shall be provided by CSC.
Services shall be provided by qualified staff in accordance with the
guidelines and requirements stated in RFP 6702. Bilingual counselors
capable of providing services in Spanish and English using materials
provided in both languages shall be available in numbers required to be
effective with a 400 bed DUI prison population.

5.17 Inmate Welfare and Benefits Fund (W&B Fund) - the secure prison
shall have a W&B Fund managed by CSC to be used for the benefit of
assigned inmates. The account shall be funded from profits resulting
from the sale of commissary goods and from revenues received by CSC
from the Department's vendor for use of the inmate telephone system.

5.17.1 CSC shall manage the W&B Fund in a manner identical to the
manner in which the Special Services Fund is managed by the
Department and consistent with the provisions of written instructions
which govern the Special Services Fund.

5.17.1.1 Monies earned by CSC from the inmate telephone system shall be
forwarded from the vendor of the Department's inmate telephone
system directly to CSC for deposit in the W&B Fund.

5.17.1.2 Net income from the sale of commissary goods is to be
distributed to the W&B Fund as shown under Inmate commissary,
Paragraph 5.19.2.

<PAGE>

5.17.1.3 At the conclusion of this Agreement, whether due to
expiration or termination, all remaining capital and inventorial
equipment which was purchased with W&B funds shall be transferred
to the Department.

5.17.2 CSC shall, at least ninety (90) days prior to acceptance of
the first inmate, submit for Department approval written
institutional orders supporting the management of the W&B Fund to
include directions relative to the use of a competitive bidding
procedure for purchases from the W&B Fund.

5.17.3 During the term of this Agreement, the Department shall review
all proposed CSC expenditures from the W&B Fund relative to
compliance with all related Department written instructions and to
assure that security and safety issues are not compromised by a
proposed purchase. Such review by the department shall not be
considered to be an approval of any purchase or of any fiscal issues
relating to the W&B Fund or purchases therefrom.

5.17.3.1 Costs for the operation of the inmate commissary may be paid by CSC
from the W&B Fund, e.g., salary costs of a Commissary Manager, equipment
required to provide commissary goods to inmates such as ice machines, freezer
boxes, etc.

5.17.3.2 Major purchases by CSC with W&B Funds shall require the use of
competitive sealed bidding processes that conform to standard
procurement practices. Major purchases are defined as:

Purchases estimated to cost in excess of $5,000, which shall
require multiple written quotations.

Purchases estimated to cost from $1,001 to $5,000 which shall
require multiple verbal or written quotations.

5.17.3.3 Purchases made with monies from the W&B Fund must conform to and
be consistent with the types of items authorized for purchase
from the Department's Special Services Fund.

5.17.4 After one year of operation, the financial status of the W&B Fund
shall be reviewed by CSC and the Department to determine whether
adequate funds are available to accommodate per them expenses in
the form of costs for recreational and library supplies and
equipment. If it is mutually agreed that adequate monies are
available within the W&B Fund to accommodate such expenses, the per
them

<PAGE>

rates shown on Attachment #10 shall be reduced to reflect the
transfer of the expenses to the W&B Fund.

5.17.4.1 Any reduction in per them shall be verified by
submittal by CSC of revised Fee Schedule and Budget
Narrative forms, as provided by Attachment #12, to
reflect removal of such expense items from the per diem.
The completed Fee Schedule and Budget Narrative forms
shall be submitted to the Deputy Director, or designee
with a copy provided to the Contracts Administration
Office in accordance with time frames stipulated by the
Department.

5.17.4.2 The Deputy Director or designee shall review the CSC documents
and request, if necessary, additional information. A revised
Attachment #10 shall be prepared by the Contracts Administration
Office to reflect the mutually agreed
reduced per them rates.

5.17.4.3 The revised Attachment #10 shall replace the existing
Attachment; however, the former Attachment shall be
retained on file to reflect the former agreement. A
formal written amendment shall not be required to
accommodate a reduction in per them due to transfer of
expenses from per them to the W&B Fund, unless such
reduction impacts programmatic aspects of required
services. If required services are impacted, a formal
amendment as required by Article IX shall be required.

5.17.5 CSC shall provide to the Department's Administrator, Bureau of
Business & . Finance, all financial reports required by Department
written instructions. A copy of each report shall be provided to the
Department Monitor.

5.17.6 In the event this Agreement is terminated as permitted herein,
CSC shall return all funds deposited in the secure prison's W&B Fund
along with the close-out Special Services (A&R) Fund Report to the
Department at the following address:

Department of Corrections
Attn: Administrator, Bureau of Business & Finance
1601 West Jefferson, M/C 210
Phoenix, Arizona 85007

5.18 Inmate Telephone System - Inmates assigned to the secure prison shall
have access to an inmate telephone system. For reasons of security, the
same in-mate telephone system and vendor as used by the Department
shall be used by CSC.

<PAGE>

Inmate telephone services shall be made available in a manner identical
to that described in Department written instructions.

5.18.1 Revenues earned as a result of CSC use of the inmate telephone
system shall be directed from the Department's vendor to CSC for
deposit in the W&B Fund to be used for the benefit of the assigned
inmates.

5.18.2 CSC shall, at least ninety (90) days prior to acceptance of
the first inmate, submit for Department approval written
institutional orders regarding the provision and use of the inmate
telephone system to include use of revenues received as a result of
use of the telephone system.

5.19 Inmate Commissary - Inmates shall have access to a commissary for
purchase of goods. Items sold in the commissary shall include items as
described in Department written instructions, but for reasons of
security, may not include any additional items.

5.19.1 The maximum allowable mark-up of goods for sale in the
commissary may not exceed ten percent (10%).

5.19.2 Net income from the sale of commissary goods shall be distributed as
follows:

5.19.2.1 Fifty percent (50%) for reimbursement to CSC for
initial commissary capitalization.

5.19.2.2 Fifty percent (50%) to the W&B Fund.

5.19.2.3 Upon reimbursement of CSC's initial commissary,
capitalization, 1 00 % of the net income earned. from the
sale of commissary goods shall be deposited to the W&B
Fund.

5.19.3 CSC may have access, through the Department's Central Office Purchasing
Manager, to State contracts for goods to be sold in the commissary. Use of State
contracts is not required and CSC may negotiate directly with suppliers in
accordance with Department written instructions and guidelines provided herein.
It is the expectation of the Department that commissary inventory shall be
purchased at the lowest possible cost.

5.19.4 At the conclusion of this Agreement, whether due to expiration or
termination, the remaining inventory in the commissary shall be
sold and the proceeds shall be directed to any remaining balance of
the initial

<PAGE>

commissary capitalization. Revenues remaining from the inventory
liquidation shall be deposited in the W & B Fund, with the final
closing, balance of the W & B Fund to be transferred to the
Department's Central Office A&R Fund.

5.19.5 CSC shall, at least ninety (90) days prior to acceptance of
the first inmate, submit for Department approval written
institutional orders regarding inmate commissary operations to
include directions relative to the use of a competitive bidding
procedure for purchase of commissary goods.

5.20 Investigations of all alleged criminal activity involving
--------------
Department inmates assigned to the secure prison shall be
conducted by representatives of the Department's Inspections
and Investigations Division. The Department Monitor shall
be notified immediately by CSC of suspected criminal
activity. The Department Monitor shall be responsible for
subsequently notifying appropriate Department authorities
regarding the alleged activity.

5.20.1 All allegations of criminal activity relating to the
operation of the secure prison
or Department operations shall be investigated by the
Department in accordance
with A.R.S. 41-1604, et seq.

5.20.2 The Department shall conduct any investigation it deems
necessary involving Department inmates.

<PAGE>

ARTICLE VI
PAYMENT OBLIGATIONS AND PROCEDURES/FINANCIAL REPORTS

6.1 Requirements Governing All Cost Increases

6.1.1 During the initial term of this Agreement (three [3]
years), price or cost adjustments may be made as
authorized by A.R.S. 41-1609.01 A. D., or E., and the
requirements set forth in Article IX.

6.1.2 If this Agreement is renewed as permitted by A.R.S. 41-
1609.01 L, any negotiated price or cost adjustment must be
authorized in accordance with A.R.S. 41-1609.01 D or E and
shall be formalized by written amendment as required by
Article IX.

6.2 Per Diem

6.2.1 The amount of per them paid per inmate shall be as
shown on Attachment #10.

6.2.1.1 The per them rate per RTC inmate shall be paid
for 200 beds regardless of the level of
occupancy.

6.2.1.2 The . amount of per them paid per DUI inmate shall be determined by
'a sliding scale as shown on Attachment #10 which is based on the @
average daily population during each billing cycle.

6.2.1.3 There shall be two billing cycles each month. The first cycle
shall cover the time period between the first of the month to the
15th day of that month. The second cycle shall be from the 16th
of the month to the last day of that month.

6.2.2 Per them shall be paid for the day an inmate is received by CSC, but
shall NOT be paid for the day an inmate is released from the secure
prison.

6.2.3 The Department receives separate appropriations for the privatization
of RTC and DUI prison beds. Therefore, during the term of the
Agreement, separate invoices requesting per them payment for RTC and
DUI inmates must be submitted within the time frames indicated below.

6.3 Invoices and Records

6.3.1 Twice each month within two (2) workdays after the end
of each billing cycle, CSC shall submit to the

<PAGE>

Department separate invoices for payment of per them for RTC
and DUI inmates. If the two-day time period falls on a
weekend or holiday, the next workday shall be used. For the
purposes of this Agreement, workdays shall be Monday through
Friday, 8 a.m. to 5 p.m.

6.3.1.1 CSC shall use the invoice format entitled Per Diem Invoice as
shown in Attachment #7 to request payment of per diem.

Original invoices submitted by CSC shall be legible and in the appropriate
format as directed herein, otherwise they shall be returned to CSC to correct or
clarify. In such cases, the Department shall be under no obligation to adhere to
established time frames for payment set forth herein.

6.3.1.2 CSC shall forward the invoices and supporting detail to
the Department Monitor for verification.

6.3.1.3 The Department Monitor shall verify CSC's invoices and supporting
detail and forward all information to the Deputy Director, or
designee, for payment authorization, within two (2) working days
after receipt.

In the event of a discrepancy between the records of CSC and the Department, the
Department Monitor shall notify CSC of said discrepancy immediately after
verifying CSC's invoices and supporting detail. CSC and the Department shall
resolve the discrepancy by comparison and reconciliation of records. If
resolution cannot be achieved, the undisputed amount shall be paid. The disputed
amount shall not be paid until -mutual agreement is reached relative to the
discrepancy. The time period for payment of the disputed amount shall be waived
until the dispute is resolved.

6.3.1.4 The Deputy Director. or designee, shall authorize payment
within fifteen days after receipt and approval of CSC's
invoices, contingent upon services having been
satisfactorily provided. Warrants shall be made payable
to Correctional Services Corporation and sent to CSC at
the following- address:

Correctional Services Corporation
1819 Main, Suite 1000

<PAGE>

Sarasota, Florida 34236

6.4 Payment of Inmate Wages for Work Performed in CSC's Prison
Work Program

6.4.1 Inmate wages shall be paid in accordance with the
Department's written instructions. RTC and DUI wages for
prison work activities shall be tracked and invoiced
separately by CSC in order to develop an accurate wage
history for each population.

6.4.2 Prison Work Activities

6.4.2.1 For two years after CSC's receipt of the first inmate,
the Department shall, via WIPP appropriation, pay the
cost of wages earned by inmates assigned to the secure
prison and participating in the CSC prison work program.
After the first two years, CSC shall assume payment for
inmate wages.

Prior to the end of the second year of Department payment of inmate wages, the
Department and CSC shall negotiate an annual cost for inmate wages, based on the
wage history since CSC's receipt of the first inmate.

CSC shall submit a revised Fee Schedule and Budget Narrative forms as provided
by Attachment #12 to reflect the negotiated annual cost for CSC to pay wages for
inmates participating in the prison work program.

The increase in RTC and DUI per them rates shall be acknowledged by formal
written amendment iii accordance with Article IX of this Agreement. The increase
in per diem rates shall be effective two years after the anniversary date that
the first inmates was received by CSC, but shall not be initiated until after
the Amendment is executed. Any costs incurred by the Department for inmates
wages during the third year after CSC's receipt of the first inmate, shall be
taken as a monthly- credit

<PAGE>

from per them payments to CSC after the amendment is executed and
the per them is adjusted.

Inmates are entitled to have wages earned posted to their account in accordance
with Department written instructions.

6.4.3 Inmate Work Agreements

6.4.3.1 Private Sector

- Contract entity(ies) shall pay for DUI labor
services at the rate specified by each inmate work
agreement per inmate hour worked. Procedures and
time frames related to payment shall be delineated
in each Agreement.

CSC shall receive payment from each contracting entity for wages earned for
inmate labor. Payments received shall be verified by CSC. If CSC finds a
discrepancy in the amount of payment, CSC shall resolve the discrepancy with the
contracting entity in accordance with the terms of the agreement.

Inmates are entitled to have wages earned posted to their account in accordance
with the Department's written instructions.

6.4.3.2 Public Sector

- In accordance with A.R.S. 31-255, as amended, DUI inmates may
keep a portion of wages earned from all work activities, i.e.,
labor provided to public entities via inmate work agreements.

An amount equal to thirty-three (33 %) percent of each inmate's wage shall be
deposited in the inmate's spendable account.

Public entities shall pay for DUI labor services at the rate
specified by each agreement per inmate hour worked. Procedures

<PAGE>

and time frames related to payment shall be delineated in each
agreement.

CSC shall receive payment from public entities for wages earned for inmate
labor. Payments received shall be verified by CSC. If CSC finds a discrepancy in
the amount of payment, CSC shall resolve the discrepancy with the public entity
in accordance with the terms of the agreement. If no discrepancy is found, CSC
shall within ten (10) days after receipt of payment from a Contractor, send a
check equal to the entire amount of the payment to the Department made payable
to the "Arizona

Contract No: 6790
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Page 42

. Department of Corrections - Alcohol Abuse Treatment Fund".
Checks shall be sent to:

Department of Corrections
Health Services Business Office
363 North First Avenue, M/C 940
Phoenix, Arizona 85003

CSC shall immediately notify the Department in writing when payments to assigned
inmates and the AATF will be delayed due to a discrepancy in payment from a
public entity.

CSC shall provide a payment detail shown by Attachment #6, entitled Inmate Time
Sheet, which shall accompany each check for deposit in the Fund. CSC may
computerize Attachment #6, but shall ensure that all required information is
provided.

CSC shall provide a copy of the Inmate Time Sheet to the Department Monitor on a
monthly basis.

<PAGE>

6.5 Requirements of A.R.S. 31-201.01

6.5.1 In accordance with A.R.S. 31-201.01, inmates shall pay
a fixed fee for health care services received as
determined by the Department, but not to exceed $5.
Department written instructions, stipulates the current
charge inmates shall pay for health care. CSC shall
comply with the requirements of the referenced statute
and written instructions in charging, assigned inmates
for health services.

6.5.2 By the tenth (10th) workday each month, CSC shall send a check made
payable to the Department of Corrections Health Care Services for
monies paid by inmates for health care services received during the
preceding month. CSC shall ensure the Monthly Health Care Fees Report
provided in Attachment #7 accompanies each check to reflect monies
received and debited as required by the referenced policy.
Checks shall be sent to:

Department of Corrections
Attn: Administrator, Bureau of Business & Finance
1601 West Jefferson, M/C 210
Phoenix, Arizona 85007

6.6 Requirements of A.R.S. 31-239, Utility fees

6.6.1 A.R.S. 31-239, requires inmates who possess at least one
major electrical appliance to pay a fixed fee of $2.00 per
month for electricity usage. When Department written
instructions are executed, CSC shall comply with the
requirements of the referenced statute and Department
written instructions in charging assigned inmates for
electricity usage.

6.6.2 By the tenth,(10th) workday each month, CSC shall send a check
made payable to the. Department of Corrections for monies paid by
inmates for electricity usage incurred the previous month.
Department required reporting forms shall accompany each check to
reflect monies received and debited. Checks shall be sent to:

<PAGE>

Department of Corrections
Attention: Administrator, Bureau of Business & Finance
1601 West Jefferson, M/C 210
Phoenix, Arizona 85007

6.7 CSC shall invoice the Department quarterly for reimbursement of
discharge allowance paid to eligible inmates in accordance with
Department written instructions.

6.7.1 Invoices requesting reimbursement shall be submitted by CSC
to the Department's Contract Monitor by the tenth work day
of October, January, April and July during the term of the
Agreement. Each invoice shall indicate the following,,
information relative to each inmate who received discharge
allowance: name of each inmate, Department assigned inmate
number, amount paid, purpose of payment (clothing,-, or
transportation) and date of discharge.

6.7.1.1 The Department Monitor shall verify the invoiced information and
submit the invoice to the Deputy Director, or designee for
authorization of payment.

6.7.2 The Department shall reimburse CSC for discharge allowance within
fifteen (15) workdays after receipt of invoice and verification of
supporting detail from the Department Monitor. Warrants for
reimbursement shall be made out to Correctional Services Corporation
and shall be sent to CSC at the address shown in Paragraph 6.3.1.4.

6.8 Costs To Be Paid By CSC

6.8.1 All costs incur-red in the acquisition, construction and
maintenance of the secure prison, including the
infrastructure, support systems and signage on roadways and at
the entrance to the secure prison regarding prison name,
warning to public, proper prison identification, etc.
All costs related to

<PAGE>

tangible personal property attached to or contained
within the secure prison. (Refer to Articles
III. and V.)

6.8.2 All costs for remediation and/or correction to modify the secure
prison in order to comply with Department requirements and applicable
laws, rules, standards, codes and guidelines as specified in Articles
III and V.

6.8.3 All costs involved in the acquisition of an appropriately
executed performance bond. (Refer to Article VIII.) -

Contract No: 6790
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Page 44

6.8.4' All costs for personnel necessary to staff the secure prison in
accordance with the requirements of this Agreement.
(Refer to Article IV.)

6.8.5 All costs for housing inmates in accordance with the
requirements of this Agreement. (Refer to Article V.)

6.8.6 All costs to deliver services to the assigned inmate population
(Refer to Article V and the Service Specifications).

6.8.7 All costs relative to licensure as a security agency and
registration of staff as security officers. (Refer to
Article IV.)

6.8.8 The cost for fingerprinting non-security positions, to
include potential employees, volunteers, subcontractors,

<PAGE>

independent contractors and the employees and agents of
subcontractors and independent contractors who will work at the
secure prison. (Refer to Article IV.)

6.8.9 All costs to duplicate or obtain Department forms used in
special purpose records.

6.8. 1 0 Department charges, as invoiced monthly, for the
following: (Refer to Article
IV.)

6.8.10.1 ACIC/NCIC background investigations for CSC's staff at
$4 per investigation.

6.8.10.2 Processing fingerprint cards for CSC's non-security
staff at $8 per card.

6.8.10.3 In accordance with paragraphs 6.8.10.1 and 6.8.10.2, a charge of
$12 per individual for the Department to conduct ACIC/NCIC
background investigations and process fingerprint cards for CSC's
staff.

6.8.10.4 Costs relative to CSC's inmate banking activities,
e.g., checks and banking supplies, etc.

6.8.10.5 CSC shall pay the charges by the tenth (10th) workday each month
by check made payable to the Department of Corrections and sent
to:

Department of Corrections
Attn: Business Administrator
Prison Operations
1601 West Jefferson
Phoenix, Arizona 85007

6.8. 1 l-' All costs to provide three (3) personal
computers with emulations cards to allow access to AIMS and
one dedicated printer, one check protector and one radio
tuned to the frequency of the secure prison.

<PAGE>

6.8.12 All costs associated with increasing availability of health
providers if waiting times are determined to be excessive by the
Deputy Director, Health Services.
(Refer to Article IV.)

6.8.13 All costs associated with rebuilding, restoring or repairing
the secure prison, including costs to move assigned inmates, if
applicable, in the event of damage to or destruction of the secure
prison caused by disturbances, fire or acts of nature during the term
of this Agreement.
(Refer to Article V.)

6.8.14 All costs required to correct any potential or real security
risk in the secure prison structure or secure perimeter. (Refer to
Article V.)

6.8.15 Two years after receipt of the first inmate, costs
for wages earned by inmates' participation in the CSC
prison work program. (Refer to Article VI)

6.8.16 Costs for Department provision of staff training
requested by CSC in excess of required levels relative to
Specialty Training Topics. (Refer to Article IV)

6.8.17 All costs for emergency, public safety or security services
provided to CSC by the State or any political subdivision of the
State.

6.8.18 Costs for DUI and RTC inmate medical care except as described in
paragraphs 5.15.6, 6.9.1 and 6.9.2.

6.8.19 Negotiated costs related to the connection of the secure
prison to the Town of Florence sewer system (Refer to Article V).

<PAGE>

6.8.20 Any other costs indicated in this Agreement as a
cost applicable to CSC but not listed here.

6.9 Costs To Be Paid By The Department

6.9.1 High (catastrophic) health costs for inmates for a single
diagnosis that exceeds $10,000 per inmate per contract year.
(Refer to Article V.)

6.9.2 Health Costs for hospitalization of RTC inmates admitted after
emergency medical treatment and medical costs for RTC inmates with
chronic conditions requiring regular examinations and/or treatment.
For the purpose of this Agreement, the following conditions are
considered chronic: Cancer, Insulin Dependent Diabetes, Seizure
Disorders, Heart Disease, Respiratory Disease, Tuberculosis,
HIV/AIDS, Serious Mental Illness (as defined by written
instructions). The inmate's health condition shall be determined by
the Department's Health Services staff.

Contract No: 6790
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Page 46

6.9.3

Inmate wage reimbursement, as invoiced by CSC, for two years after-CSC's receipt
of the first inmate.

6.9.4 Discharge allowance reimbursement, as invoiced by
CSC and approved by the Department.

<PAGE>

6.9.5 Negotiated costs related to connection of the secure prison to
the Town of Florence sewer system (Refer to Article V).

6.10 A.R.S. 41-1609.01 D

6.10.1 ANNUAL price or cost adjustments authorized in accordance
with Article IX shall be paid in the form of an increased
per them rate as specified by each executed amendment.

6.11 A.R.S. 41-1609.01 E

6.11.1
CostorpriceadjustmentsauthorizedinaccordancewithAr
ticleIXshallbepaid in the form of an increased per them
rate as specified by each executed amendment.

6.12 Financial Reports

6.12.1 In accordance with A.R.S. 41-1609 M.l., CSC shall
provide audited and unaudited financial statements to
the Department. Audited financial statements shall be
due on or before March 31 annually. The unaudited
financial statements shall be provided on a quarterly
basis beginning on or before March 31. Audited
statements shall include, at a minimum, income
statements and balance sheets for the previous
calendar year. Unaudited statements shall include, at
a minimum, income statements and balance sheets for
the previous quarter.

6.12.2 The Department shall have the right to request additional financial
data in order to obtain information deemed necessary.

6.12.3 CSC shall provide two (2) copies of the audited financial statements
to the Department Monitor. The Monitor shall forward one complete
copy each to the Deputy Director and the Administrator, Bureau of
Business and Finance.

<PAGE>

ARTICLE VII
CONTRACT MONITORING/PERFORMANCE EVALUATION

7.1 The Department shall monitor CSC's performance to ensure compliance with
all contract provisions and applicable Department written instructions,
Administrative Rules, guidelines, specifications, Court Orders and
Decrees as each are addressed within the Department's system of written
instructions.

7.1.1 CSC shall, via its assigned Prison Warden, ensure routine
monitoring of service delivered, to include monitoring of
subcontracted services. Such monitoring

Contract No: 6790
Continuation Sheet
Page' 47

activities shall include documenting noted deficiencies and requesting
corrective action to ensure that at least the minimum service requirements
specified by this Agreement are met.

7.1.2 The Department shall conduct inspections in accordance with
Department written instructions.

7.1.3 The Department shall establish a Health Advisory Committee comprised
of a Facility Health Administrator (FHA), a health provider, a dental
provider, a nurse, a mental health provider and a medical records
representative. CSC expressly acknowledges that this activity does
not relieve CSC of the responsibility for the delivery of health care
to assigned inmates. The Committee shall at least:

7.1.3.1 Review documented justification for CSC's referrals for
outside medical consultations.

<PAGE>

7.1.3.2 Review staffing patterns relating to patient waiting
times to be seen by health providers/dentists.

7.1.3.3 Make recommendations requiring changes, as appropriate.

7.1.4 Monitoring activities shall be conducted with timely notice to CSC.
The secure prison's program operation, as well as records related to
this Agreement may be included in monitoring activities.

7.1.4.1 Guidelines detailing criteria and scope of monitoring activities
shall be provided to CSC prior to delivery of the first inmate to
the secure prison and subsequently as changes occur.

7.1.4.2 The Department shall, subject to limitations provided by
law with respect to rights of privacy, have the right to
reasonably prompt access to examine and receive copies,
if requested, of all records of CSC related to the secure
prison, including without limitation, all financial books
and records, maintenance records, employee records, and
inmate records generated by CSC and its subcontractors or
independent contractors, in connection with the
performance of this Agreement.

7.1.5 The results of monitoring/inspecting activities conducted
by the Department shall be made known to CSC in writing by
the Department's Monitor. If noncompliance issues are
noted during a monitoring activity,, each shall be
specifically identified and corrective action shall be
recommended with a time frame specified to achieve
compliance. CSC shall be required to . respond within the
specified time frame or indicate in writing to the
Department's Contract Monitor why compliance cannot be
achieved within the specified time frame and offer an
alternative to meet the -objective.

7.2 The Department shall assign up to four staff members to monitor
contract services on a daily basis and coordinate all necessary
activities relevant to CSC and Department

<PAGE>

responsibilities. Department contract monitoring staff shall be
physically located at the secure prison on a full time basis. Each
staff member shall be provided with approximately 144 square feet of
work space.

7.3 Twelve (12) months after CSC's receipt of the first inmates,
the Department shall begin to gather information related to
the performance of the secure prison as required by A.R.S.
41-1609.01 K. and L. The information shall be used for a
comparative analysis of the secure prison to level II units
within the Department. The comparison shall include at
least the following analytical factors:

7.3.1 The nature of the inmates in the facilities.

7.3.2 Whether the facilities meet professional standards.

7.3.3 The level of training provided to the staff and the level
of training accomplished by the staff.

7.3.4 The number and nature of complaints against the staff.

7.3.5 The number and nature of violent or other disruptive
incidents among inmates or against staff.

7.3.6 The number of escapes and attempted escapes.

7.3.7 The number and nature of disciplinary actions against
inmates and staff.

7.3.8 The number of inmates productively active, the level of
productivity and the nature of the activity provided to
inmates.

7.3.9 The rate at which inmates complete programs successfully.

7.3. 10 Other matters related to the quality of services
provided.

<PAGE>

ARTICLE VIII
PERFORMANCE BOND/INSURANCE/INDEMNIFICATION

Performance Bond

8.1 CSC shall provide a Performance Bond for the term of this Agreement
based on the projected annual per them cost calculated as indicated
below.

8.1.1 Prior to execution of this Agreement (see Article II) and until
receipt of the first inmate, CSC shall provide a Performance Bond
equal to 10% of the projected annual per them cost ($731,095). Upon
receipt of the first inmate, the value of the Performance Bond shall
be increased to 100% of the projected annual per them cost
($7,310,950).

8.1.2 Thereafter, no later than the anniversary of the date of Agreement
execution, the Performance Bond shall be adjusted annually in
accordance with Paragraph 8.1.5. Failure of CSC to provide the
initial Performance Bond shall result in

Contract No: 6790
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Page -49

default and termination of this Agreement. Subsequent failure by CSC -to post
the Bond equal to subsequent yearly per them costs by no later than the
anniversary of the date of Agreement execution, may result in default and
termination of the Agreement.

. 8.1.3 The Performance Bond shall be of a standard commercial scope
and shall be issued by a surety company authorized by the Director of
the Arizona Department of Insurance pursuant to Title 20, Chapter 2,
Article 1 to transact business in Arizona.

<PAGE>

8.1.4 The Performance Bond shall be in a form acceptable to the State and
shall be payable to the Department of Corrections, an agency of the
State of Arizona.

8.1.5 To calculate the annual per them cost for the initial twelve (12)
month term of the Agreement, i.e., from the date of Agreement
execution until the anniversary of the date of execution, the per
them rates of $35.40 per day for 400 DUI inmates and $29.35 per day
for 200 RTC inmates for 365 days shall be used.

8.1.5.1 Subsequent calculations for the annual per them cost shall be
based on the Department's then current per them rate for 400 DUI
and 200 RTC inmates for 365 days.

8.1.6 The proceeds from the bond shall be used to pay: (i) excess costs
incurred by the Department to reprocure services if the secure prison
is not constructed within the time frames specified herein; or (ii)
Department expenses to reprocure services or to relocate inmates
assigned to the secure prison if this Agreement is terminated due to
an Event of Default by CSC.

Insurance

8.2 In accordance with A.R.S. 41-1609.01 M.2., CSC shall provide a plan of
insurance as required by this Agreement and approved by the State's
Department of Administration, Risk Management Unit (Risk Management).

8.2.1 Without limiting any liabilities or any other obligations of CSC, CSC
shall provide and maintain and cause its subcontractors to provide
and maintain insurance coverage with forms and insurers acceptable to
the State, until all obligations under this Agreement are satisfied.

<PAGE>

8.2.2 Unless otherwise stated herein the policies shall name the
State of Arizona and the Department of Corrections as additional
insured as required by the General Provisions and Attachment #8 of
this Agreement. The policies shall specify that the insurance
afforded CSC shall be primary insurance and that-any insurance
coverage carried by the State, the Department or its employees shall
be excess coverage, except as provided by State law, and not
contributory insurance to that provided by the State/Department.

Contract No: 6790
Continuation Sheet

Page -50

8.2.3 ' Failure on the part of CSC during the term of this
Agreement to acquire and maintain the liability and
property insurance and fidelity bond required by
Attachment #8, and provide proof thereof to the Department
within thirty (30) days following the commencement of a
new policy period, shall constitute a material breach of
this Agreement upon which the Department may immediately
terminate this Agreement.

8.2.4 Required insurance coverage as shown on Attachment #8 shall be in
effect on the date of execution of this Agreement. Within five (5)
days after execution of this Agreement, CSC shall, in order to verify
required coverages, provide certified copies of insurance policies
and endorsements to Risk Management and appropriately executed
certificates of insurance to the Department.

8.2.4.1 CSC shall ensure that the subcontractor authorized by
Attachment #3 acquires and maintains Workers' Compensation
insurance as well as professional liability insurance
coverage as each coverage is required by Attachment #8.
CSC shall ensure that appropriately executed certificates
of insurance and certified copies of insurance policies
for the subcontractor are provided to the Department and
Risk Management as directed by Paragraph 8.2.4 above.

<PAGE>

8.2.4.2 Final approval by Risk Management of CSC's insurance plan (to
include coverages required for the subcontractor) shall be
contingent on acceptance of the submitted certified insurance
policies.

8.2.4.3 If, during the term of this Agreement, other subcontractors are
authorized to provide services, CSC shall ensure that required
coverages, certificates and policies are provided to the Department
and Risk Management as specified above. Approval by Risk Management
is required relative to insurance coverages for any subcontractor
prior to provision of any service by the subcontractor(s).

8.2.5 CSC shall ensure that the CSC architect/engineer and
construction contractor provide at least those coverages
specified below relative to their respective operations and
activities. Certificates of insurance for each required
policy shall reflect that CSC and the Department of
Corrections are certificate holders and that each are
additional insureds on each policy, except Workers'
Compensation. Copies of appropriately executed
Certificates of Insurance shall be provided to the
Department within five days after execution of this
Agreement.

8.2.5.1 Workers' Compensation insurance to cover obligations imposed by
Federal and State statutes having jurisdiction over their
employees engaged in the performance of the services and
Employer's Liability insurance with a minimum limit of one
hundred thousand dollars ($100,000).

8.2.5.2 Commercial general liability insurance with a minimum
combined single limit of one million dollars ($1,000,000)
each occurrence. The policy shall include coverage for
bodily injury, personal injury,

Contract No: 6790
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Page 51

<PAGE>

broad form property damage, blanket contractual, contractor's , protective and
products and completed operations.

8.2.5.3 Comprehensive automobile liability insurance with a combined
single limit for bodily injury and property damage of not less
than one million dollars ($1,000,000) each occurrence with
respect to CSC's vehicles (whether owned, hired, non-owned),
assigned to or utilized in the performance of this Agreement.

8.2.5.4 Professional liability insurance with limits of one
million dollars ($1,000,000) each claim.

Indemnification

8.3 The Department shall remain solely responsible for all
litigation, losses and costs that
are: (i) unrelated to the operations of the secure prison; and
(ii) the result of claims or litigation pending against the
Department at the time this Agreement is executed, or arising
thereafter from occurrences that took place prior to the
execution date of this Agreement. Nothing contained in this
paragraph shall in any way abrogate, modify or mitigate any
obligation of CSC under this Agreement to comply with Court
Orders/Decrees or other requirements imposed on CSC by the terms
of this Agreement.

8.4 CSC shall defend, indemnify and hold harmless the Department
and the State of Arizona from any claim, demand, suit,
liability, judgment and expense including attorney's fees and
other costs of litigation) arising- out of or relating to
injury, disease, or death of persons or violation of civil
rights, or damage to or loss of property resulting from or in
connection with the negligent performance of this Agreement
by CSC, its agents, employees, and subcontractors or any one
for whom CSC may be responsible. The obligations,
indemnities and liabilities assumed by CSC under this
paragraph shall not extend to any liability caused by the
negligence of the State or its employees or the Department
and its employees. CSC's liability shall not be limited by
any provisions or limits of insurance set forth in this

<PAGE>

Agreement. The State shall reasonably notify CSC of any
claim for which it may be liable under this paragraph.

8.5 Neither the Department nor CSC shall waive, release, or
otherwise forfeit any possible defense the Department or CSC
may have without the consent of the other party relative to
claims arising from or made in connection with the operation
of the secure prison by CSC. The Department and CSC shall
preserve all such available defenses and cooperate with each
other to make such defenses available for each other's
benefit to the maximum extent allowed by law.

8.6 CSC shall defend, indemnify and hold harmless the State and
the Department against any liability, including costs and
expenses, for infringement of any patent,. trademark or
copyright arising from the performance of this Agreement, or
for the use by the State or the Department of materials
furnished or work performed under this Agreement. The State
or the Department shall reasonably notify CSC of any claim
for which it may be liable under this paragraph.

8.7 Except as required by;A.R.S 41-1609.02 M.2., pertaining to
Contractor adequately providing a plan of insurance,
specifically including coverage or insurance for civil
rights claims and liabilities, CSC shall have no obligation
to insure, defend, indemnify or hold harmless the Department
or the State of Arizona from any claim, demand, suit,
liability, judgment or expense (including,, attorney fees
and other costs of litigation) arising out of or relating to
any Department Order, Court Order, Administrative Rule,
Federal or State requirement of law, which governs CSC
relative to the custody and supervision of inmates, and are
hereinafter referred to as Imposed Requirements. The State
of Arizona and the Department shall defend, indemnify and
save harmless CSC from any claims, demands, suit, liability,
judgment or expense (including, attorney fees and other
costs of litigation) arising out of or relating to such
Imposed Requirements. This paragraph shall not obligate the
State of Arizona or the Department to defend, indemnify or
save harmless CSC from: (i) any negligence described in
paragraph 8.4 above; (ii) its conduct in performing this
Agreement apart from Imposed Requirements; or (iii)
liability claims of third parties arising- from the
Department's participation in the hiring and the staff
training process set forth in Article IV herein.

<PAGE>

8.8 CSC shall protect, defend, indemnify and hold harmless the
Department from and against all liabilities, costs, charges
and expenses, including attorneys' fees and court costs and
other costs arising out of, or related to, the presence of,
or existence of any substance regulated under any applicable
federal, state or local environmental laws, regulations or
ordinances or amendments thereto because of: (i) any
substance that came to be located in or on the premises on
which the secure prison is located resulting from any use or
occupancy of the lands by CSC before or after the issuance
of the Agreement; or (ii) any release, threatened release,
escape, substance in, on, under, or from said premises in or
on which the secure prison is located that is caused, in
whole or in part, by any conduct, actions or negligence of
CSC, regardless of when such substance came to be located in
or on the premises where the secure prison is located.

8.8.1 For the purposes of this Agreement, the term "regulated
substance" shall include substances defined as "regulated
substances," "hazardous waste," "hazardous substances,"
"hazardous materials," "toxic substance" or "pesticides" in
the Resource Conservation and Recovery Act, as amended by
the Hazardous and Solid Waste Amendments of 1984, the
Comprehensive Environmental Response, Compensation and
Liability Act, the Hazardous Materials Transportation Act,
the Toxic Substance Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, the relevant local and state
environmental laws, and the regulations, rules and
ordinances adopted and publications promulgated pursuant to
the local, state and federal laws. This indemnification
shall include, without limitation, claims or damages arising
out of any violations of applicable environmental laws,
regulations, ordinances or subdivisions thereof, regardless
of any real or alleged strict liability on the part of CSC.
This environmental indemnity shall not be limited by the
limits of any insurance policy held by or for the benefit of
CSC. The environmental indemnity shall survive the
expiration or termination of this Agreement and/or any
transfer of all or any portion of the premises in or on
which the secure prison is located and shall be governed by
the laws of the State of Arizona.

8.8.2 In the event any such action or claim is brought or
asserted against CSC, the Department shall have the right,
subject to the right of CSC, to participate with CSC as
follows: (i) in making all final decisions with respect to

<PAGE>

CSC's liability for claims or damages, (ii) in conducting of any
further required cleanup, removal or remedial actions and/or
negotiation and defense of any claim indemnifiable under this
environmental indemnity provision,
having reasonable regard to the continuing conduct of the
operation/business of the secure prison located in and on the
premises and (iii) in negotiating and finalizing any agreement or
settlement with respect to any such claim or cleanup.

8.9 Neither CSC nor its insurer(s) may plead the defense of
sovereign immunity in any action arising out of the
performance of this Agreement.

ARTICLE IX
NOTICES AND AMENDMENTS

Notices

9.1 Any and all notices, requests or demands, including those
relative to default and termination, given or made upon the
par-ties hereto pursuant to or in connection with this
Agreement, unless otherwise noted, shall be delivered in
person or sent by United States Mail, postage prepaid to the
par-ties at their respective addresses as indicated on the
signature page of this document as well as to the Department
Monitor located at the secure prison and to the Department's
Contracts Administration Office at the address shown below.

Department of Corrections
Attention: Contracts Administrator 1645
West Jefferson, M/C 802,
Phoenix, Arizona 85007

9.2 Changes to the Agreement to accomplish the following may be handled by
written notice rather than formal amendment. All other changes shall be
accomplished by formal amendment, signed by all parties and reviewed by
the JLBC (see paragraph 9.3).

Notices regarding the below listed change actions shall, in addition to
the signatories indicated on the signature page

<PAGE>

of this Agreement, be sent to the Department Monitor and the
Department's Contracts Administration Office as indicated
above.

9.2.1 Chance of address of CSC or the Department.

9.2.2 Change of CSC or Department authorized signatory, or
designee. (Unless such change impacts respective
obligations under this Agreement.)

9.2.3 Change in the name or address of the person(s) to whom
notices are to be sent.

9.2.4 Changes in the name or address where invoices are to be
sent. .'

9.2.5 Changes to Attachments to this Agreement as long as a change does not
require a price or cost increase or impact obligations under this
Agreement.

Contract No: 6790
Continuation Sheet
Page 54

Amendments

9.3 All amendments to this Agreement shall be prepared,
finalized and maintained by the Department's Contracts
Administration Office. All amendments shall be reviewed by
the JLBC in accordance with A.R.S. 41-1609.01 A.

9.3.1 Amendments regarding ANNUAL cost or price increases that
are approved by the Department and funded by the
Legislature in accordance with A.R.S. 41-
1609.01 E. shall be effective on the anniversary date of
this Agreement, i.e.,
the anniversary of the date CSC received the first
Department inmate.

<PAGE>

9.3.2 Amendments regarding issues OTHER than annual cost or price
increases shall be effective when all signatures are affixed, or on a
later date as specified in each amendment.

9.3.3 The Department shall not entertain requests from CSC
regarding amendments for cost increases due to construction
related activities as such activities are
identified herein as the responsibility of CSC. During-
the term of this Agreement, to include the period of
renewal, CSC shall not submit a request for a per them
increase for construction related expenses unless the
Department identifies requirements beyond those identified
in RFP 6702 and shown on the plans, specifications and
final blueprints prepared by the CSC architect.

9.3.4 One original of each executed amendment shall be provided to CSC by
the Department's Contracts Administration Office within ten (10)
workdays after execution.

9.4 Each request from CSC to amend this Agreement shall be
submitted in writing to the Deputy Director, or designee with
a copy to the Contracts Administration Office. Written
documentation describing the reason for an amendment shall
accompany each request. Requests for modifications or
changes relative to increases in CSC's operating or
management costs shall be accompanied by completed Fee
Schedule and Budget Narrative Forms as provided by Attachment
#12 to justify such requests.

9.4.1 The Department shall have the right to request and receive additional
information, statistics, etc. and to direct the content, form and
format of the additional information as it deems necessary to validate
CSC's request for an amendment.

9.4.1.1 If, after two (2) consecutive requests for additional
documentation relative to a requested amendment the same cost
adjustment, CSC fails to provide the content, form, or format as
requested by the Department, the request for a cost increase may
be denied.

<PAGE>

9.4.1.2 Failure by CSC to provide all required or requested information
in a timely manner, thereby delaying Department action beyond the
upcoming anniversary date, shall nullify the amendment request
for the new annual period.

9.4.1.3 If CSC's request is found to be justified, Department
caused-delays , shall not nullify approving action by the
Department after the anniversary date. The parameters of the
executed amendment shall be retroactive to the anniversary date.

9.5 In accordance with A.R.S. 41-1609.01 D., annual price or cost
adjustments may be provided to CSC, except that an adjustment (increase)
may be made only once each year effective on the anniversary date of the
Agreement.

9.5.1 CSC must submit a request for an annual price or cost increase to the
Department Monitor at least six (6) months prior to the anniversary
date of this Agreement. Requests must be accompanied by supporting
information as indicated in Paragraph 9.4 et. seq.

9.5.2 If an annual cost or price increase is authorized, it shall
be paid to CSC in the form of a revised per them rate to be
paid per inmate. The amount of the adjustment shall not
exceed the percent of change in the average consumer price
index (CPI) established for the most recent calendar year
as published by the United States Department of Labor,
Bureau of Labor Statistics, not to exceed the Department's
then current per them rate.

9.5.2.1 The "base" upon which increases will be calculated shall be the
total amount paid in per them by the Department to CSC for RTC
and DUI inmates during the last previous contract year.

<PAGE>

A contract year is twelve (12) months in length.

The first contract year shall begin on the date CSC receives the first
Department inmate and shall continue for the next twelve months until the
anniversary of the date the first Department inmate was assigned to the secure
prison. The anniversary date shall mark the beginning of each ensuing contract
year.

9.5.2.2 The base shall be multiplied by a percentage not to exceed the
CPI specified above. The resulting product shall be calculated to
reflect a new daily rate based on 400 DUI and 200 RTC inmates.
Attachment #10 shall be revised to reflect new per them rates.

9.5.3 Annual cost or price adjustments (increases) approved by the Director
and Deputy Director, shall be acknowledged by formal amendment to
this Agreement in the manner set forth in this Article.

9.6 Subsequent to execution of this Agreement (See Article II), circumstances
may dictate that CSC bear additional costs relative to operation and management
services in order to be in compliance with new Court Orders/Decrees or laws
applicable to the Department or with newly issued written instructions. Requests
from CSC for modifications or changes which address the impact of such
additional costs shall be received within sixty (60) days after CSC's
implementation of the new requirement. The Department's then current per them
rate shall not be exceeded when requesting per them increases, due to additional
costs.

9.6.1 Requests from CSC must be accompanied by supporting-
information as indicated in Paragraph 9.4 et seq.

9.6.2 In accordance with A.R.S. 41-1609.01 E., Department
supported cost or price increases shall be promptly
presented to the JLBC for review. The Department shall use
its best efforts to support each cost or price increase.
The Department may support CSC's request for retroactive

<PAGE>

payment depending upon the individual circumstances related to each
request for cost increase.

9.6.2.1 Any cost or price increase shall be acknowledged by formal
amendment to this Agreement in the manner set forth in this
Article.

9.7 While the Contractor has the right to request increases as described in
Paragraphs 9.5 and 9.6, any increase is contingent upon availability of
appropriated dollars.

ARTICLE X
DEFAULT

10.1 Each of the following may constitute an Event of Default
(Default) on the part of CSC.

10. 1. 1 A material failure to keep, observe, perform, meet
or comply with any covenant, agreement, term or provision of
this Agreement when such failure continues for a period of
twenty (20) days, unless otherwise stated herein, after CSC
has received written notice thereof.

10. 1.2 Failure to observe, perform, meet, or comply with
any covenant, agreement, term, or provision requiring an
action within a specified time frame.

10.1.3 A material failure to meet or comply with any Court Order, Federal or
State requirement or law, Administrative Rule, Department Order, etc.
for which CSC has not received a prior written waiver from the
Department when such failure continues for a period of twenty (20)
days after CSC has received written notice thereof.

<PAGE>

10.1.3.1 A failure to provide a facility that is in full
compliance with Americans with Disabilities Act
Accessibility Guidelines (ADAAG).

10. 1.4 A failure to maintain the secure prison and related
infrastructure and support systems in compliance with all
Federal and State codes, rules and regulations.

10.1.4.1 CSC shall immediately provide copies of notices received
regarding violations of Federal, State or local codes, rules and
regulations relative to building, fire, health or safety codes
and ADAAG. Copies of all notices shall be provided in accordance
with Article IX, Paragraph 9.1.

Violations as described in 10.1.4.1 that affect the immediate
health or safety of staff or assigned inmates, e.g., food preparation, water or
sewer contamination, gas leak, etc., shall be rectified, at least on a temporary
basis, within two (2) hours after CSC becomes aware of the violation or
deficiency. CSC shall provide verbal notice of the violation(s) to the
Department's Contract Monitor immediately and provide copies of relevant
Significant Incident Reports (SIRs).

Within four (4) hours after becoming aware of a violation or deficiency
that affects the immediate health or safety of staff or assigned inmates, CSC
shall provide an information report to the Department Monitor describing at
least the nature and scope of the problem, proposed plan to cure the problem to
include the anticipated time frame to complete remedial action.

The Department shall, within two (2) hours after receipt of the information
report, advise CSC of acceptance or rejection of the plan and whether an
Event(s) of Default will be declared in accordance with Article X based on facts
presented.

Violations or deficiencies of codes, rules and regulations as
described in 10. 1. 4. 1 that do not pose an immediate threat to the
life and safety of the staff or assigned inmates shall be corrected
within twenty (20) days after the violation or deficiency becomes

<PAGE>

known to CSC. Failure to comply may result in an Event(s) of Default
being declared in accordance with Article X.

10. 1. 5 Written admission by CSC of its inability to:

10.1.5.1 Pay its debts.

10.1.5.2 Make a general assignment for the benefit of
creditors.

10.1.5.3 Suffer a decree or order appointing a receiver or trustee for it
or substantially all of its property to be entered and, if
entered without its consent, not to be stayed or discharged
within sixty (60) days.

10.1.5.4 Suffer proceedings under any law relating to bankruptcy,
insolvency, or the reorganization or relief of debtors to be
instituted by or against it and, if contested by it, not to be
dismissed or stayed within sixty (60) days.

10.1.5.5 Suffer any judgment, writ of attachment or execution, or any
similar process to be issued or levied against a substantial part
of its property which is not released, stayed, bonded or vacated
within sixty (60) days after.
issue or levy.

10. 1. 6 The discovery by the Department that any statement,
representation or warranty made by CSC is false, misleading or
erroneous in any material respect.

10. 1.7 Failure by CSC to maintain any performance bond or
insurance required by this Agreement.

10.2 If a Default as outlined in Paragraphs 1 0. 1. 1 through 10.
1. 7 occurs and CSC reasonably believes that such Default
cannot be cured within the specified twenty (20) day time
period, but does believe that through diligent, ongoing and
conscientious effort, the Default can be cured within a
reasonable time period not to exceed six (6) months, CSC
may, within the twenty (20) day time period, submit a plan
for curing the Default to the Deputy Director, or designee.

<PAGE>

CSC's submitted plan shall indicate in detail how CSC proposes to cure
the Default.

10.2.1 Upon receipt of any such plan submitted by CSC, the Deputy
Director, or designee, shall, within five (5) workdays after
receipt, review the plan and determine whether to accept or reject
the submitted plan to cure.

10.2.2 The Deputy Director, or designee, shall provide written notice to CSC
if the plan is accepted. The Department agrees that it will not
exercise its remedies hereunder with respect to a declared Default
for so long as CSC diligently, conscientiously and in' a timely
manner undertakes to cure the Default in accordance with the approved
plan.

10.2.3 The Deputy Director, or designee, shall provide written notice to CSC
if the plan is rejected. During the period of time CSC's request is
pending before the Deputy Director, the twenty (20) day cure period
shall not be suspended, nor shall the Department's legal or equitable
remedies be affected or waived.

10.3 Upon an occurrence of Default by CSC, the Department shall, in its sole
discretion, have the right to pursue any remedy it may have at law or
in equity, including, but not limited to:

10.3.1 Reducing its claim to a judgment.

10.3.2 Taking action to cure the Default, in which case the Department may
offset costs incurred to cure the Default against any payments owed
to CSC. This action shall not preclude the Department's right to file
a claim under the Performance Bond for reimbursement of damages.

10.3.3 Assessing liquidated damages.

<PAGE>

10.3.3.1 For each calendar day that any Default by CSC
continues after the last day of the specified cure
period, the sum of $500 per day may be deducted from
funds payable to CSC under this Agreement as liquidated
damages until such Event(s) of Default is cured or this
Agreement is terminated, whichever occurs first, not as
a penalty but as damages for the Department's cost
resulting from the default..

l0.3.3.2 Assessment of liquidated damages shall preclude the
following Department actions: (i) deduction of any costs incurred
pursuant to . Paragraph 10.3.1 from amounts otherwise due CSC; and
(ii) assertion of claims for actual damages alleged to have
resulted from such Event(s) of Default, but shall not preclude the
Department from pursuing action relative to the Performance Bond.

10.3.4 Terminating the Agreement and removing the inmates
from the secure prison.

10.4 Each of the following shall constitute a Default on the part
of the Department.

10.4.1
AfterappropriationoffundsbytheState,failurebytheDe
partmenttopayCSC within the time frames stated in Article
VI, unless the failure to pay is a result of the
following.

10.4.1.1 Off-setting any damages, including liquidated damages, assessed
by the Department against CSC in accordance with this Agreement.

10.4.1.2 Disputed per them charges as authorized by Article
VI.

10.4.2 Failure by the Department to observe and perform any
material covenant, condition or agreement to be observed or
performed on its part, or its failure or refusal to
substantially fulfill any of its material obligations
hereunder and such failure continues after receipt of
notice from CSC and after the cure period specified by CSC
(which shall not be less than twenty [20] days) has ended,
unless such failure is caused by the Default of CSC.

<PAGE>

10.5 If a Default as outlined in Paragraph 10.4.2 occurs and the
Department reasonably believes that such Default cannot be
cured within the time period stipulated by CSC, but does
believe that through diligent, ongoing and conscientious
effort the Default can be cured within a reasonable time
period not to exceed six (6) months, the Department may
submit a plan for curing the Default to CSC. The
Department's submitted plan shall indicate in detail how the
Department proposes to cure the Default.

10.6 Upon an occurrence of Default by the Department which cannot
be resolved within the time periods authorized by paragraphs
10.4.2 and 10.5, CSC's sole remedy shall be to terminate
this Agreement upon provision of ninety (90) days prior
written notice. Upon such termination, CSC shall be
entitled to receive payment from the Department for all
services furnished under this Agreement up to and including
the date of termination, if services have been satisfactorily
provided and are not otherwise subject to offset as provided by law.

ARTICLE XI
FORCE MAJEURE

11.1 Except for payment of sums due, neither party shall be liable to the
other, nor be deemed in Default under this Agreement, if and ' to the
extent that such party's performance of this Agreement is prevented by
reason of Force Majeure.

Contract No: 6790
Continuation Sheet

Page. 60

11.1.1 - The term "Force Majeure" ", means an occurrence that
is beyond the control of the ,party affected and occurs

<PAGE>

without its fault or negligence. Without limiting the foregoing,
Force Majeure includes acts of God; acts of the public enemy; war;
riots; strikes; mobilization; labor disputes; civil disorders; fire;
flood; lockouts; injunctions; intervention-acts; and other similar
occurrences beyond the control of the party declaring Force Majeure
which such party is unable to prevent by exercising reasonable
diligence.

11.1.2 The Force Majeure shall be deemed to commence when the party
declaring Force Majeure notifies the other party of the existence
of the Force Majeure and shall be deemed to continue as long as the
results or effects of the Force Majeure prevent the party from
resuming performance in accordance with this Agreement.

11.1.2.1 If either party is delayed at any time in the
performance of Agreement obligations by Force Majeure,
the delayed party shall notify the other party in writing
of such delay as soon as is practical after commencement
thereof and shall specify the causes of such delay in the
notice. The notice shall be hand delivered or mailed
certified-return receipt and shall make a specific
reference to this Article, thereby invoking its
provisions.

The delayed party shall make every effort to cause such delay to cease as soon
as practicable and shall notify the other party in writing, when it has done so.

Such delay shall not constitute Default or give rise to any claim on damages or
loss of anticipated profits.

11.1.3 If either party experiences Force Majeure, the following
may occur:

11.1.3.1 This Agreement may be extended by amendment for a
period of time equal to the time the results or
effects of such delay prevent the delayed party

<PAGE>

from performing. Any amendment shall be subject to
the requirements of A.R.S. 41-1609.01A.

11.1.3.2 This Agreement may be terminated by either party. Said
termination shall not constitute Default hereunder or give rise
to any claim for damages or loss of anticipated profits.

11. 1.4 Force Majeure shall not include the following
occurrences:

1 1. 1.4. 1. Late delivery of equipment or
materials caused by congestion at a manufacturer's
plant or elsewhere, or an oversold condition of the
market.

1 1. 1.4.2. Late performance by a subcontractor unless
the delay arises out of a Force Majeure occurrence in
accordance with this Force Majeure term and condition.

11.1.4.3 Failure or refusal to act by Government authority other
than the Department.

11.1.4.4 CSC's failure to acquire or maintain required insurance
or performance bond.

11.1.4.5 CSC's failure to acquire and maintain required license to operate
as a security agency and to license designated staff as security
officers.

ARTICLE XII
TERMINATION

12.1 In addition to other rights set forth elsewhere in this Agreement, the
Department reserves the right to terminate this Agreement in whole, or
in part due to the following:

<PAGE>

12.1.1 In the event State funds for this Agreement become
unavailable due to non-appropriation or ex-appropriation.

12.1.1.1 An event of non-appropriation or ex-appropriation shall not cause
the Department to be in Default hereunder, but upon any such
event, this Agreement shall automatically terminate without
further obligation or liability to the Department as of the last
day for which funds are available.

12.1.1.2 Department representatives cannot make any statements
or provide any warranties as to whether an appropriation
will be made by the Legislature; however, the Department
shall, during the term of this Agreement, use its best
efforts to ensure that adequate written information is
submitted and verbal testimony provided through
appropriate budgetary processes to request funds at least
equal to the payments required hereunder for each year of
the contract term.

12.1.2 CSC's failure to post an annual Performance Bond equal to 100% of the
annual per them as required by Article VIII of this Agreement.

12.1.3 CSC's failure to provide insurance coverages that meet the
requirements set forth
in Article VIII and Attachment #8.

ARIZONA DEPARTMENT OF CORRECTIONS
GENERAL PROVISIONS

1. DEFINITIONS

As used throughout these General Provisions, the following terms shall have the
meanings set forth:

<PAGE>

a. "Contractor" means the person, fu-m, or organization
performing the services or delivering the items described in
this Contract.

b. "State" means the State of Arizona.

C. "Department" means the Arizona Department of Corrections.

d. "Director" means the Director of the Arizona Department of
Corrections or his duty authorized representative.

e. "Subcontract" means any contract between the original Contractor and a
third party for the provision of items or services which the original
Contractor has himself contracted to perform, except purchase orders
for standard commercial equipment, products or services.

f. "Project Director" means the person designated to represent
the Department in the program administration of this
Contract.

9. "Days" means calendar days unless otherwise specified.

h. "Gratuity" means a payment, loan, subscription, advance, deposit of
money, services, or anything of more than nominal value, present or
promised, unless consideration of substantially equal or greater value
is received.

i. "Solicitation" means a request for proposals, or a request
for quotation.

i. "Special Provisions" means those provisions additional to or
in clarification of the General Provisions. If the General
Provisions and Special Provisions conflict, the Special
Provisions shall govern.

k. "Scope of Services" means those provisions of this Contract
which delineate the scope and manner of the specific

<PAGE>

services to be performed and describe the items to b-@ supplied in the
performance of this Contract. In the event of a conflict, the terms of
the Scope of Services shall prevail over the Special Provisions,
General Provisions or any attachments to the Contract.

- -1-
Rev. 05/94

2. GENERAL REQUIREMENTS

a. Intergovernmental agreements entered into pursuant to
A.R.S. 11-952 et seq. shall become effective on the
date filed with the Secretary of State or at a later
date as specified in the Contract. All other contracts
shall become effective on the date executed by the
Director or designee or at a later date as specified in
the Contract.

b. This Contract shall be construed in accordance with Arizona law
including, where applicable, the Uniform Commercial Code as adopted by
the State of Arizona. Any legal action shall be initiated in an
appropriate court of the State of Arizona.

C. The Arizona Procurement Code, Arizona Revised Statutes
("A.R.S.") Title 41, ' Chapter 23, and its implementing
rules, Arizona Administrative Code ("A.A.C. ") Title 2,
Chapter 7, are a part of this Contract as if fully set forth
in it.

d. Each provision of law and any terms required by law to be in
this Contract are a part of this Contract as if fully stated
in it.

e. This Contract is issued under the authority of the signatory for the
Department. Changes to the Contract, including the addition of work or
materials, the revision of payment terms, or the substitution of work
or materials, directed by an unauthorized State employee or made
unilaterally by the Contractor are violations of the Contract and of
applicable

<PAGE>

law. Such chances, including unauthorized written contract amendments,
shall be void and without effect, and the Contractor shall not be
entitled to any claim under this Contract based on those changes.

f. This Contract is intended by the parties as a final and complete
expression of their agreement. No course of prior dealings between the
parties and no usage of the trade shall supplement or explain any term
used in this Contract.

Either party's failure to insist on strict performance of any term or condition
of the Contract shall not be deemed a waiver of that term or condition even if
the party accepting or acquiescing in the nonconforming performance knows of the
nature of the performance and fails to object to it.

h. The Contract shall be modified only through a written contract
amendment within the scope of the Contract signed by an authorized
signatory on behalf of the Department and the authorized representative
of the Contractor.

i. The provisions of this Contract are severable. Any term or
condition deemed illegal or invalid shall not affect any
other term or condition of the Contract.

i. The Contractor shall obtain and maintain all licenses, permits and
authority necessary to do business and render services under this
Contract, and shall comply with all laws regarding unemployment
insurance, disability -insurance and workers' compensation.

k. The Contractor shall abide by all Department Rules, Policies
and Procedures as applicable to Contractor fulfilling the
obligations outlined in this Contract.

Any allegations of non-compliance with Department Rules, Policies and/or
Procedures, or other Contractor misconduct shall be subject to investigation by
the Department.

<PAGE>

1. The parties hereto agree that the Contractor shall be deemed
an independent Contractor in the performance of this Contract,
and shall not be considered an officer, employee or agent of the
State unless Contractor is another State Agency.

3. OTHER CONTRACTS

The Department may perform additional work related to this Contract or award
other contracts for such work. The Contractor shall cooperate fully with such
other contractors and/or State employees in the scheduling and coordination of
its own work with such additional work.

4. SUBCONTRACTS AND ASSIGNMENTS

a. Unless otherwise agreed by the terms of this Contract, the
Contractor shall not subcontract with any other party for the
furnishing of any of the work or services contracted for
herein without the prior written approval of the Department.
The subcontract shall incorporate by reference the terms and
conditions of this Contract.

b. No rights or obligations of the Contractor under this
Contract shall be assigned without the prior written
approval of the Department.

5. OWNERSHIP OF INFORMATION

Title to all reports, information, data, computer data elements and software
prepared by the Contractor in performance of this Contract shall vest in the
State. Subject to applicable State and Federal laws and regulations, the State
shall have full and complete rights to reproduce, duplicate, disclose and
otherwise use all such information. The Contractor shall not use or release
these materials without the prior written consent of the State.

<PAGE>

6. ADVERTISING AND PROMOTION OF CONTRACT

The Contractor shall not advertise or publish information for commercial benefit
concerning this Contract without the prior written approval of the Department.

7. CONFIDENTIALITY OF RECORDS

The Contractor shall establish and maintain procedures and controls that are
acceptable to the Department for the purpose of assuring that no information
contained in its records or obtained from the Department or from others in
carrying out its functions under this

Contract shall be used or disclosed by the Contractor or the Contractor's
agents, officers, or employees, except as is essential to the performance of
duties under this Contract.

Persons requesting such information should be referred to the Department. The
Contractor also agrees that any information pertaining- to offenders shall not
be divulged, 0 other than to employees or officers of Contractor as is required
for the performance of duties under the Contract, except upon the prior written
consent of the Department.

8. BOOKS AND RECORDS

Contractor shall retain and shall require all of its subcontractors to
retain for inspection and audit by the State all books, accounts,
reports, files and other records relating to the bidding and performance
of this Contract for a period of five (5) years after its completion.

Upon request by the Department, a legible copy of all such records shall be
produced by the Contractor at the administrative office of the Department or at
the office of the State Auditor. The original of all such records shall also be
available and produced for

inspection and audit when requested by the State Auditor or the
Department to verify the
authenticity of copy.

<PAGE>

9. FINANCIAL AUDIT

At any time during, the term of this Contract, the Contractor's or any
subcontractor's books and records are subject to audit by the Department and by
any other appropriate agent of State or Federal Government, to the extent that
the books and records relate to the performance of the Contract or subcontract.

10. REPORTS

Records which relate to disputes, litigations or the settlement of claims
arising out of the performance of this Contract, or to cost and expenses of this
Contract as to which exception has been taken by the Director, or his designee,
shall be retained by the Contractor until such appeals, litigations, claims or
exceptions have been finally resolved.

11. VISITATION AND INSPECTION

Department representatives or other appropriate agents of the State or
Federal government shall. with timely notice to the Contractor, be entitled to
review and inspect the Contractor's facilities, its program operation and those
records which pertain to the program or services funded by this Contract during,
the term of this Contract.

12. PROGRAM EVALUATION

The Department shall be entitled, during the term of this Contract, to evaluate
Contract Services. Evaluations will assess the quality and impact of Contract
Services, either in isolation or in comparison with other similar services and
will assess the Contractor's progress and success in achieving the goals and
objectives set forth in the Scope of Services.

13. INDEMNIFICATION

Contractor shall indemnify, defend and hold harmless the State from any claim,
demand, suit, liability, judgment and expense (including any attorneys' fees and
other costs of litigation) arising out of or relating to injury, disease, or
death of persons or damage to or loss of property resulting from or in
connection with the negligent performance of this Contract by the

<PAGE>

Contractor, its agents, employees, and subcontractors or any one for whom
the Contractor may be responsible. The obligations, indemnities and liabilities
assumed by the Contractor under this paragraph shall not extend to any liability
caused by the negligence of the State or its employees. The Contractor's
liability shall not be limited by any provisions or limits of insurance set
forth in this Contract. The Department shall reasonably notify the Contractor of
any claim for which it may be liable under this paragraph

14. INSURANCE

a. Without limiting any liabilities or any other obligations of
Contractor, Contractor shall provide and maintain and cause its
subcontractors to provide and maintain insurance coverage with
forms and insurers acceptable to the State, until all obligations
under this Contract are satisfied, as follows:

(1) Workers' Compensation insurance to cover obligations imposed
by Federal and State statutes having jurisdiction of its
employees engaged in the performance of the Services, and Employers'
Liability insurance with a minimum limit of one hundred
thousand dollars ($100,000). Evidence of qualified self-insured
status shall also suffice for this section.

(2) Commercial general liability insurance with a minimum combined single
limit of one million dollars ($1,000,000) each occurrence. The policy
shall include coverage for bodily injury, personal injury, broad form
property damage, blanket contractual, contractor's protective and
products and completed operations.

(3) Comprehensive automobile liability insurance with a combined single
limit for bodily injury and property damage of not less than one
million dollars ($1,000 , 000) each occurrence with respect to
Contractor vehicles (whether owned, hired,

<PAGE>

non-owned), assigned to or utilized in the performance of
this Contract.

(4) Professional liability insurance with limits of one million
dollars ($1,000,000) each claim.

b. The policies required by section a. (2), (3) and/or (4)
shall name the State of Arizona, its agents, officials and
employees as additional insured and shall specify that the
insurance afforded Contractor shall be primary insurance and
that any insurance coverage carried by the State, the
Department or its employees shall be excess coverage except
as provided by State law, and not contributory insurance to
that provided by the Contractor..

C. Failure on the part of the Contractor to procure and
maintain the required liability insurance and provide proof
thereof to the Department within thirty (30) days following
the commencement of a new policy period, shall constitute a
material breach of the. Contract upon which the Department
may immediately terminate this Contract. Prior to the
effective date of this Contract, the Contractor shall
furnish the Department with an appropriately executed
certificate of insurance. Such certificate shall identify
this Contract and contain provisions that coverage afforded
under the policies shall not be canceled, terminated or
materially altered until at least thirty (30) days prior
written notice has been given to the Department. The
Contractor may utilize the State of Arizona Certificate of
Insurance (RM-7200.1) or other forms acceptable to the State
to identify insurance coverage. The State of Arizona
reserves the right to request and receive certified copies
of any or all of the above policies and/or endorsements.

15. WARRANTY

Contractor warrants that all non-service items furnished pursuant to this
Contract shall be free from defects and shall conform to Contract requirements.
Any items determined by the Department to be in nonconformity with this warranty
shall be repaired or replaced, at the Department's option and at the
Contractor's expense, for up to one year following the completion or termination
of this Contract. The Contractor warrants that, for

<PAGE>

one year after acceptance by the Department of the materials,
they shall be:

a. Of a quality to pass without objection in the trade under
the Contract description;

b. Fit for the ordinary purposes for which the materials are
used;

C. In conformance with the written promises or affirmations of
fact made by the Contractor.

16. RIGHT TO ASSURANCE

If the State in good faith has reason to believe that the Contractor
does not intend to perform or continue performing this Contract, the
Department may demand in writing that the Contractor give a written
assurance of intent to perform. The demand shall be sent to the
Contractor by certified mail, return receipt required. Failure by the
Contractor to provide written assurance within the number of days
specified in the demand may, at the Department's option, be the basis
for terminating the Contract under paragraph 19.

17. DISPUTES

a. In the event of a controversy concerning a question of fact arising under
this Contract which cannot be resolved by mutual agreement between the Contract
Administrator and the Contractor, the aggrieved or dissatisfied person may file
a written request for review with the Department's Director. The request for
review must specifically outline the parameters of the controversy and only
those facts presented within those specific parameters will be reviewed by the
Director who shall adhere to the Arizona Procurement Rules and Regulations in
responding to' the issue presented. The Contractor may appeal the Director's
final decision to the Director. of the Department of Administration within five
days of receipt of the Director's decision in accordance with the Arizona
Procurement Rules and Regulations. Hearings on appeals of claims decisions shall
be conducted as contested cases pursuant to the Arizona Procurement Rules and
Regulations and the Arizona Administrative Procedures Act (Article 1, Chapter 6,
Title 41, Arizona Revised Statutes) except for those claims which are subject to
arbitration as set

<PAGE>

forth in paragraph "b" below. Pending, final decision of the controversy, the
Contractor shall proceed diligently with the performance of the Contract and in
accordance with the Director's decision.

b. The parties agree to use arbitration to resolve
disputes to the extent required by A.R.S. 12-1518.

18. TERMINATION OF CONTRACT

The Department, or the State, may terminate this Contract under any of
the conditions following:

a. The Department, in addition to other rights set forth elsewhere in the
Contract, reserves the right to terminate this Contract, in whole, or
in part without cause, effective thirty (30) days after mailing written
notice of termination by certified mail, return receipt requested, to
the Contractor.

(1) In the event of termination as provided in this section, the Contractor
shall stop all work as specified in the notice of termination and
immediately notify all subcontractors in writing to do the same.

(2) Contractor shall be paid the Contract price for all services
and items completed. In addition, Contractor will be paid
its reasonable actual costs for work in progress as
determined by generally accepted accounting principles and
practices. Upon such termination, the Contractor shall
deliver to the Department a complete set of all documents,
programs and other information described in the Contract.

b. The Department may, by written notice to the Contractor, also terminate
this Contract if it is found that gratuities in the form of
entertainment, gifts, or otherwise were offered or given by the
Contractor, or any agent or representative of the Contractor, to any
officer or employee of the State with a view toward securing a contract
or

<PAGE>

securing favorable treatment with respect to the awarding, or amending
or the making of any determinations with respect to the performance of
such contract; provided, that the existence of the facts upon which the
Department makes such findings shall be in issue and may be reviewed in
any competent court. If the Contract is terminated under this section,
unless the Contractor is a governmental agency, instrumentality or
subdivision thereof, the Department shall be entitled, by way of
penalty, to exemplary damages in the amount of three times the costs
incurred by the Contractor in providing any such

gratuities to any such officer or employee, in addition to any other
damages to which it may be entitled by law.

C. The State of Arizona may cancel this Contract without
penalty or further obligation to the State pursuant to
A.R.S. 38-511, if any person significantly involved in
initiating, negotiating, securing,, drafting or creating
this Contract on behalf of the State of Arizona is or
becomes at any time, while this Contract or any extension of
this Contract is in effect, an employee of any other party
to this Contract in any capacity or a consultant to any
other party to this Contract with respect to the subject
matter of this Contract. Cancellation shall be effective
when written notice is received by all parties to this
Contract, unless the notice specifies a later time.

19. DEFAULT

a. The Department, in addition to other rights set forth elsewhere
in the Contract, may at any time terminate this Contact in whole
or in part, if it is determined that the Contractor has failed to
perform any requirements of this Contract or has failed to make
satisfactory progress toward performance.

b. The Contractor shall continue the performance of this
Contract to the extent not terminated under the provisions
of this section.

<PAGE>

C. In the event the Department terminates this Contract in
whole or part as provided in this section, the Department
may procure, upon such terms and in such manner as it may
deem appropriate, services similar to those so terminated,
and unless the Contractor is a governmental agency,
instrumentality or subdivision thereof, it shall be liable
to the Department for any excess costs incurred by the
Department in obtaining- such similar services.

d. If this Contract is terminated as provided herein, the
Department, in addition to any other rights provided in this
section. may require the Contractor to transfer title to and
deliver to the State, in the manner and to the extent directed by
the Department, such partially completed reports or other
documentation as the Contractor has specifically, produced or
specifically acquired for the performance of such part of this
Contract as has been terminated. Payments for completed reports
and other documentation delivered to and accepted by the
Department shall be at the contract price. Payment for partially
completed reports and other documentation delivered to and
accepted by the Department shall be in an amount agreed upon by
the Contractor and the Department.

e. The rights and remedies of the Department enumerated in this
section shall be in addition to any other rights and
remedies provided by or under this Contract.

20. NON-DISCRIMINATION

The Contractor shall comply with State Executive Order No. 75-5 which mandates
that all persons, regardless of race, color, religion, sex, age, national origin
or political affiliation, shall have equal access to employment opportunities,
and all other applicable Federal and State laws, rules and regulations,
including the Americans with Disabilities Act. The Contractor shall take
affirmative action to ensure that applicants for employment and employees are
not discriminated against due to race, creed, color, religion, sex, national
origin or disability. The Department is an Equal Employment Opportunity Agency.

<PAGE>

21. ASSIGNMENT OF OVERCHARGES

The Contractor assigns to the State any claim for overcharges resulting from
antitrust violations to the extent that those violations concern materials or
services supplied by third parties to the Contractor toward fulfillment of this
Contract.

22. CONTRACT PAYMENTS

a. Funds may not presently be available for performance under
this Contract beyond the current fiscal year. No legal
liability on the part of the State for any payment may arise
under this Contract beyond the current fiscal year until funds
are made available for performance of this Contract. The
Department will make reasonable efforts to secure such funds.
The Department shall not be liable for any purchases and/or
contracts entered into by the Contractor in anticipation of
such funding.

b. Payments made by the Department to the Contractor are conditioned
upon receipt of applicable, accurate and complete reports to be
submitted by the Contractor.

C. If the Contractor is in any manner in default in the
performance of any obligation under this Contract, or if
audit exceptions are identified, the Department may, at its
option and in addition to other available remedies, either
adjust the amount of payment or withhold payment until
satisfactory resolution of the default or exception. The
Contractor shall have the right to written notice of the
Department's action in adjusting the amount of payment or
withholding payment. Under no circumstances shall the
Department authorize payment to the Contractor that exceeds
an amount specified in the Contract without a written
amendment to the Contract. The Department may, at its
option, withhold final payment under the Contract until
receipt of all final reports and deliverables or completion
of any financial audit.

23. RECOUPMENT OF CONTRACT PAYMENTS

<PAGE>

a. Any unearned Department funds that have been paid to the Contractor and
remain in its possession at the end of the contract period, or at the time of
termination of the Contract, shall be refunded to the Department within
forty-five (45) days thereafter.

b. The Contractor shall reimburse the Department for all contract funds
received which are determined by the Department or the Auditor General
not to have been earned in accordance with the terms of the Contract.

C. If Federal or State audit exceptions are made relating to this
Contract the Contractor shall reimburse all costs incurred by the State
of Arizona and the Department associated with defending against the
audit exception or performing an audit or follow-up audit including but
not limited to: audit fees, court cost travel costs, penalty
assessments, attorney fees for the Assistant Attorney General, based
upon reasonable charges in the community, and all other costs of
whatever nature.

d. Immediately upon notification from the Department, the
Contractor shall reimburse the amount of the audit exception and
any other related costs directly to the Department.

e. The Contractor shall indemnify the Department and the State of Arizona
and hold them, their officers, agents, and employees harmless against
any and all liability or damages in regard to audit exceptions.

24. INFRINGEMENT OF PATENTS AND COPYRIGHTS

a. The Contractor, at his own expense, shall defend any claim or
suit which may be brought against the State for the infringement
of United States patents or copyrights arising, from the
Contractor's or Department's use of any equipment, materials, or
information prepared or developed in connection with performance
of this Contract and in any suit will satisfy any final judgment
for such infringement. The Department shall reasonably notify
the Contractor of any claim for which it may be liable under
this paragraph.

<PAGE>

b. If principles of governmental or public law are involved ., the
State may participate in the defense of any such action, but no costs
or expenses shall be incurred for the account of Contractor without
written consent.

C. If in Contractor's opinion, the equipment, materials or
information mentioned in paragraph a. above is likely to or
does become the subject of a claim of infringement of a
United States patent or copyright, then without diminishing
Contractor's obligation to satisfy any, final award,
Contractor may, with the Director's written consent,
substitute other equally suitable equipment, materials and
information, or at Contractor's option and expense, obtain
the right for Contractor or the Department to continue the
use of such equipment, materials and information.

25. NOTICES

Whenever notice is required pursuant to the terms of this Contract, said notice
shall be in writing, and shall be directed to the persons and addresses
specified for such purpose in Scope of Services or to such other persons and/or
addresses as either party may designate to the other party by written notice.
Notice shall be delivered in person or by certified mail, return receipt
requested.

26. SUSPENSION OR DISBARMENT

The Department may, by written notice to the Contractor, immediately terminate
this Contract if it is determined that the Contractor has been disbarred,
suspended or otherwise lawfully prohibited from participating in any public
procurement activity.

27. NONEXCLUSIVE REMEDIES

The rights and the remedies of the State under this Contract are not exclusive.

<PAGE>

SPECIAL PROVISIONS

With regard to the General Provisions:
All references to Contractor shall mean Correctional Services Corporation
(CSC). All references to Contract shall mean "Agreement.

PARAGRAPH 13
Paragraph 13 is replaced by Article VIII of the Scope of Services.

PARAGRAPH 14
Paragraph 14 is replaced by Paragraphs 8.2-4, 8.2.5 and Attachment #8 of this
Agreement.

PARAGRAPH 18
Subparagraph a is amended to read as follows:

The Department, in addition to other rights set forth elsewhere in the
Agreement reserves the right to terminate this Agreement, in whole, or in part
without cause, one year after receipt of the first inmate, effective ninety
(90) days after mailing written notice of termination by certified mail,
return receipt requested, to CSC.

PARAGRAPH 24

Paragraph 24 is replaced by Paragraph 8.6 in Article VIII of the
Scope of Services

<PAGE>

ATTACHMENT #2

POSITION DESCRIPTION

Name of Contractor:

Position Name:

Check the box if this is a security position. Check the box if this is
a position performing case management services.

Check the box if this is a position responsible for entry of inmate
information into the Adult Inmate Management System (AIMS)

WORK DESCRIPTION - In general terms, what will the work assignment be for an
employment working in this position?

WORK PRODUCTS - What will result from the work performance?

RESPONSIBILITY - For what will the employee in this position be held
responsible? (For example, money, equipment, safety of others, product quality,
work methods, policies or procedures, etc.)

AUTHORITY - What kinds of decisions will the employee in this position be
authorized to make? What kinds of decisions will require clearance from the
supervisor?

KNOWLEDGE - What does an employee have to know to perform satisfactorily in this
position? By knowledge is meant familiarity with something or possession of
information or understanding in the mind. State specifically what the employee

<PAGE>

must know. (Do not give degrees and do not list entire fields,
such as chemistry, engineering or psychology.)

SKILLS - What skills must the employee in this position have acquired in order
to perform work satisfactorily? By skill is meant the developed capability to
perform tasks or actions effectively. A skill may be developed in a variety of
manual, physical, intellectual or interpersonal activities. Please be specific.

WORK ACTIVITIES - What are the actual work activities the employee will
experience in the course of performing work assignments? What will the employee
be doing?

MINIMUM QUALIFICATIONS -

To whom will any employee in this position report?

<PAGE>

ATTACHMENT #3

Name of Contractor: Correctional Services Corporation

SUBCONTRACTORS
(Please duplicate this page if necessary)

Name (Business): Correctional Services, Inc.
Address: 12647 Olive Boulevard, St. Louis, Missouri 63141
Telephone Number(s):
Type of Service: Inmate Medical Services
Contact Person: Michael G. Pfeiffer, Executive Vice President

Name (Business):
Address:
Street City Zip
Telephone Number(s):
Type of Service:
Contact Person:

<PAGE>

ATTACHMENT #4

PRE-SERVICE SECURITY TRAINING

Listed by Functional Areas and Course Titles

Functional Area I: Ethics and Professionalism

Course Titles: Hours

<S> <C>

*Employee Rules and Regulations 3.0
*Valuing Work Force Diversity/EEO 3.0
Ethical Staff-Inmate Relations 3.0
*Employee Grievance 1.0
Professionalism and Ethics 3.0
*Uniform and Grooming 1.5

TOTAL COURSE HOURS 14.5

Functional Area II: Inmate Management

Course Titles: Hours

Sociology of a Correctional Institution 2.0
Inmate Supervision 5.0
Inmate "Games" (Manipulation and Set-Ups) 3.0
Inmate Classification System 2.0
Inmate Ethnic Diversity 6.0
Discretion and Decision Making 5.0
Inmate Grievance System 1.0
Inmate Programs 1.5
Inmate Disciplinary System 6.0

TOTAL COURSE HOURS 31.5

Functional Area III: Legal Issues

Course Titles:

Criminal Justice System, Law and Rights 6.0
Arizona Government 1.0
Use of Force 3.0

TOTAL COURSE HOURS 10.0

</TABLE>

<PAGE>

Page 2
Attachment #4
Pre-Service Security Training

Functional Area IV: Communications

Course Titles: Hours

<S> <C>

Report Writing 6.0
Basic Communication 3.0
Radio and Telephone Communication 2.0
(Knowledge of Department radio system shall be
required relevant to direct communication to
the Department)
Observation (Use of a Field Notebook) 1.0
Oral Reports 3.0
Effective Study and Note Taking 0.5

TOTAL COURSE HOURS 15.5

Functional Area V: Officer Safety

Course Titles: Hours

Non-Lethal Weapons Familiarization 4.0
Chemical Agents 4.0

TOTAL COURSE HOURS 8.0

Functional Area VI: Applied Skills

Course Titles: Hours

Searches and Contraband 4.0
Transportation and Restraints 3.0
Count Procedures 1.5
Applied Skills 7.5
Forced Cell Moves 2.0
Maximum Restraints 2.0
Inmate Property Management 3.0
Urine Collection 1.0

TOTAL COURSE HOURS 24.0

Page 3
Attachment #4
Pre-Service Security Training

<PAGE>

Functional Area VII: Security, Custody and Control

Course Titles: Hours

Security, Custody and Control 3.0
Introduction to IMS and Emergency Procedures 5.0
Crime Scene Protection 2.0
Fire Prevention/Evacuation 5.0
*Internal Investigations 2.0
Institution Observation (Including Travel Time) 15.0
TOTAL COURSE HOURS 32.0

Functional Area VIII: Conflict and Crises
Management

Course Titles: Hours

Introductory/Overview of Crises/Conflict in a
Correctional Institution 4.0
Goals and Concerns of Crises/Conflict in a
Correctional Institution 3.0
Principles and Techniques of Crises, Conflict
Intervention & Resolution in a Correctional
Institution 6.0
Practical Skills Crises/Conflict in a Correctional
Institution 7.0
Self-Defense Training 18.0
TOTAL COURSE HOURS 38.0

Functional Area IX: Medical and Mental Health

Course Titles: Hours

First Aid (Medical Signs/Symptoms) 2.0
Basic Life Support - (Requested graphics are
contained within lesson plan) 7.0
Communicable Disease Control 3.0
Communicating Signs and Symptoms of Mental Illness 2.0
Narcotics and Dangerous Drugs 2.0
Substance Abuse Awareness 3.0
Physical Fitness Training 22.5

TOTAL COURSE HOURS 41.5

</TABLE>

*Indicates courses to be taught by CSC utilizing CSC's curricula and lesson
plans, if approved by the Department.

<PAGE>

ATTACHMENT #5
REQUIRED COURSES
PRE-SERVICE NON-SECURITY TRAINING
(New Employee Orientation)

PHASE I

A. Initial Orientation

1. Employee Vehicle Searches and Contraband
2. Inmate/Staff Relations
3. Background Checks and Arrest/Citation/Incarceration

B. Occupational Safety

1. Bloodborne Pathogens
2. Work Safety and Prevention

PHASE II

A. Introduction to Arizona State Government

1. Arizona History
2. Executive Branch of Arizona Government
3. Legislative Branch of Arizona Government
4. Judicial Branch of Arizona Government

B. Arizona Department of Corrections

1. Arizona Department of Corrections
2. Divisions and Bureaus
3. Institutions, Offices, Release Centers, Private
Institutions, COTA
4. Chain of Command
5. Criminal Justice System (Federal, State, County and City)
6. Arizona and Department of Corrections Demographics and
Cost of Incarceration

C. Institutional (Specific) Orientation

1. Institutional Organization and Units
2. Institutional Organization and Unit Structure
3. Institutional Demographics, Budget and Staffing
4. Terminology, Abbreviations, Codes, Acronyms

<PAGE>

Page 2
Attachment #5
Required Pre-Service Non-Security Training

D. Institutional Sociology and Inmate Programs
1 - Inmate Demographics
2. Inmate Visitation
3. Inmate Work Programs and Inmate Work Incentive Pay Plan
(WIPP)

4. - Inmate Grooming and Dress Standards
5. Inmate Non-Work Programs
6. Special Inmate Populations
7. Inmate Gangs and Cultures

E. Institutional Operations and Security
1. Institutional Security
2. Inmate Accountability/Counts/Passes/identification
3. Tool and Key Control
4. Inmate Transportation and Movement
5. AIMS, Telephone Security, Inmate Telephone Usage, Security
Radios
6. Vehicle Security
7. Emergency Procedures, Disturbances and Incident Management

F. Staff/Inmate Relations and Staff/Staff Relations
1. Inmate Manipulation, Games and Set-ups
2. Financial, Social and Romantic Relationships
3. Verbal Abuse and Non-Verbal Intimidation
4. Incident Reports and Supervisor Assistance
5. Staff to Staff Relationships

G. Inmate Management and Supervision
1. Inmate Supervision Techniques
2. Inmate Classification System
3. Inmate Disciplinary System and Write-ups
4. Inmate Grievance System
5. Inmate Access to Courts and Legal System

H. New Employee Orientation (NEO) Program Review and
Summarization

Recordkeeping
a. Bloodborne Pathogens
b. Professionalism and Ethics I
c. NEO

<PAGE>

Page 3
Attachment #5 Continued
OPTIONAL COURSES
PRE-SERVICE NON-SECURITY TRAINING
(New Employee Orientation)

PHASE I

A. Initial Orientation - Overview

1. Department of Corrections (ADC) Mission Statement
2. ADC Code of Ethics
3. Professional Grooming and Dress Standards
4. Review ADC Employee Handbook
a. Employee Benefits & Personnel Programs
b. After Hours Employment
5. Employee Performance and Appraisal System
6. Telephone Skills and Directory Reference

B. Institutional Introduction

1. Warden's Welcome
2. Institutional Structure and Organization
3. Next Scheduled New Employee Orientation Program
4. Individualized Employee Training Plan

C. Personnel Processing -- In-Take

1. W-2 Payroll, Salary, Work Hours, PAR, Types of Leave
2. ADC Photo and Identification
3. Emergency Contact Data
4. Employee Benefits, Health Insurance
5. Major Personnel Programs
6. Deferred Compensation Program, Retirement, Disability,
etc.
7. Arizona Driver's License, Registration and Auto Insurance
8. Conditions of Employment Form
9. Credit Unions
10. ADC Employee Handbook
11. Industrial Injury Reports

D. Work Site Orientation
1. Introduction to Supervisor
2. Telephone Usage and Director
3. Meals and Dining Facilities
4. Transportation, Car Pooling, Parking
5. Employee Performance and Appraisal System Discussion

<PAGE>

Page 4
Attachment #5
Optional Pre-Service Non-Security Training

PHASE II

A. Staff Development and Training

1. Annual Training Requirement
2. Tuition Reimbursement Program
3. Community College Program
4. Continuing Education and Licensure Credits
5. Outside Training Activities and Credit
6. Employee Training Records

B. Civil Rights and Employee Discrimination Issues

1 - EEO and Affirmative Action for ADC
2. Sexual Harassment
3. Americans with Disabilities Act (ADA)

C. Institutional Familiarization Tour

1 - Points of Interest
2. Perimeter Security
3. Parking Locations
4. Communications and Central Control

D. Professionalism and Ethical Behavior

1. Employee Discipline
2. Code of Ethics
3. Policies, Rules, Laws
4. Professional Responsibility
5. American Correctional Association

E. Valuing Staff Diversity

1. Cultural
2. Racial
3. Gender
4. Disability

F. New Employee Program Review and Summarization

1 - Questions and Answers/Review
2. Final Examination

<PAGE>

ATTACHMENT #5
Page 5

COTA VIDEOTAPES VIDEOTAPES THE CONTRACTOR.
WILL HAVE TO PURCHASE FROM THE IDENTIFIED VENDORS:

TITLE VENDOR

<S> <C>

THE CORRECTIONAL OFFICER: EXTERIOR SECURITY AIMS MEDIA
THE CORRECTIONAL OFFICER: TACTICAL MISTAKES AIMS MEDIA
THE CORRECTIONAL OFFICER: INMATE TRICKS AIMS MEDIA
THE CORRECTIONAL OFFICER: OFFICER OBSERVATION AIMS MEDIA
THE CORRECTIONAL OFFICER: PRINCIPLES OF SECURITY AIMS MEDIA
THE CORRECTIONAL OFFICER: INTERIOR SECURITY AIMS MEDIA
THE CORRECTIONAL OFFICER: AIMS MEDIA
ASSAULT ON OFFICERS, ATTITUDE MISTAKES AIMS MEDIA
THE CORRECTIONAL OFFICER: HANDLING AGGRESSIVE INMATES AIMS MEDIA
THE CORRECTIONAL OFFICER: COMMUNICATION SKILLS AIMS MEDIA
THE CORRECTIONAL OFFICER: DECISION EXERCISES AIMS MEDIA
THE CORRECTIONAL OFFICER: ETHICS & CONDUCT AIMS MEDIA
CRIME SCENE PRESERVATION AIMS MEDIA
EMOTIONAL DISTURBANCES AIMS MEDIA
SUICIDAL INMATES AIMS MEDIA
SUPERVISION OF SPECIAL INMATES AIMS MEDIA
CON GAMES INMATES PLAY AIMS MEDIA
PRINCIPLES OF DISCIPLINE AIMS MEDIA
COURTROOM DEMEANOR AIMS MEDIA
SECURITY IN A CORRECTIONAL INSTITUTION AIMS MEDIA
OFFICER SAFETY AIMS MEDIA
DINING ROOM CONDUCT AIMS MEDIA
INTRODUCTION TO CONTRABAND AIMS MEDIA
INMATE BODY SEARCHES CLOTHED AND UNCLOTHED AIMS MEDIA
CELL SEARCHES AIMS MEDIA
RECOGNIZING DRUG ABUSE AIMS MEDIA
PROBLEM EXERCISES: STAFF/INMATE RELATIONS AIMS MEDIA
INMATE/STAFF RELATIONS - PART I AIMS MEDIA

<PAGE>

Attachment #5
COTA Videotapes
Page 6

TITLE VENDOR
INMATE/STAFF RELATIONS - PART II AIMS MEDIA
HOW INMATES VIEW STAFF AIMS MEDIA
DOING TIME - LIFE AS AN INMATE AIMS MEDIA
SUPERVISION OF INMATES AIMS MEDIA
DRUG PROFILES AIMS MEDIA
BASTA CALIFORNIA DOC
A MATTER OF BALANCE CINEMED
YOU MAKE THE DIFFERENCE COPELAND &GRIGGS
EXTINGUISH THAT FIRE FILM COMMUNICATION
FIRE CONCEPTS AND BEHAVIOR FILM COMMUNICATION
PCP YOU NEVER KNEW HARPER & ROW CORRECTIONAL
MEDIANO SHORTCUT TO SURVIVAL LA EDUCATIONAL MEDIA
CON GAMES BEHIND BARS LA EDUCATIONAL MEDIA
FIRE IN THE JAIL MTI FILM AND VIDEO
SERIOUS BLOODBORNE INFECTIONS:
CORRECTIONAL WORKERS MVD #172 MERCK, VACCINE
DIVISION
IT'S THE LAW NIC
WORKING WITH HISPANIC OFFENDERS NIC
CPR FOR BYSTANDERS PYRAMID FILMS
WITH A LITTLE LUCK: SURVIVING A HOSTAGE SITUATION PYRAMID FILMS
BILL COSBY ON PREJUDICE PYRAMID FILMS

</TABLE>

<PAGE>

Attachment #5
COTA Videotapes
Page 7 .

VIDEOTAPES FILMED BY THE DEPARTMENT AND FURNISHED TO THE CONTRACTOR AT
NO CHARGE:

FORCED CELL MOVES
MAXIMUM RESTRAINTS
INCIDENT COMMAND SYSTEM
INMATE URINE COLLECTION
INMATE PROPERTY INVENTORY
USE OF RADIOS

<PAGE>

ATTACHMENT #6

INMATE TIME SHEET FOR DEPOSIT TO AATF
(Duplicate as necessary)

Contractor:

Secure Prison: Arizona State Prison-Florence West (ASP-FW)

Reporting Period:

<PAGE>

ATTACHMENT #7 (FORMS NOT INCLUDED IN THIS DOCUMENT)

1. PER DIEM INVOICE FORM
A. PER DIEM SUPPORTING DETAIL FORMS
B. PER DIEM CORRECTION SHEETS

2. MONTHLY REPORTING
FORM FOR MONIES
OWNED/PAID BY INMATES
FOR HEALTH CARE
SERVICES RECEIVED

<PAGE>

ATTACHMENT #8

INSURANCE REQUIREMENTS

I. COMMERCIAL GENERAL LIABILITY Coverage is to include:
1 . Minimum Limits of liability: $5,000,000 combined single
limit each occurrence, with an aggregate limit of $20,000,000.
All deductibles or self-insured retention levels shall be
reviewed for financial adequacy.

2. Premises & operations, independent contractors, completed
operations and products liability.

3. The Broad Form Commercial General Liability Endorsement
or equivalent coverage.

4. The definition of personal injury be extended to
include mental injury, shock, fright, humiliation and
invasion of a private occupancy.

5. Extension of the definition of occurrence to the effect
that "injury or property damage committed to protect
any person or property shall not be considered to be
either expected or intended from the standpoint of the
insured. "

6. Notice of Occurrence wording as follows: "Failure of an
agent, servant, or employee of the insured to notify
the company of any occurrence of which he has
knowledge, shall not invalidate the insurance afforded
by this policy as respects Additional Insured. "

7. Knowledge of Occurrence wording as follows: "Knowledge of an
occurrence by an agent, servant, or employee of the insured
shall not in itself constitute knowledge by the insured,
unless the insured director shall have received such notice
from its agent, servant, or employee."

8. Coverage to include all elected or appointed officials and to
extend to the liability of the Department, its departments,
agencies, boards and commissions, and its agents, officers,
directors, and employees with respect to the operation of the
Contractor.

9. All employees and volunteers should be included as
insured "while acting on behalf of or for the benefit
of the named insured. " Any exclusion of coverage as

<PAGE>

respects injury to fellow employees is to be deleted at
the insured option.

10. Employee Benefit Liability Protection: Coverage should
be applicable to "all employee benefit plans" of
Contractor and its departments, agencies, boards and
commissions and all officers, agents and employees
thereof.

11. Deletion of any exclusion for explosion, collapse and
underground property damage hazards.

12. Products coverage shall be for all products of any
kind.

13. It is agreed that damages is defined to mean compensatory
damages and includes punitive damages unless it is against
public policy to pay punitive damages.

14. Coverage is to include personal injury and property
damages arising from the law enforcement activities
including jail operations.

15. Occurrence shall include acts committed to protect life or
property, or in the pursuit of assigned duties.

16. Personal injury to include: bodily injury, mental
injury, anguish or shock, sickness or disease,
including death or disability at any time resulting
therefrom and resulting from the following:

a. Wrongful entry, eviction or other invasion of the
right of private occupancy;

b. Discrimination;

c. Humiliation;

d. The publication or utterance of a libel, slander
or other defamatory or disparaging material, or a
publication or utterance in violation of an
individual's right of privacy;

e. Assault and battery;

f. First Aid, failure to render medical assistance;

g. Violation of property rights;

<PAGE>

h. Violation of civil rights; or

i. Jail operations

17. No exclusion pertaining to injury of an individual in
the custody of the Contractor or failure to render
medical assistance, or failure to provide adequate
protection.

Additional insured: The State and the Department of Corrections shall be
additional insured as their interest may appear with respect to the operations
of the Contractor.

II. COMMERCIAL AUTOMOBILE LIABILITY

1. To cover all owned, hired and non-owned vehicles
including automobiles and trucks under long term lease.
Minimum Limit of Liability: $1,000,000 combined single
limit each occurrence, with an aggregate limit of
$16,000,000. All deductibles or self-insured retention
levels shall be reviewed for financial adequacy.

2. Uninsured/underinsured motorist coverage should be
included.

3. Additional insured coverage for lessors of leased
vehicles where required by the terms of the lease.

4. Deletion of Fellow Employee Claim Exclusion at the
insured option.

5. Contractual Liability Exclusion not to apply to "hired
car" coverage.

6. Notice and Knowledge of Occurrence Provision to be the same as
found under the Commercial General Liability coverage.

7. Coverage to apply to mobile equipment while being
transported by a covered vehicle.

8. Trailers to be insured whether or not designed for travel on
public roads.

Additional Insured: The State and the Department of Corrections shall
be additional insured as their interest may appear.

III. OTHER PROFESSIONAL LIABILITY

Professional liability insurance with minimum limits of $3,000,000 combined
single limit shall be required for providers

<PAGE>

of professional services who may include, but need not be limited
to, the following:

1. Teachers 4. Nurses
2. Social Workers 5. Lawyer
3. Doctors 6. Consultant

Additional Insured: The State and the Department of Corrections
shall be additional insured as their interest may appear with
respect to the operations of the Contractor.

IV. PROPERTY

1. Building and Contents

a. Coverage should apply on a blanket basis and with an
Agreed Amount Clause.

b. Perils are to be insured on an "All Risk" basis.

c. Replacement cost coverage should apply to all building
and contents; vehicles parked within the confines of
their service center(s), fire stations, or normal garage
locations are to be included.

d. The deductible should apply per occurrence. All deductibles
or self- insured retention levels shall be reviewed for
financial adequacy.

e. Coverage to allow insured to rebuild destroyed building on
another site.

f. Full policy limits to apply to glass losses involving catastrophic losses
(i.e., fire, explosion, windstorm, etc.)

2. Time Element

a. Combined business interruption and extra expense coverage with
limits of $100,000 is desired on a blanket all-risk basis.

b. Coverage should include an Agreed Amount Clause.

V. MOBILE EQUIPMENT FLOATER

1. Coverage should be All Risk including flood and water
damage.

2. Coverage should continue in force if property is loaned
or rented.

<PAGE>

3. Coverage should be on a replacement cost basis with no
co-insurance requirement.

4. Coverage to automatically apply to newly acquired equipment,
subject to a maximum limit of $1,000,000 and reporting of such
acquisition within 90 days.

VI. ELECTRONIC EQUIPMENT/DATA PROCESSING

1. Coverage in the form of an All Risk Data Processing System
Equipment policy or equivalent.

2. Coverage is for data processing systems, including equipment
and component parts with replacement Value.

3. Coverage should be broadened to include the additional perils
of:

a. Accidental erasure;

b. Electronic and magnetic injury;

c. Mechanical breakdown;

d. Change in temperature;

e. Dryness and dampness of atmosphere;
f. Transit coverage.

4. Valuation will be on a replacement cost basis with either no
Co-Insurance Clause or an Agreed Amount Endorsement.

5. Media reconstruction, including extra expense, should be
included to a limit of $100,000.

VII. VALUABLE PAPERS

1. All Risk Valuable Papers coverage (other than data processing
media) with blanket limits of $100,000 for all locations.
Coverage should apply to reconstruction of the insured
records.

2. Coverage to include transit coverage.

3. No provisions requiring storage in vault, safe or metal
cabinet.

<PAGE>

4. Exclusion relating to loss of property not specifically
declared if such property cannot be replaced with other of like kind
to be eliminated.

VIII. BOILER & MACHINERY

1. "Broad Coverage" for mechanical, electrical and air
conditioning equipment.

2. Limits should equal loss to property of the insured.
Contamination should be covered, as well as extra expense,
business interruption, consequential loss, and off-premises
power/utility service loss should be provided.

3. Coverage should be on a repair or replacement basis.

4. Expediting expenses should be covered with a minimum
limit of $25,000.

IX. EMPLOYEES BLANKET BOND, DISAPPEARANCE, DESTRUCTION AND
DISHONESTY

1 . Employee Blanket Bond (fidelity) and crime coverage shall be for all
employees and officials for a minimum limit of $1,000,000. Coverage
should apply to terminated employees and officials for ninety (90) days
following termination.

2. Coverage is to include third party funds in the custody of
the Contractor.

X. WORKERS' COMPENSATION

Statutory benefits must be provided, plus Employer's Liability
minimum limit of $1,000,000.

<PAGE>

ATTACHMENT #9

ARIZONA DEPARTMENT OF CORRECTIONS
DEFINITIONS
TYPES OF WRITTEN INSTRUCTIONS

Written Instructions - The primary method for management to communicate its
philosophy, mission and expectations to employees, inmates and the public. The
following are the only written instructions authorized for development after
January 1995.

Department Orders

The highest level of written instruction within the Department issued
under the Director's signature and uniformly numbered and formatted.
These written instructions cross organizational lines to guide the
administration and operation of the Department.

Technical Manuals

Written instructions issued by Assistant Directors by exception only.
Technical Manuals are limited to cases in which a written instruction
affects ONLY ONE Division. They typically apply to a limited number of
employees in highly specialized areas, providing a level of detail
unnecessary to the majority of employees. Technical Manuals shall:

Not place responsibility or requirements on any other Division. Be specifically
required by the Department Order.
Be consistent with the Department Order. Be uniformly formatted for each
Division.
Reflect the subject of the authorizing Department Order. Be numbered consistent
with the Department Order. Divisions may add alphanumeric designations to the
end of the number to facilitate identification, access and retrieval.

Institutional Orders

<PAGE>

A written instruction issued under a Warden's or Community Correctional
Center (CCC) Administrator's signature to address issues/practices
unique to the institution or CCC.
Institutional Orders shall:

Be developed only when authorized by a Department Order. Be consistent with
higher level instructions. Be formatted in accordance with the Department's
standardized format. Reflect the subject of the authorizing Department Order.

Be numbered in accordance with the Department's standardized numbering system.
Institutions may add alpha-numeric designations to the end of the number to
facilitate identification, access and retrieval.

Post Orders

Written instructions signed by a Deputy Warden or CCC Administrator
that provide a detailed description of all responsibilities, duties and
functions of a particular post/work assignment, to include specific
procedures for carrying out activities. Post Orders shall:

Be consistent with all higher level instructions. Be written for all identified
posts. Be consistently numbered and titled from institution to institution,
although content will vary to reflect local operations.

<PAGE>

ATTACHMENT #10

PER DIEM RATES AND SLIDING SCALE

PER DIEM RATES

RTC: $29.35 per bed, per day for all 200 beds regardless of
occupancy

DUI: $35.40 per inmate, per day based on 100% occupancy, as per
Sliding Scale shown below

SLIDING SCALE
TO BE USED FOR DUI PER DIEM PAYMENT

OCCUPANCY LEVEL

100% 99% 9 B,/o 97% 96% 95% 94%

TOTAL INMATES ASSIGNED

400 - 397 96 - 393 392 - 389 388 - 385 384 - 381 380 - 377 376 - 373

PAYMENT

$35.40 $35.99 $36.32 $36.66@ $37.01 $37.36 $37.72

ANY OCCUPANCY LEVEL BELOW 94% SHALL BE PAID AT A PER DEEM RATE OF $37.72.

<PAGE>

ATTACHMENT #11

SUSPENSION OR DEBARMENT STATUS
CERTIFICATION

By signing this certification, the offeror certifies that the firm, business or
person submitting the offer has not been debarred, suspended or otherwise
lawfully precluded from participating in any public procurement activity with
any Federal, State or Local Government. Signing this Certification without
disclosing all pertinent information about a debarment or suspension shall
result in rejection of the offer or cancellation of a contract. The State also
may exercise any other remedy available by law.

Signature Date

Typed Name and Title of Authorized Representative

<PAGE>

ATTACHMENT #11 Contractor Name:
Correctional Services Corporation
Contract No. DC-PO-PRIV-96/97-6790

Fee Schedule

Contractors are required to provide a per them rate that will cover provision of
ALL required services. The identified rates must include amortized capital
costs.

Type the rates in the spaces provided. Then fill in each expense item's relative
daily cost within each rate. Ensure the allocated costs include costs for those
specific services for each prison. For expenses not covered by the budget
hierarchy, create a title and provide a description. Complete the Budget
Narrative worksheets for each expense item to provide supporting detail and to
reflect calculations used to reach shown costs.

The Fee Schedule must be signed by the authorized signatory where indicated.

Per Diem Rate for RTC beds: $ daily per bed (200 beds)

Per Diem Rate for DUI: $ per day per inmate

Breakdown of relative daily costs included in the proposed rates:

Summary Total Daily Cost Allocated Costs
Object Object 600 Beds RTC DUI

6000 Personal Services $
6010 Regular Employees Compensation $ $ $
6100 Employee Related Expenditures
6110 Insurance $ $ $
6150 Retirement $ $ $

<PAGE>

6180 Other Employee Benefits $ $ $
6200 Professional and Outside Services
6250 Financial $ $ $
6270 Institutional Care $ $ $
6290 Legal $ $ $
6310 Medical and Hospital Services $ $
6470 Other $ $ $
6500 Travel--In State
6510 Public Transportation
6540 Non-Public Transportation
6580 Subsistence $ $ $
6590 Miscellaneous $ $ $
6600 Travel--Out-of-State
6610 Public Transportation $ $ $
6640 Non-Public Transportation $ $ $
6680 Subsistence $ $ $
6690 Miscellaneous $ $ $
6700 Food
6710 Perishable $ $ $
6730 Non-Perishable $ $ $
6750 Miscellaneous $ $ $
6996 Payments to State Inmates $ $ $
7000 Other Operating Expenditures
7010 Advertising $ $ $
7020 Depreciation Expense $ $ $
7030 Postage Delivery Services $ $ $
7040 Telecommunications $ $ $

<PAGE>

7050 Insurance $ $ $
7100 Lease/Rental--Land & Buildings $ $ $
7120 Lease/Rental--Data Processing $ $ $
Equipment
7140 Lease/Rental--Vehicles $ $ $
7180 Lease/Rental--Other Machine and $ $ $
Equipment
7310 Printing and Photography $ $ $
7510 Repair/Maintenance--Non-Contract $ $ $
7540 Repair/Maintenance--Contract $ $ $
7570 Operating Supplies $ $ $
7670 Repair & Maintenance Supplies $ $ $
7710 Resale Supplies $ $ $
7850 Utilities & Related Expenditures $ $ $
7960 Miscellaneous (Include interest $ $ $
expense here)
7975 Books & Related Expenditures $ $ $
7989 Educational/Training/Etc. $ $ $
8100 Land $ $ $
8200 Buildings
8210 Non-Movable $ $ $
8230 Movable $ $ $
8300 Improvements Other Than Buildings
8340 Library and Museum Acquisitions $ $ $
(Law Library)
8390 Miscellaneous Improvements Other
Than Buildings $ $ $

<PAGE>

8400 Machinery and Equipment
8410 Data Processing Equipment $ $ $
8420 Software $ $ $
8430 Motorized Vehicles $ $ $
8450 Other Machinery & Equipment $ $ $
8550 Other Capital Outlay $ $ $

TOTALS: $ $ $

</TABLE>

Authorized Signatory

<PAGE>

Contractor. Correctional Services Cooperation

ersona erv.@ices,

Summary Object 6010

Name of Private Prison: Arizona State Prison-Florence West

Contract No: DC-OP-PRIV-96/97-6790

BUDGET NARRATIVE I

Instructions: On the following pages, the Contractor shall provide written
narratives for each summary object code shown as a cost factor on the fee
schedule. Calculations provided via the budget narrative shall ultimately
breakdown to the total daily costs shown on the fee schedule. Contractor may
computerize the Budget Narrative forms; however, format and content must remain
unchanged.

.11,

. ..........I
Summary object 6010 Regular Employees Compensation List proposed staff and
accompanying monetary costs.

Position Title

FTE

<PAGE>

Base

Shift Differential

Total Payroll

Contractor: Correctional Services C

....... .. I'@..@ ......

FTE

Base

Shift Differential

Total Payroll

Contractor: Correctional Services Corporation

BUDGET NARRATIVE I
(Duplicate pages as necessary)

Page _ of

Instructions: In the space provided, identify all costs included
in the specified summary object code(s). Any calculations
provided shall al1 ultimately breakdown to the total daily costs
shown on the fee schedule. It is understood, that if a summary
object code is not explained in the Budget Narrative, the

<PAGE>

Contractor has not identified that summary object as a cost factor iii the fee
schedule.

Duplicate this page as needed

...cI
summary object odes 6110 through 6180

:.: :1@: I 11:

:11,Object Codes'6250 through 6470

Summary Object Codes 6510 through 6590

Contractor:

Correctional Services Corporation

BUDGET NARRATIVE I
(Duplicate pages as necessary)

Page _ of

Instructions: In the space provided, identify all costs included in the
specified summary object code(s). Any calculations provided shall ultimately
breakdown to the total daily costs shown on the fee schedule. It is understood,
that if a summary object code is not explained in the Budget Narrative, the
Contractor has not identified that summary object as a cost factor- iii the fee
schedule.

[email protected],

<PAGE>

Summary Object 6610 through 6690

Summary Object Codes 6710 through 6750

Contractor: Correctional Services Corporation

BUDGET NARRATIVE I
(Duplicate pages as necessary)

Page _ of

Instructions: In the space provided, identify all costs included in the
specified summary object code(s). Any calculations provided shall ultimately
breakdown to the total daily costs shown on the fee schedule. It is understood,
that if a summary object code is not explain ' d in the Budget Narrative, the
Contractor has not identified that summary object as a cost factor- in the fee
schedule.

Payments to state inmates (WIPP)

IL summary Object
701 through 7989

Contractor: Correctional Services Corporation

<PAGE>

Page of

BUDGET NARRATIVE I
(Duplicate pages as necessary)

Summary

<PAGE>

Contractor: Correctional Services Corporation

BUDGET NARRATIVE I
(Duplicate pages as necessary)

Page _ of

<PAGE>

(Duplicate pages as necessary)

Summary object 410 through 8450

Contractor: Correctional Services Corporation

BUDGET NARRATIVE I
(Duplicate pages as necessary)

Page _ of

(Duplicate pages as necessary)

Authorized Signatory

Date

ATTACHMENT #13

<PAGE>

LEGAL DESCRIPTION FOR SECURE PRISON SITE
(TO BE PROVIDED BY CSC PRIOR TO CONTRACT EXECUTION)

ATTACHMENT #14

NEGOTIATION PARAMETERS FOR PURCHASE OF
SECURE PRISON

PURCHASE AGREEMENT

RFP #6702
PRIVATIZATION OF 200 RTC AND 400 DUI PRISON BEDS

NEGOTIATION PARAMETERS FOR
PURCHASE OF SECURE PRISON

I. Formula for Payment

A. Land

Cost of Land ($187,000)
(plus) 10% Profit
(minus) Principal Paid via Per Diem

B. Buildings (Secure Prison)

Construction costs (not to exceed $8,313,000) (plus) 10%
Profit (minus) Depreciation (straight line basis over 30 year
life)

<PAGE>

Depreciation calculated in accordance with generally accepted accounting
principles and included in CSC's audited financial statements.

The term "construction costs" shall include and be limited only to actual
expenditures for project architects, engineers. and construction trade
contractors, and shall not include any allocation of CSC's expenses for general
overhead, management and finance charges.

C. Capital Equipment On Site

Actual cost of capital equipment on site at the secure prison
pursuant to Article III, Paragraph 3.4.2.

(minus) Depreciation

A.G. Contract
No:

STATE OF ARIZONA
DEPARTMENT OF ADMINISTRATION
1700 West Washington
Phoenix, Arizona 85007

PURCHASE AGREEMENT
For the Purchase of Real Estate

This Purchase Agreement is entered into between and among
Correctional Services Corporation (Seller) and

the State of Arizona (State) by the Department of Administration
(DOA) for and on behalf of the Department
of Corrections (ADC).

IN WITNESS WHEREOF, the parties hereto agree to carry out the terms of this
Agreement.

<PAGE>

CORRECTIONAL SERVICES CORPORATION

Signature of Authorized Individual Date
James F. Slattery
Typed Name
President, Chief Executive OfficeR
Typed Title
1819 Main Street
Suite 1000
Sarasota. Fl
Address

ESCROW COMPANY

Signature Date

Typed Name

Typed Title

Address

ARIZONA DEPARTMENT OF ADMINISTRATION

Signature of Authorized Individual Date
Rudy Serino
Typed Name
Director
Typed Title
1700 West Washington Street, State Capitol
West Wing, Room 601
Phoenix, Arizona 85007
Address

ARIZONA DEPARTMENT OF CORRECTIONS

Signature Date
Terry L. Stewart
Typed Name
Director
Typed Title
1601 West Jefferson

<PAGE>

Phoenix, Arizona 85007

Address

Approved as to form this day of , 19

GRANT WOODS
The Attorney General

By:
Assistant Attorney General

A.G. Contract WITNESSETH
Page -1
No: xxxx

WHEREAS, Arizona Revised Statute 41-379.02 authorizes DOA to acquire real
property and buildings on behalf of the State of Arizona, and

WHEREAS, the ADC did issue Request for Sealed Proposal (RFP) Number 6702
for the privatization of 600 prison beds wherein it was described that the ADC
would have an option to purchase said private prison during the term of the
Contract, and

WHEREAS, Correctional Services Corporation (Seller) did respond to RFP
Number 6702 and was subsequently awarded a contract for the construction,
operation and management of the private prison and did agree to the State's
option to purchase prison facility under certain terms and conditions to include
the land, buildings, all fixtures, furniture, equipment and chattel

<PAGE>

hereinafter referred to as the "Property" and further described on
Attachment #1, and

WHEREAS, the ADC did receive a Legislative appropriation to acquire the
Property which is known as the Arizona State Prison-Florence West (ASP-FW), and

WHEREAS, all obligations of DOA to consummate the transactions authorized
by this Agreement are contingent on the fulfillment of the conditions contained
herein, including, but not limited to, the following: obtaining clear title
together with all appurtenances; Seller's performance of all conditions
precedent of this Agreement and the issuance of an ALTA Extended Title Insurance
Policy, payable in accordance with paragraph 14 of this Agreement,

NOW, THEREFORE, in consideration of the Property and mutual promises and
undertakings contained herein, and for other good and valuable consideration,
the parties hereto agree as follows:

<PAGE>

A. G. Contract
No:

CONTINUATION SHEET

'-Page 2

I . Sale of the Property

1. The Seller hereby sells to the State and the State hereby buys from the
Seller all rights, title and interest in the Property, subject to the terms of
this Agreement.

2. The "Purchase Price" The "Purchase Price" shall be . which is inclusive of
all costs for the land, buildings, fixtures and capital equipment, except those
costs that are otherwise identified herein. The Purchase Price shall be
negotiated in accordance with the parameters outlined within the Agreement
between the ADC and Correctional Services Corporation (Seller).

3. WARANTIES OF THE SELLER: The Seller warrants, represents, covenants and
acknowledges (with the understanding that the State is relying on these
warranties representations, covenants and acknowledgments and that such
warranties, representations, covenants and acknowledgments shall survive the
closing) that (i)

<PAGE>

equipment, fixtures, furniture, materials and chattels located at ASP-FW and
utilized to operate the prison by Correctional Services Corporation (Seller)
ninety (90) days in advance of the Seller's receipt of notice of the intent of
ADC to exercise its option to purchase the Property shall remain in good
condition, accepting normal wear and tear and shall be available to the ADC at
time of the purchase; and (ii) except as reflected in the Preliminary Title
Report at the time of execution of this Agreement;

a. Seller can deliver fee title for the land to the State through warranty
deed to the Property without encumbrances, on the Close of Escrow, as
defined hereinafter.

b. That there are no claims, actions, suits, or other proceedings
pending or to the best of Seller's knowledge threatened by any
governmental department or agency or any other corporation,
partnership, entity or person (as defined in A.R.S. 1-215)
whomsoever ("Person"), nor any voluntary actions or
proceedings contemplated by Seller, which in any manner may
detrimentally affect the State's right, title or interest in
and to the Property or the value of the Property or Seller's
ability to perform Seller's obligations under this Agreement.

c. That no person is in adverse possession of the Property and there are
no persons who have been granted any license, lease or other right
relating to the use or possession of the Property other than those listed
on Attachment #2.

<PAGE>

A.G. Contract

No: CONTINUATION SHEET

d. That there have been no written modifications of those agreements that
allow other Persons to access the Property other than those agreements
that have been provided to the State. The Agreements have not been
modified by any oral agreements. Seller shall provide an assignment of
existing agreements to the State.

e. That there are no pending or threatened condemnation or similar
proceedings affecting any part of the Property, and the Seller has not
received any notice of any such proceeding and has no knowledge that any
such proceeding is contemplated.

f. That no work is in progress at the Property and no materials have been
furnished to the Property which might 'give rise to mechanic's, material
man's or other liens against the Property.

g. That the Seller is not prohibited from consummating the
transactions contemplated by this Agreement by any law, regulation,
agreement, instrument, restriction, order
or judgment.

h. That there are no attachments, executions, assignments for the benefit of
creditors, receiverships, conservatorship or voluntary or involuntary
proceedings in bankruptcy or pursuant to any other laws for relief of
debtors contemplated, filed by or pending against Seller or any entities
related to Seller which might affect or involve the Property, except as
described on Attachment #3.

i. That there is no default, nor has any event occurred which with the
passage of time or the giving of notice or both would constitute a default
in any contract, mortgage, deed of trust, lease, or other instrument which
related to the Property or which affects the Property in any manner
whatsoever, except as described on Attachment #4.

j. That there are no contracts or other obligations outstanding for
the sale, exchange, or transfer of all or any part of the Property.

k. That the Seller has taken all actions necessary to protect and preserve
all water rights with respect to the Property and shall provide water
rights assignments to the State.

<PAGE>

I. That Seller shall have performed fully and complied with the agreements
required to be performed or complied with by it prior to or at the Close
of Escrow, including satisfaction of the requirements contained in the
"Requirements" section of Schedule "B" of the Preliminary Title Report
referred to in paragraph 11(a) of this Agreement.

m. That Seller has not and will not at any time prior to Close of
Escrow grant to any
person an interest in the Property.

4. Escrow Company:

a. An escrow shall be opened by either party with (the "Escrow
Company").

<PAGE>

A.G. Contract
No:

CONTINUATION SHEET

- --,Page 4

b. By countersigning this Agreement, the Escrow Company, by and through
its duly authorized representative, hereby accepts this transaction and
agrees to act as the Escrow Company in connection with this Agreement.

5. Close of escrow shall be on , or as soon thereafter as escrow can be
closed. Both parties shall use their best efforts to have the Close of Escrow on
the specified date.

6. Possession and title of the Property shall pass from the Seller to the
State on the date that Close of Escrow occurs.

7. Payment: On or before the date of Close of Escrow, the State shall pay
to the Escrow Company the Purchase Price as shown in Paragraph 2. of this
Agreement. The Escrow Company shall release the funds to the Seller on the date
of Close of Escrow. 8.

8. Documents and Escrow: All documents necessary to close escrow shall be
deposited in escrow with the Escrow Company by the appropriate party. Except as
otherwise provided, in this Agreement, the Seller and the State agree to execute
all documents, including, but not limited to, the documents and deeds in this
Agreement or otherwise necessary to close this transaction, in the standard form
used by the Escrow Company, except that the Seller and the State hereby instruct
the Escrow Company to modify such documents to the extent necessary to be
consistent with this Agreement and to be incompliance with Arizona law.

<PAGE>

9. Evidence Title to the Property shall be conveyed by warranty deed which
shall specifically reference all of the ground water and the surface water
rights which are appurtenant to the Property and on file with the Arizona
Department of Water Resources. The title shall be in the name of the State of
Arizona by and through the DOA.

10. Joint Committee of Capital Review ((JCCR) Approval Required: T he S t a
t e ' s obligation to perform under this Agreement is conditioned upon the
approval of the JCCR. The DOA shall use its best efforts and shall act
diligently and take all steps necessary to obtain the approval and to consummate
the transaction.

<PAGE>

A.G. Contract
No:

CONTINUATION SHEET

- --Page 5

11. Contingencies required to be met by Seller: The State's obligation to
consummate this transaction and to fulfill the obligations under this Agreement
is subject to the satisfaction of the following conditions precedent:

a. Title Insurance and ALTA Survey

Preliminary Title Report: ' Within ten (10) days after the receipt of a
copy of this Agreement by the Escrow Company, the Escrow Company shall provide
the State a current conunitment for the title insurance (the "Preliminary Title
Report") disclosing all matters of record and other matters about which the
Escrow Company has knowledge and a legible copy of each of the instruments and
documents referred to in the Preliminary Title Report. The State shall have
fourteen (14) days after receipt of the Preliminary Title Report and the
instruments and documents referred to therein to object in writing to the Seller
to any matter shown thereon. If the State objects to any matter disclosed by the
Preliminary Title Report or any amendment thereof, the Seller shall either
rescind the Escrow Agreement on or before five (5) days prior to Close of Escrow
or shall have until the date of Close of Escrow to cause to be removed any such
objected matter from the Preliminary Title Report and any amendment and policy
of title insurance to be issued in favor of the State. If the Seller does not
rescind or remove the objected to matter, the State may (1) waive such default
and close Escrow; (2) may institute an action for specific performance or
damages; or (3) may exercise any other rights available to it by law or equity.

<PAGE>

ii. Title Policy: The Seller shall furnish to the State an owner's ALTA
extended title insurance policy for the full amount of the purchase price as
shown in paragraph 2 of this Agreement to be paid for as provided in paragraph
14 of this Agreement, which shall be issued by the Escrow Company showing good
and marketable title to the Property, free from defects, claims and
encumbrances, except as follows: (1) restrictive covenants of record; (2) zoning
regulations; (3) easements and rights-of way of public utilities; (4) printed
exceptions contained in the Owner's ALTA extended title insurance policy; and
(5) any matters contained in the Preliminary Title Report and not objected to by
the State pursuant to paragraph 1 1 (a)(i) above. If title to the Property
otherwise is defective at the Close of Escrow, the State may elect at its sole
option, either to accept title subject to defects which are not cured or to
cancel this Agreement.

b. Survey: Seller shall provide the State with a certified ALTA survey
("Survey") of the Property no later than sixty (60) days prior to the Close of
Escrow setting forth an accurate legal description of the land contained within
the Property and showing the location of the precise boundaries thereof,
together with the improvements, utilities and any other structures on the
Property and all easements, encroachments, rights-of-way and other matters
affecting or appurtenant to the Property, whether recorded, visible or otherwise
known to exist. The DOA shall approve the surveyor prior to the survey being
performed. The area of the Property shall be set forth on the survey. The cost
for the survey shall be paid for as provided in paragraph 14. of this Agreement.

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c. Examination of Property: The Seller shall pen-nit access to the Property by
the State and/or its agents upon reasonable advance notice to the Seller prior
to Close of Escrow, to conduct, prepare and perform any studies, surveys or
reports upon the Property that the State deems necessary and for the purpose of
a visual inspection and/or testing to determine, to the State's satisfaction, if
there are any hazardous wastes, or other pollutants, on the Property in excess
of the standards set forth in federal or state law or regulations. If any
possible hazardous wastes or other pollutants, are found, whether through visual
inspection, testing or otherwise, the State may be required to disclose these
findings to third persons under the public disclosure laws, and will disclose
them to the appropriate federal and state agencies concerned with the
enforcement of environmental laws and regulations. Access to the property shall
not interfere with the on-going business operations on the Property. The right
to inspect the Property shall not diminish nor nullify the Seller's warranties
or indemnification's as set forth in this Agreement. The State will be
responsible for any reasonable damages, but no de minimis damages, to the
Property caused by it during any access to the Property under this paragraph.

12. Water Rights. Non-foreign Affidavit and Lease assignment: The Seller
shall provide the documents listed below to the Escrow Company at least twenty
(20) days prior to Close of Escrow for review and approval by the State. If the
State does not receive the documents by such time, then the State

<PAGE>

shall have the right to cancel or extend the Close of Escrow, without
penalty, at its sole option.

a. Assignments of Water Rights
b. Non-foreign Affidavit
c. Assignment of Leases in form substantially similar to
Attachment #5.

13. Taxes: Taxes due on the Property through the Close of Escrow shall be
the responsibility of and paid by the Seller.

14. Closing and Escrow Costs: Except as otherwise provided in this
Agreement, all closing and other costs shall be prorated between the Seller and
the State in accordance with local custom and applicable laws and rules. The
Seller and the State shall share equally the charge for the ALTA Survey fees.
The Seller shall pay the premium for the standard owner's title insurance
policy. The State shall pay, within the amount of the Purchase Price, the
additional costs of the ALTA extended owner's policy of title insurance.

15. Broker Commissions: Each party represents and warrants to the other
that there are no brokers, finders or real estate agents or other entities
involved in this transaction and

A.G. Contract
No:

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<PAGE>

there shall be no fees, commissions or other costs to be paid by the State
to any broker, finder or real estate agent or other person(s). 16. Seller's
Warranties and Maintenance of the Property: Except as otherwise provided in this
Agreement, the Seller shall maintain and repair the Property so that, at the
time possession is transferred to the State, the Property shall be in
substantially the same condition as on the date the ADC authorized inmate
occupancy of ASP-FW. The Seller warrants that all heating, cooling, plumbing,
septic, electrical systems and roofs will be in working condition on the date of
possession by the State. The Seller warrants that, prior to the Close of Escrow,
payment in full will have been made for all labor, materials, machinery,
fixtures or tools furnished within the one hundred twenty (120) days immediately
preceding the Close of Escrow in connection with the construction, alteration or
repair of any structure on or improvement to the Property. 17. Termite Report;
Treatment and Repairs: The parties agree that, at the Seller's expense, the
Seller shall provide the State within thirty (30) days after execution of this
document, a termite inspection report by a licensed pest control contractor,
from a list approved by the State, which describes the condition of the
buildings, relative to termite infestation and damages and that such report
shall show the buildings to be free from current infestation. Charges for
termite treatment, if any, to produce such report shall be paid for by the
Seller. If any damages to the buildings are reported, the State may rescind this
Agreement, or accept the property as described in the termite report. The

<PAGE>

State may give its written notice of which alternative it elects
within thirty (30) days from receipt of the termite inspection
report.

18. Environmental Law Warranties:

a. Use of the Property: The Seller warrants that no
portion of the Property is now being or has ever been
used as follows:

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No: CONTINUATION SHEET

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i. In a manner requiring the issuance of a permit covering the discharge or
disposal of a pollutant or waste into any waters, ground waters, or aquifer of
the State of Arizona or waters of the United States.

ii. For the treatment, collection, storage or disposal of any refuse,
objectionable waste or any material in a manner inconsistent with applicable
federal, state or local law.

iii. For the generation, transport, treatment, storage or disposal of any
hazardous waste subject to regulation under the Arizona Hazardous Waste
Management Act, A - R - S. 49-921 et seq., or the Resource Conservation and
Recovery Act, 42-U. S. C., 6901 et seq.

iv. For the manufacture, processing, distribution in commerce, use, or
disposal of any toxic substance subject to regulation under the Toxic Substances
Control Act, 15 U.S.C. 2601 et. seq.

v. For any underground storage tank subject to regulation pursuant to
A.R.S. 491 00 I et. seq. or 42- U. S. C. 6991 a et. seq.

<PAGE>

vi. For any injection well, dry well, or any similar facility subject to
regulation pursuant to A.R.S. 49-331 et. seq. or the Safe Drinking Water Act, 42
U.S.C. 300f et seq.

vii. In a manner requiring compliance with the Emergency Planning and
Community Right to Know Act of 1986, 42 U. S. C 1 1 00 I through 1 1 050,
including, but not limited to, the duty to prepare material safety data sheets,
emergency and hazardous chemical inventory forms and toxic chemical release
forms.

viii. In any manner requiring compliance with the Clean Air Act, 42 U.S.C.
7401 through 7640, including laws and regulations relating to asbestos, 42-
U.S.C. 7412 through 7414; and 40 Code of Federal Regulations, Part 61. The
Seller warrants that no asbestos-containing material is located on, in or within
the Property which is the subject of this sale.

b.: The Seller warrants that there is no current and there has been no past
release or substantial threat of a release of a hazardous substance, pollutant,
or contaminant from or onto the Property or the environment adjacent to the
Property that are or may be subject to regulation under applicable federal,
state or local law, or that may make the State liable in tort under a common law
public or private nuisance action.

c. Pending Investigation or Lawsuit: The Seller warrants that to the best
of the Seller's knowledge, no portion of the Property is the subject of a
threatened or pending investigation or lawsuit or administrative action by any
person, firm, governmental body or other entity relating to or arising from any
matter of circumstance subject to regulation described in subparagraphs 17 a. or
b. above and the Seller has received no official notice of any alleged violation
of any applicable federal, state or local environmental law.

A.G. Contract

No: CONTINUATION SHEET

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d. environmental Laws:

<PAGE>

Seller's knowledge, the Property and all the operations on the Property
comply fully with all federal, state or local environmental laws and
regulations. The Seller warrants that to the best of

e. Seller's Activities and Use: The Seller warrants that the Seller and its
employees, agents, lessees and users, have not engaged in nor permitted any
operations on or activities upon or any use or occupancy of the Property for the
purpose of or involving the handling, treatment, storage, use, release,
discharge, refining, dumping or disposal of any substance described in
subparagraphs 18 a. and b. above, on, under, in or about the Property, nor
transported any such substances to, from or across the Property, nor has the
Seller, its agents, employees or lessees constructed, deposited, stored or
otherwise located such substances on, under or about the Property.

f. Indemnity : The Seller shall indemnify and hold harmless the State, its
employees, and agents from and against any and all loss, damage and expense
(including, but not limited to, reasonable investigation and legal fees and
expenses) including, but not limited to, any damages, claim or action for
injury, liability or damage to persons or property, and any and all damages,
claims or actions brought by any person, firm, governmental body or other
entity, alleging or resulting or arising from or in connection with a breach of
any of the foregoing environmental law warranties.

g. Survival : All warranties, agreements, and indemnification's contained
in subparagraphs a. through f. above shall survive the Close of Escrow, and
shall run to the State's successors, assigns, and subsequent purchasers.

h. Environmental Conditions: Notwithstanding other termination clauses in
this Agreement, the State, if it is dissatisfied with the environmental data
known, or which may become known, to it, may cancel this Agreement to purchase
the Property by giving written notice thereof.

19. Risk f Loss: If there is any loss or damage to persons or to the
Property between the date of this Agreement and the Close of Escrow, by any
reason, including but not limited to fire, vandalism, flood, earthquake, act of
God, negligence, willfulness or recklessness, the risk of loss shall be on the
Seller.

<PAGE>

20. Cancellation: Any party who elects to cancel this Agreement because of
any breach by another party, and who is not itself in breach of this Agreement
except for any breach occasioned by a breach by the other party, may cancel this
Agreement by delivering to the Escrow Company a notice stating that this
Agreement shall be canceled unless the breach is cured within ten (10) days
following the delivery of the notice to the other party. Within three (3) days
after receipt of such notice, the Escrow Company shall

A.G. Contract

No: CONTINUATION SHEET

Page 10

forward the notice by United States mail to the party in breach and no
further notice shall be required. If the breach is not cured within ten (10)
days following the delivery of the notice to the other party, this Agreement
shall be canceled and the breaching party shall be liable for all customary
escrow cancellation charges. If this escrow fails to close for any other reason,
the Seller and the State shall each be liable for one half of all customary
escrow cancellation charges.

21. Survival: This Agreement shall survive the Close of Escrow as to any
terms, conditions, agreements, warranties, or representation which are to apply
thereafter.

<PAGE>

22. Successors and Assigns: This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, personal
representatives, successor-in-interest and assignees.

23. Notice: All notices, requests, demands, consents, approval and any
other communications which may or are required to be served or given hereunder
(for the purposes of this provision collectively called "Notices"), shall be in
writing and shall be sent by certified United States mail, return receipt
requested, postage prepaid, addressed to the party or parties to receive such
notice as such addresses appear on the signature page of this Agreement or to
such other address as either party may from time to time furnish in writing, to
the other by notice hereunder. Any notice so mailed shall be deemed to have been
given as of the date such notice is received on the return receipt. Furthermore,
such notice may be given by delivering personally such notice to the State to
the below listed individuals or to such other person as either party may from
time to time designate in writing to the other by notice hereunder. Any notice
so delivered shall be deemed to have been given as of the date such notice is
personally delivered to the other party.

Notices to be delivered to:

A.G. Contract
No: CONTINUATION SHEET

<PAGE>

Department of Administration Department of Corrections
Assistant Director Assistant Director
General Services Administrative Services

I Page 1 1

Correctional Services Corporation (Seller)
President, Chief Executive Officer

24. Time: Unless otherwise indicated, all periods of time referred to in
this Agreement shall refer to calendar days and shall include all Saturdays,
Sundays, and state or national holidays, provided that if the date or last date
to perform any act or give any notice with respect to this Agreement shall fall
on a Saturday, Sunday or state or national holiday such act or notice may be
timely performed or given on the next succeeding day which is not a Saturday,
Sunday or state or national holiday.

25. Headings: Headings are for convenience only and are not to be construed
as part of this Agreement.

26. Invalidity of a Term: The parties agree that in the event any term,
covenant or condition herein contained should be held to be invalid or void, the
invalidity of any such term, covenant or condition shall in no way affect any
other term, covenant or condition of this Agreement.

27. Conflict of Interest: The parties acknowledge that this Agreement is
subject to cancellation pursuant to A.R. S. 38-51 1, the provisions of which are
incorporated herein.

28. Prohibition Against Discrimination: In the event that it applies, the
parties agree to comply with State Executive Order

<PAGE>

No. 75-5 which mandates that all persons, regardless of race, color,
religion, sex, age, national origin or political affiliation, shall have equal
access to employment opportunities, and all other applicable Federal and State
laws, rules and regulations, including the Americans with Disabilities Act.

29. Maintaining and Producing Records: Pursuant to A.R.S. 35- 214, the
Seller shall retain for inspection and audit by the State all books, accounts,
reports, files, and other records relating to the performance of this Agreement
for a period of five (5) years after A. G. Contract No:

CONTINUATION SHEET

- -Page 12

its completion. Upon request by the State, a legible copy of all such
records shall be produced by the Seller at the administrative office of the
Auditor General. The original of all such records shall also be available and
produced for inspection and audit when needed to verify the authenticity of a
copy.

30. Governing Law and Venue:

<PAGE>

30. Governing Law and Venue: This Agreement shall be construed under the
laws of the State of Arizona. Any arbitration or other action arising out of
this Agreement, whether for the enforcement thereof or otherwise, shall be
brought in Maricopa County, State of Arizona.

31. Arbitration: To the extent required by A.R.S. 12- 1518, the parties
agree to use arbitration to resolve any dispute arising out of this Agreement in
accordance with Arizona law.

32. Time is of the Essence: Time is of the essence of this Agreement.

33. Authority: Each person signing this Agreement warrants that each has
the full power and authority to execute this Agreement and consummate the
transaction contemplated hereby on behalf of the party each represents.

34. Negotiated Agreement: This Agreement is the result of negotiations
between the parties and, accordingly, shall not be construed for or against
either party regardless of which party drafted this Agreement or any portion
thereof.

35. Entire Agreement: This Agreement, together with its attachments as well
as the Agreement between the ADC and

<PAGE>

Correctional Services Corporation (Seller) constitutes the entire agreement
between the parties relative to the purchase of the Property and supersede any
other written or oral agreement between the parties regarding this matter.

36. Amendments: This Agreement can be modified only by a written amendment,
signed by all parties.

A.G. Contract
No:

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Page 13

37. Attachments: The following is a list of the Attachments which form a
part of this Agreement and, unless otherwise stated herein, all of which are
incorporated herein by reference as if set forth in full:

a. Attachment #1 - Legal Description of land and buildings, improvements
and chattel which make up the Arizona State Prison-Florence West, otherwise
collectively known as the Property

b. Attachment #2 - List of Leases, if any

c. Attachment #3 - Listing of Actions that may impact the purchase of the
Property (attachments, executions, assignments for the benefits of creditors,
receiverships, conservatorship or voluntary or involuntary proceedings in
bankruptcy, etc., filed or pending against Seller.

<PAGE>

d. Attachment #4 - Listing of Actions that have occurred that would
constitute a default in any contract, mortgage, deed of trust, lease, or other
instrument which relate to the Property or affect the Property in any manner.

e. Attachment #5 - Form of assignment of leases, if any

ATTACHMENT #1

DESCRIPTION OF PROPERTY

LAND

Legal Description - 18 Acres (Specific legal description for 18
acres to be added)

SECURE PRISON

This Agreement is for the purchase of a 600 bed, level 2 (minimum security)
prison located in Pinal County sited on approximately 18 acres of land as
described above. The secure prison shall be comprised of the following:

1 . Housing units for 200 Return to Custody Inmates and 400 DUI
Inmates.

One 200 bed dormitory for RTC inmates - 23,320 square feet Two 200 bed
dormitories for DUI inmates - 46,640 square feet (23,320 square feet each)

2. Facility Administration building - 34,368 square feet

Functions: Administration, kitchen/food service, chapel,
medical, property, commissary, visitation, intake, central
control, dining/multi-purpose/indoor recreation, laundry,
mechanical, classrooms.

3. Equipment Storage/Maintenance Building - ? square feet

<PAGE>

4. Utilities City of Florence water, sewer and fire services.
U.S. West provides telephone services and Arizona Public Service
provides electricity.

5. Paving

Page 2
Attachment #1
Purchase Agreement

Security

The perimeter security system will consist of one fourteen foot loop top
perimeter fence with "no-climb" (1/4 inch hardware cloth) at the top six (6)
feet of the fence on the inside, the mesh at the bottom of the fence shall be
embedded in a concrete base. Razor wire on the top of the fence at least at
those points where the perimeter fence abuts to a building. Adequate security to
ensure that inmates remain within the perimeter and to prevent access by the
general public.

Secure locks on all outside doors.

Perimeter and site lighting as required for perimeter and site layout which
meets the operational needs of the prison.

Sallyports - pedestrian and vehicle to control access to and from the
prison.
Closed Circuit Television System
Furniture, fixtures, equipment and chattel