FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- --
EXCHANGE ACT OF 1934
~FOR~THE~QUARTERLY~PERIOD~ENDED~JUNE~30,~1996
COMMISSION FILE NUMBER 0-19673
AMERICA SERVICE GROUP INC.
(Exact name of registrant as specified in its character)
Delaware 51-0332317
(State or other jurisdiction of (I.R.S. Employer)
incorporation or organization) Identification No.
TWO PENNS WAY, New Castle, Delaware 19720
------------------------------------------
(Address and zip code of principal executive office)
(302) 322-8200
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed under Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
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There were 3,283,462 shares of Common Stock outstanding as of August 9, 1996
<PAGE>
AMERICA SERVICE GROUP INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
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Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet at June 30, 1996 3
and December 31, 1995
Consolidated Statement of Operations for the 4
six months and quarters ended June 30, 1996
and 1995
5
Consolidated Statement of Cash Flows for the
six months ended June 30, 1996 and 1995
6
Notes to Consolidated Financial Statements
Item 2.Management's Discussion and Analysis of 7-10
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 4: Submission of Matters to a Vote of 11
Security Holders
12
Item 6: Exhibits and Reports on Form 8-K
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AMERICA SERVICE GROUP INC.
CONSOLIDATED BALANCE SHEET
ASSETS
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June 30, December 31,
1996 1995
Current assets
Cash and cash equivalents $ 4,016,487 $12,049,855
Investments, at cost which 700,000 700,000
approximates market
Accounts receivable:
Healthcare sites (net of 13,006,983 11,669,007
allowance) 9,945,422 4,919,797
Advance billings and other
Inventory 350,637 454,434
Prepaid expenses and income 3,348,913 1,098,211
taxes
Current deferred taxes 1,008,000 2,054,200
---------- ----------
Total currents assets 32,376,442 32,945,504
Restricted investments 4,792,032 4,574,624
Property and equipment, net 5,936,449 3,239,004
Deferred taxes 3,236,000 1,153,800
Cost in excess of net assets of 474,642 495,771
acquired company, net
Other assets 89,415 92,635
---------- ----------
$46,904,980 $42,501,338
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,243,118 $ 7,015,264
Accrued expenses 19,210,099 14,129,132
Deferred revenue 8,878,381 9,109,469
Notes payable 206,939
---------- ----------
Total current liabilities 32,538,537 30,253,865
---------- ----------
---------- ----------
Noncurrent portion of accrued
expenses and deferred revenue 4,106,000 3,581,000
Obligations under stock option 2,034,375
plan
Noncurrent portion of notes
payable 504,323
---------- ----------
Total liabilities 39,183,235 33,834,865
Commitments and contingent
liabilities
Stockholders' equity:
Common stock 34,040 34,040
Additional paid-in-capital 7,628,689 6,886,721
Retained earnings 908,549 4,007,501
---------- ----------
8,571,278 10,928,262
Less: Treasury stock (849,533) (2,261,789)
----------- -----------
Total stockholders' equity 7,721,745 8,666,473
----------- -----------
$46,904,980 $42,501,338
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AMERICA SERVICE GROUP INC.
CONSOLIDATED STATEMENT OF OPERATIONS
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Six Months
Quarter Ended June 30, Ended June 30,
---------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues $38,964,977 $24,943,347 $77,934,546 $50,175,533
Health-care expenses 39,577,475 22,025,182 75,404,037 44,394,498
------------ ----------- ----------- ----------
Gross Profit (612,498) 2,918,165 2,530,509 5,781,035
Selling, general and
administrative expenses 2,859,257 2,345,654 5,480,384 4,728,159
Non-cash, non-recurring
compensation charge 2,384,375 2,384,375
----------- ---------- ---------- ----------
Total selling, general
and administrative
expenses 5,243,632 2,345,654 7,864,759 4,728,159
Income (loss) from
operations (5,856,130) 572,511 (5,334,250) 1,052,876
Other income (expense):
Interest income 85,932 52,203 198,753 83,325
Other income (expense) (26,786) (7,247) (35,455) (9,583)
----------- ---------- ---------- --------
Total other income 59,146 44,956 163,298 73,742
Income (loss) before taxes (5,796,984) 617,467 (5,170,952) 1,126,618
Provision (benefit) for
income taxes (2,323,000) 249,000 (2,072,000) 450,000
----------- ---------- ----------- ----------
Net income (loss) ($3,473,984) $368,467 ($3,098,952) $676,618
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Earnings (loss) per
common and common
equivalent share ($1.08) $0.11 ($1.02) $0.20
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Common and common
equivalent shares
outstanding 3,219,572 3,337,808 3,050,981 3,309,056
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
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AMERICA SERVICE GROUP INC
CONSOLIDATED STATEMENT OF CASH FLOW
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Six Months Ended June 30,
--------------------------
1996 1995
---- ----
Cash flows from operating activities:
Net income (loss) ($3,098,952) $676,618
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 661,369 329,082
Non-cash, non-recurring compensation charge 2,034,375
(Increase) decrease in:
Accounts receivable (6,363,601) (233,134)
Inventory 103,797 (6,946)
Prepaid expenses and income taxes (2,250,702) (246,091)
Deferred tax assets (1,036,000) (207,988)
Other assets 3,220 29,789
Increase (decrease) in:
Accounts payable (2,772,146) (69,696)
Accrued expenses 5,877,754 (1,954,540)
Deferred revenue (231,088)
Income taxes payable (271,787)
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Net cash used in operating activities (7,343,761) (1,682,906)
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Cash flows from investing activities:
Change in restricted investments, net (217,408) 206,497
Sales and maturities of investments - 58,083
Capital expenditures (3,337,685) (264,895)
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Net cash used in investing activities (3,555,093) (315)
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Cash flows from financing activities:
Proceeds from notes payable borrowings 711,262
Exercise of stock options 1,751,626 302,163
Sale of common stock 1,277,500
Purchase of treasury shares (874,902)
------------ -----------
Net cash provided by financing activities 2,865,486 302,163
------------ -----------
Net decrease in cash and cash equivalents (8,033,368) (1,381,058)
Cash and cash equivalents beginning of period 12,049,855 3,829,888
------------ -----------
Cash and cash equivalents end of period $4,016,487 $2,448,830
------------ -----------
------------ -----------
</TABLE>
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AMERICA SERVICE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. BASIS OF PRESENTATION
The interim consolidated financial statements as of June 30, 1996 and for the
six months and quarter then ended, are unaudited, but in the opinion of
management, have been prepared in conformity with generally accepted
accounting principles applied on a basis consistent with those of the annual
financial statements. Such interim consolidated financial statements reflect
all adjustments (consisting of normal recurring accruals) necessary for a
fair presentation of the financial position and the results of operations for
the quarter presented. The results of operations for the six months
presented are not necessarily indicative of the results to be expected for
the year ending December 31, 1996. The interim consolidated financial
statements should be read in connection with the audited consolidated
financial statements for the year ended December 31, 1995.
2. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share is based on the average
number of common shares and dilutive common share equivalents outstanding for
the six months and the quarters ended June 30, 1996 and 1995. The amount of
dilution is computed using the treasury stock method. For the quarter and
six months ended June 30, 1996, common share equivalents were not included in
the calculation as they were anti-dilutive. Earnings per common and common
equivalent share, when calculated on a stand-alone basis, will not
necessarily be equal to the year-to-date calculations as a result of
significant changes in the weighted number of shares outstanding.
3. NON-CASH, NON-RECURRING COMPENSATION CHARGE
On April 1, 1996 the Company signed an employment and other agreements with
its new President and Chief Executive Officer. Under the terms of the
agreements, the Company sold 146,000 shares of stock from the treasury at a
price of $8.75 per share (the fair market value of the Company's common stock
on April 1, 1996), issued 40,000 restricted shares and granted options to
purchase 175,000 shares of stock at $8.75 per share, with this option grant
being subject to shareholder approval of an amended stock option plan. The
amended stock option plan was approved by the stockholders at the May 23,
1996 Annual Meeting. Both the restricted stock award and the options
contained accelerated vesting provisions should the price of the Company's
stock achieve certain targeted price levels. The maximum targeted market
price was reached on April 30, 1996, and therefore all options and the
restricted stock became fully vested at that date. Accordingly, the Company
recorded a non-cash, non-recurring charge to earnings in the second quarter
equal to the fair market value of the restricted stock option on the date of
the award ($350,000) and the excess of the fair market value at the date of
the Shareholder approval of the amended stock option plan over the exercise
price ($2,034,375).
<PAGE>
The President's agreement also contains conditions whereby, upon termination
of employment, the employee can require the Company to purchase and the
Company can require the employee to sell to the Company, the 146,000 shares
of stock purchased by the employee plus the vested portion of the restricted
stock award. The purchase price of the shares will be equal to the average
closing price of the shares for the thirty day period prior to the date of
notification by either party of their intention to exercise this right.
ITEM 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
~Results of Operations~
SECOND QUARTER 1996 VERSUS SECOND QUARTER 1995
Revenues for the second quarter 1996 increased 56% to $38,965,000 from
$24,943,000 in the second quarter 1995. The contract with the State of
Georgia which commenced wazzu on October 1, 1995 accounted for $13,943,000 of
the increase. Three of the Company's contracts, which commenced subsequent
to the second quarter 1995, contributed wazzu revenues of $1,176,000 in the
second quarter while six contracts which produced $3,100,000 in revenue in
the second quarter 1995 were terminated prior to 1996 and therefore produced
no revenue in the current quarter. Repricing and renewals of continuing
contracts contributed an additional $1,928,000 in revenue during the current
quarter.
Healthcare expenses during the second quarter 1996 were $39,577,000 or 101.6%
of revenue. Healthcare expenses include a $2,100,000 provision for contract
losses. Excluding the $2,100,000 charge during the second quarter,
healthcare expenses were 96.2% of revenue in the second quarter 1996 compared
with 88.3% in the second quarter 1995. The increase in health care expenses
and the increase in healthcare expenses as a percentage of revenue can be
attributed to specific cost issues relating to the contract with the State of
Georgia. The Company has experienced higher than expected utilization of
outside services, and higher than expected pharmacy and laboratory costs as
it endeavors to implement its "managed care" philosophy throughout the State
of Georgia. Rates for clinical and outpatient services have also been higher
than anticipated. The 35,000 inmate system had previously been privatized as
a "staffing only" contract and implementation of the managed care concept has
taken longer than anticipated.
Selling, general and administrative expenses for the second quarter 1996 were
$5,244,000, which included a $2,384,000 non-cash, non-recurring compensation
charge related to stock awards and options issued to the President and Chief
Executive Officer of the Company and $225,000 in legal and reserve
adjustments. Excluding these charges, selling, general and administrative
expenses increased $289,000 over the second quarter 1995 and were 6.8% of
revenue in the second quarter 1996 compared with 9.4% in the second quarter
1995. The percentage decrease is due primarily to leveraging of the
Company's administrative cost structure over greater revenues associated with
the Georgia contract.
<PAGE>
Other income was $59,000 for the second quarter 1996 compared with $45,000
during the second quarter 1995. Interest income has increased as a result of
higher levels of investable cash during 1996 due to the prepayment feature of
the Georgia contract. Interest expense was approximately $27,000 during the
second quarter 1996 and relates principally to an equipment financing loan
that has been repaid during August 1996.
An income tax benefit of $2,323,000 was recorded during the second quarter
1996 as a result of the losses incurred. The benefit rate is approximately
40%. The second quarter 1995 tax provision of $249,000 was recorded at an
effective tax rate of approximately 40%.
SIX MONTHS ENDED JUNE 30, 1996 VERSUS SIX MONTHS ENDED JUNE 30, 1995
Revenues of $77,935,000 for the six months ended June 30, 1996 increased 55%
over revenue of $50,716,000 for the corresponding 1995 period. The contract
with the State of Georgia accounted for $27,769,000 of the increase. Three
contracts, which commenced subsequent to the second quarter 1995 contributed
revenues of $2,320,000 in the six months ended June 30, 1996 while six
contracts which produced $6,983,000 in revenue for the six months ended June
30, 1995 were terminated prior to 1996 and therefore produced no revenue in
the current period. Repricing and renewals of continuing contracts and
revenue associated with increased inmate populations contributed an
additional $4,641,000 in revenue during the current six months.
Healthcare expenses during the six months ended June 30, 1996 were
$75,404,000 or 97.8% of revenue. Healthcare expenses include a $2,100,000
provision for contract losses recorded in the second quarter. Excluding the
$2,100,000 charge, healthcare expenses were 94.1% of revenue compared with
88.5% in the six month period ended June 30, 1995. The increase in
healthcare expenses and the increase in the healthcare expenses as a
percentage of revenue can be attributed to specific cost issues relating to
the contract with the State of Georgia. Specifically the Company has
experienced higher than expected utilization of outside services, and higher
than expected pharmacy and laboratory costs as it endeavors to implement its
"managed care" philosophy throughout the State of Georgia. Rates for
clinical and outpatient services have also been higher than anticipated. The
35,000 inmate system had previously been privatized as a "staffing only"
contract and implementation of the managed care concept has taken longer than
anticipated.
Selling, general and administrative expenses for the six month period ended
June 30, 1996 were $7,865,000, which included a $2,384,000 non-cash, non-
recurring compensation charge related to stock awards and options issued to
the President and Chief Executive Officer of the Company and $225,000 in
legal and reserve adjustments. Excluding these charges, selling, general and
administrative expenses during the six months ended June 30, 1996 increased
$527,000 over the comparable 1995 period and were 6.7% of revenue in the six
months ended June 30, 1996 compared with 9.4% of revenue for the comparable
1995 period. The percentage decrease is due primarily to leveraging of the
Company's administrative cost structure over greater revenues associated with
the Georgia contract.
<PAGE>
Other income was $163,000 for the six months ended June 30, 1996 compared
with $74,000 during the comparable 1995 period. Interest income has
increased as a result of higher levels of investable cash during 1996 due to
the prepayment feature of the Georgia contract. Interest expense was
approximately $35,000 during the 1996 period and relates principally to an
equipment financing loan that has been repaid in August 1996.
An income tax benefit of $2,072,000 has been recorded during the six months
ended June 30, 1996 as a result of the losses incurred. The benefit rate is
approximately 40%. The comparable 1995 tax provision of $450,000 was
recorded at an effective tax rate of approximately 40%.
~Liquidity and Capital Resources~
The Company's cash, cash equivalents and investments at June 30, 1996 were
$4,716,000 compared with cash, cash equivalents and investments of
$12,750,000 at December 31, 1995. Cash used in operating activities during
the six months ended June 30, 1996 was $7,344,000 compared to cash used in
operations of $1,683,000 for the comparable 1995 period. The primary uses of
cash during the period were the increase in accounts receivable ($6,364,000),
an increase in prepaid taxes ($2,522,000) and a decrease in accounts payable
($2,772,000). The increase in accounts receivable is attributable to the
timing of cash receipts of two large state contracts. These payments
approximating, $5,500,000, were received prior to the end of July. Accounts
payable decreases can be attributed to the Georgia contract payables which
began being paid in volume subsequent to the first of the year. The increase
in prepaid expenses and income taxes is due to the fact that estimated taxes
have been paid during the six month period ended June 30, 1996 on projected
1996 pretax operating profit prior to the recording of the operating losses
late in the second quarter. Additionally a benefit has been provided on
these losses under the assumption that previously paid income taxes would be
recoverable. These uses of cash were partially offset by an increase in
accrued expenses due mainly to the provisions for contract losses.
As previously disclosed, the non-cash, non-recurring compensation charge
relates to the grant and vesting of stock options awarded to the Company's
newly appointed President and Chief Executive Officer. While this charge has
been deducted for financial reporting purposes, the amount of taxable
deduction will not be recognized until the options are actually exercised.
Therefore, a deferred tax asset has been established for this compensation
charge. Upon exercise of the options, the deferred compensation charge will
be credited to additional paid-in-capital along with the associated income
tax benefit realized.
In February 1996, the Company announced a series of agreements with a new
primary lending bank. During the second quarter 1996 the Company and the
bank mutually restructured the components of the lines of credit which now
consist of a $6.5 million working capital line of credit, a $15.0 million
line of credit available for collateral for the Company's performance bonds
and a $5 million revolving line of credit for acquisition purposes. As of
June 30, 1996 letters of credit totaling $10.3 million had been issued as
collateral for performance bonds. An equipment financing note of $.6
million, issued on March 29, 1996 has been repaid in August 1996.
<PAGE>
Management believes that the current levels of cash, when coupled with
internally generated funds and the lines of credit, are sufficient to meet
the Company's immediately foreseeable cash needs.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of America Service Group Inc.
was held on May 23, 1996.
(b) At the Annual Meeting of Stockholders, proposals were considered
for the election of Thomas F. Bogan, William D. Eberle, John W. Gildea, Carol
E. Goldberg, Douglas L. Jackson, and Scott L. Mercy as directors to serve
until 1997 Annual Meeting of Stockholders.
(c) Set forth below is the tabulation of the votes on each matter,
voted upon at the meeting.
(i) Election of Directors
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For Withheld
Thomas F. Bogan 2,704,055 199,498
William D. Eberle 2,703,855 199,698
John W. Gildea 2,465,621 437,932
Carol R. Goldberg 2,700,355 203,198
Douglas L. Jackson 2,466,621 436,932
Scott L. Mercy 2,703,055 200,498
</TABLE>
(ii) Ratification of the selection of Price Waterhouse LLP as
independent accountants for the Company for 1996.
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For Withheld Abstain Broker Non-Votes
2,892,253 10,800 0
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(iii) Approval of the Amended Incentive Stock Plan.
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For Withheld Abstain Broker Non-Votes
1,341,646 550,109 19,809
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(iv) Approval of the Employee Stock Purchase Plan
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For Withheld Abstain Broker Non-Votes
1,872,080 27,175 12,309
</TABLE>
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 America Service Group Inc. Amended Incentive Stock Plan (as
adopted by the Board of Directors on March 19, 1996).*
10.2 Employment Agreement dated April 1, 1996 between Scott L. Mercy
and America Service Group Inc.*
10.3 Employment Agreement dated April 1, 1996 between Margaret O.
Harrison and America Service Group Inc.*
10.4 Employment Agreement dated April 1, 1996 between Stuart H.
Shapiro and America Service Group Inc.*
10.5 Health Care Services Contract with the State of Delaware, dated
June 3, 1996.
11.1 Statement re computation of per share earnings
27 Financial Data Schedule
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*Denotes management agreement or compensatory plan or arrangement
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly authorized this report to be signed on its behalf
by the undersigned thereunto duly authorized.
AMERICA SERVICE GROUP INC.
/s/Scott L. Mercy
-------------------------------
Dated: August 13, 1996 Scott L. Mercy
President and Chief Executive Officer
(Principle Executive Officer)
/s/Margaret O. Harrison
-------------------------------
Margaret O. Harrison
Sr. Vice President, Finance and
Administration, Chief Financial Officer
(Principal Financial Officer)
/s/Thomas J. Burns, Jr.
------------------------------
Thomas J. Burns, Jr.
Controller and Assistant Treasurer
(Principal Accounting Officer)
20
EXHIBIT A
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AMERICA SERVICE GROUP INC.
AMENDED INCENTIVE STOCK PLAN
1. Purpose. The America Service Group Inc. Amended Incentive
------
Stock Plan (the"Plan") is intended to provide incentives which will attract and
retain highly competent persons as officers, key employees and non-employee
directors of America Service Group Inc. and its subsidiaries (the "Company"),
as well as independent contractors providing consulting or advisory services
to the Company, by providing them opportunities to acquire shares of Common
Stock of the Company ("Common Stock") or to receive monetary payments based on
the value of such shares pursuant to the Benefits described herein.
2. Administration. The Plan will be administered by the Incentive
--------------
Stock Committee (the "Committee") appointed by the Board of Directors of the
Company from among its member which shall be comprised of not less than two
non-employee members of the Board provided, however, that as long as the
Common Stock of the Company is registered under the Securities Exchange Act of
1934, members of the Committee must qualify as disinterested persons within
the meaning of Securities and Exchange Commission Regulation S 240.16b-
3(c)(2)(i). The Committee is authorized, subject to the provisions of the
Plan, to establish such rules and regulations as it deems necessary for the
proper administration of the Plan and to make such determinations and
interpretations and to take such action in connection with the Plan and any
Benefits granted hereunder as it deems necessary or advisable. All
determinations and interpretations made by the Committee shall be binding and
conclusive on all participants and their legal representatives.
3. Participants. Participants will consist of such key employees
------------
(including officers) and non-employee directors of the Company, and
independent contractors providing consulting or advisory services to the
Company, as the Committee in its sole discretion determines to be
significantly responsible for the success and future growth and profitability
of the Company and whom the Committee may designate from time to time to
receive Benefits under the Plan. Notwithstanding the preceding sentence,
members of the Committee will not be eligible to receive benefits under this
Plan (other than as provided in Paragraph 6(e) hereof) as long as the Common
Stock of the company is registered under the Securities Exchange Act of 1934.
Designation of a participant in any year shall not require the Committee to
designate such person to receive a Benefit in any other year or, once
designated, to receive the same type or amount of Benefit as granted to the
participant in any year. The Committee shall consider such factors as it
deems pertinent in selecting participants and in determining the type and
amount of their respective Benefits.
4. Types of Benefits. Benefits under the Plan may be granted in
----------------
any one or a combination of (a) Stock Options, (b) Stock Appreciation Rights,
and (c) Stock Awards, all as described below (collectively "Benefits").
5. Shares Reserved under the Plan. There is hereby reserved for
------------------------------
issuance under the Plan an aggregate of 1,075,000 shares of Common Stock,
which may be authorized but unissued or treasury shares, including shares of
Common Stock subject to options originally outstanding under the Company's
Employee's 1986 Stock Option Plan, as amended, (the "1986 Plan"). Any shares
subject to Stock Options or Stock Appreciation Rights or issued under such
options or rights or as Stock Awards under the 1986 Plan or this Plan may
thereafter be subject to new options, rights or awards under this Plan if
there is a lapse, expiration or termination of any such options or rights
prior to issuance of the shares or the payment of the equivalent or if shares
are issued under such options or rights or as such awards, and thereafter are
reacquired by the Company without consideration pursuant to rights reserved by
the Company upon issuance thereof or otherwise. No participant hereunder may
receive in any calendar year Stock Options and Stock Appreciation Rights for
more than 250,000 shares of Common Stock hereunder.
6. Stock Options. Stock Options will consist of awards from the
-------------
Company, in the form of agreements, which will enable the holder to purchase a
specific number of shares of Common Stock, at set terms and at a fixed
purchase price. Stock Options may be "incentive Stock Options" within the
meaning of Section 422 of the Internal Revenue Code ("Incentive Stock
Options") or Stock Options which do not constitute Incentive Stock Options
("Nonqualified Stock Options"). Each Stock Option shall be subject to such
terms and conditions consistent with the Plan as the Committee may impose from
time to time, subject to the following limitations:
(a) Option-Price. Stock Options granted hereunder shall have such
------------
per-share option price as the Committee may determine at the date of
grant provided, however, that the per-share option price for Stock
Options shall not be less than 100% of the Fair Market Value of the
Common Stock on the date the option is granted.
(b) Payment of Option Price. The option purchase price may be paid
-----------------------
by check or, in the discretion of the Committee, by the delivery of
shares of Common Stock of the Company then owned by the participant. In
the discretion of the Committee, payment may also be made by any other
means (including cashless exercise as permitted under Federal Reserve
Board Regulation T) consistent with the Plan's purpose and applicable
law. To facilitate the foregoing, the Company may enter into agreements
for coordinated procedures with one or more brokerage firms.
(c) Exercise Period. Stock Options granted under the Plan shall be
---------------
exercisable not later than ten years after the date they are granted.
All Stock Options shall terminate at such earlier times and upon such
conditions or circumstances as the Committee shall in its discretion set
forth in such option at the date of grant. The Committee may provide,
either at the time of grant or subsequently, that a Stock Option include
the right to acquire a replacement Stock Option upon exercise of the
original Stock Option (in whole or in part) prior to termination of
employment of the participant and through payment of the exercise price
in shares of Common Stock. The terms and conditions of a replacement
option shall be determined by the Committee in its sole discretion.
(d) Limitations on Incentive Stock Options. Incentive Stock
---------------------------------------
Options may be granted only to participants who are employees of the
Company at the date of grant. The aggregate Fair Market Value
(determined as of the time the option is granted) of the Common Stock
with respect to which Incentive Stock options are exercisable for the
first time by a participant during any calendar year (under all option
plans of the Company) shall not exceed $100,000. Incentive Stock Options
may not be granted to any participant who, at the time of grant, owns
stock possessing (after the application of the attribution rules of
Section 424(d) of the Code) more than 10% of the total combined voting
power of all classes of stock of the Company, unless the option price is
fixed at not less than 110% of the Fair Market Value of the Common Stock
on the date of grant and the exercise of such option is prohibited by its
terms after the expiration of five years from the date of grant of such
option.
(e) Automatic Grants to Non-Employee Directors. Each non-employee
------------------------------------------
director of the Company who first becomes a member of the Board on or
after May 1, 1996 shall, subject to the number of shares remaining
available under this Plan, automatically receive, on the date he or she
first becomes a director of the Company, a Nonqualified Stock Option to
purchase 15,000 shares of Common Stock, at an exercise price per share
equal to 100% of the Fair Market Value of the Common Stock on the date of
receipt of such option. For purposes of this Plan, a non-employee
director is any person who is a member of the Board of the Company and
who is not an employee of or an independent contractor providing
consulting or advisory services to the Company.
7. Stock Appreciation Rights. The Committee may, in its
-------------------------
discretion, grant Stock Appreciation Rights to the holders of any Stock
Options granted hereunder. In addition, Stock
Appreciation Rights may be granted independently of and without relation to
options. Each Stock Appreciation Right shall be subject to such terms and
conditions consistent with the Plan as the Committee shall impose from time to
time, including the following:
(a) A Stock Appreciation Right relating to a Stock Option may be
made part of such option at the time of its grant or at any time
thereafter up to six months prior to its expiration.
(b) Each Stock Appreciation Right will entitle the holder to elect
to receive the appreciation in the Fair Market Value of the shares
subject thereto up to the date the right is exercised. In the case of a
right issued in relation to a Stock Option, such appreciation shall be
measured from not less than the option price and in the case of a right
issued independently of any Stock Option, such appreciation shall be
measured from not less than the Fair Market Value of the Common Stock on
the date the right is granted. Payment of such appreciation shall be
made in cash or in Common Stock, or a combination thereof, as set forth
in the award, but no Stock Appreciation Right shall entitle the holder to
receive, upon exercise thereof, more than the number of shares of Common
Stock (or cash of equal value) with respect to which the right is
granted.
(c) Each Stock Appreciation Right will be exercisable at the times
and to the extent set forth therein, but no Stock Appreciation Right may
be exercisable earlier than six months after the date it was granted or
later than the earlier of (i) the remaining term of the related option,
if any, or (ii) ten years after it was granted. Exercise of a Stock
Appreciation Right shall reduce the number of shares issuable under the
Plan (and the related option, if any) by the number of shares with
respect to which the right is exercised.
8. Stock Awards. Stock Awards will consist of Common Stock
------------
transferred to participants for such consideration as the Committee shall
determine (or for no consideration) as additional compensation for services to
the Company. Stock Awards shall be subject to such terms and conditions as
the Committee determines appropriate, including, without limitation,
restrictions on the sale or other disposition of such shares, and rights of
the Company to reacquire such shares upon termination of the participant's
employment within specified periods and/or if performance goals established by
the Committee are not achieved.
9. Adjustment Provisions.
---------------------
(a) If the Company shall at any time change the number of issued
shares of Common Stock without new consideration to the Company (such as
by stock dividends or stock splits), the total number of shares reserved
for issuance under this Plan and the number of shares covered by each
outstanding Benefit shall be adjusted so that the aggregate consideration
payable to the Company and the value of each such Benefit shall not be
changed. The Committee may also provide for the continuation of Benefits
or for other equitable adjustments after changes in the Common Stock
resulting from reorganization, sale, merger, consolidation or similar
occurrence.
(b) Notwithstanding any other provision of this Plan, and without
affecting the number of shares otherwise reserved or available hereunder,
the Committee may authorize the issuance or assumption of Benefits in
connection with any merger, consolidation, acquisition of property or
stock, or reorganization upon such terms and conditions as it may deem
appropriate.
(c) In the case of any merger, consolidation or combination of the
Company with or into another corporation, other than a merger,
consolidation or combination in which the Company is the continuing
corporation and which does not result in the outstanding Common Stock
being converted into or exchanged for different securities, cash or other
property, or any combination thereof (an "Acquisition"):
(i) any participant to whom a Stock Option has been granted
under the Plan shall have the right (subject to the provisions of
the Plan and any limitation applicable to such option) thereafter
and during the term of such option, to receive upon exercise thereof
the Acquisition Consideration (as defined below) receivable upon
such Acquisition by a holder of the number of shares of Common Stock
which might have been obtained upon exercise of such option or
portion thereof, as the case may be, immediately prior to such
Acquisition; and
(ii) any participant to whom a Stock Appreciation Right has
been granted under the Plan shall have the right (subject to the
provisions of the Plan and any limitation applicable to such right)
thereafter and during the term of such right to receive upon
exercise thereof the difference between the aggregate Fair Market
Value of the Acquisition consideration receivable upon such
Acquisition by a holder of the number of shares of Common Stock
which might have been obtained upon exercise of the Stock Option
related thereto or any portion thereof, as the case may be,
immediately prior to such Acquisition and the aggregate option price
of the related option, or the aggregate Fair Market Value on the
date of grant of the right, whichever is applicable.
The term "Acquisition consideration" shall mean the kind and amount of shares
of the surviving or new corporation, cash, securities, evidence of indebted-
ness, other property or any combination thereof receivable in respect of one
share of Common Stock of the Company upon consummation of an Acquisition.
10. Nontransferability. Each Benefit granted under the Plan to a
------------------
participant shall not be transferable by him otherwise than by law or by will
or the laws of descent and distribution, and shall be exercisable, during his
lifetime, only by him. In the event of the death of a participant while the
participant is rendering services to the Company, each Benefit theretofore
granted to him shall be exercisable during such period after his death as the
Committee shall in its discretion set forth in such Benefit at the date of
grant (but not beyond the stated duration-of the Benefit) and then only:
(a) By the executor or administrator of the estate of the deceased
participant or the person or persons to whom the deceased participant's
rights under the Benefit shall pass by will or the laws of descent and
distribution; and
(b) To the extent that the deceased participant was entitled to do
so at the date of his death.
Notwithstanding the foregoing, at the discretion of the Committee, a Benefit
may permit the transfer of the Benefit by the participant solely to members of
the participant's immediate family or trusts or family partnerships for the
benefit of such persons subject to such terms and conditions as may be
established by the Committee.
11. Other Provisions. The award of any Benefit under the Plan may
----------------
also be subject to such other provisions (whether or not applicable to the
Benefit awarded to any other participant) as the Committee determines
appropriate, including without limitation, provisions for the installment
purchase of Common Stock under Stock Options, provisions for the installment
exercise of Stock Appreciation Rights, provisions to assist the participant in
financing the acquisition of Common Stock, provisions for the forfeiture of,
or restrictions on resale or other disposition of Shares acquired under any
form of Benefit, provisions for the acceleration of exercisability of Benefits
in the event of a change of control of the Company, provisions for the payment
of the value of Benefits to participants in the event of a change of control
of the Company, provisions for the forfeiture of, or provisions to comply with
Federal and state securities laws, or understandings or conditions as to the
participant's employment in addition to those specifically provided for under
the Plan.
12. Fair Market Value. For purposes of this Plan and any Benefits
----------------
awarded hereunder, Fair Market Value of Common Stock shall be the mean between
the highest and lowest sale prices for the Company's Common Stock as reported
in The Wall Street Journal under the heading "NASDAQ National Market" (or
-----------------------
equivalent recognized source of quotations) on the date of calculation (or on
the next preceding trading date if Common Stock was not traded on the date of
calculation), provided, however, that if the Company's Common Stock is not at
any time listed for trading on the NASDAQ National Market System, Fair Market
Value shall mean the amount determined in good faith by the Committee as the
fair market value of the Common Stock of the Company.
13. Withholdings. All payments or distributions made pursuant to
------------
the Plan shall be net of any amounts required to be withheld pursuant to
applicable federal, state and local tax withholding requirements. If the
Company proposes or is required to distribute Common Stock pursuant to the
Plan, it may require the recipient to remit to it an amount sufficient to
satisfy such tax withholding requirements prior to the delivery of any
certificates for such Common Stock. The Committee may, in its discretion and
subject to such rules as it may adopt, permit an optionee or award or right
holder to pay all or a portion of the federal, state and local withholding
taxes arising in connection with (a) the exercise of a Nonqualified Stock
Option or Stock Appreciation Right or (b) the receipt of Stock Awards, by
electing to have the Company withhold shares of Common Stock having a Fair
Market Value equal to the amount to be withheld.
14. Tenure. A participant's right, if any, to continue to serve
------
the Company as an officer, employee, director, independent contractor, or
otherwise, shall not be enlarged or otherwise affected by his designation as a
participant under the Plan.
15. Duration. Amendment and Termination. No Benefit shall be
------------------------------------
granted after March 1, 2006; provided, however, that the terms and conditions
applicable to any Benefit granted prior to such date may at any time before
such date or thereafter be amended or modified by mutual agreement between the
Company and the participant or such other persons as may then have an interest
therein. Also, by mutual agreement between the Company and a participant
hereunder, under this Plan or under any other present or future plan of the
Company, Benefits may be granted to such participant in substitution and
exchange for, and in cancellation of, any Benefits previously granted such
participant under this Plan, or any Benefit previously granted to him under
the 1986 Plan or any other present or future plan of the Company. The Board
of Directors may amend the Plan from time to time or terminate the Plan at any
time provided, however, that Paragraph 6(e) of this Plan may not be amended
-------- -------
more frequently than once every six months. However, no action authorized by
this paragraph shall reduce the amount of any existing Benefit or change the
terms and conditions thereof without the participant's consent. No amendment
of the Plan shall, without approval of the stockholders of the Company, (i)
materially increase the total number of shares which may be issued under the
Plan; (ii) materially increase the amount or type of Benefits that may be
granted under the Plan; (iii) materially modify the requirements as to
eligibility for Benefits under the Plan; (iv) result in any member of the
Committee losing his or her status as a disinterested person under Securities
and Exchange Commission Regulation S 240.16b-3(c)(2)(i); or (v) result in the
Plan losing its status as a protected plan under Securities and Exchange
Commission Rule 16b-3.
16. Stockholder Approval. The Plan was adopted by the Board of
--------------------
Directors of the Company on March 19, 1996. The Plan and any Benefits granted
thereunder shall be null and void (to the extent the Plan and such Benefits
incorporate provisions and/or utilize shares of Common Stock not provided for
in, or available under, the Plan prior to such adoption by the Board of
Directors) if stockholder approval is not obtained within twelve (12) months
of the adoption of the Plan by the Board of Directors.
EXHIBIT B
---------
AMERICA SERVICE GROUP INC.
EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. America Service Group Inc., a Delaware corporation
-------
(the "Company"), hereby adopts this Employee Stock Purchase Plan (the "Plan").
The purpose of the Plan is to provide an opportunity for the employees of the
Company and any designated subsidiaries to purchase shares of Common Stock
("Common Stock") of the Company through voluntary automatic payroll
deductions, thereby attracting, retaining and rewarding such persons and
strengthening the mutuality of interest between such persons and the Company's
stockholders.
2. Shares Subject to Plan. An aggregate of 500,000 shares (the
----------------------
"Shares") of Common Stock of the Company may be sold pursuant to the Plan.
Such Shares may be authorized but unissued shares, treasury shares or shares
purchased in the open market. If there is any change in the outstanding
shares of Common Stock by reason of a stock dividend or distribution, stock
split, recapitalization, combination or exchange of shares, or a merger,
consolidation or other corporate reorganization in which the Company is the
surviving corporation, the number of Shares available for sale shall be
equitably adjusted by the Committee appointed to administer the Plan to give
proper effect to such change.
3. Administration. The Plan shall be administered by a committee
--------------
(the "Committee") which shall be the Incentive Stock Committee of the Board of
Directors or another committee consisting of not less than two directors of
the Company appointed by the Board of Directors, none of whom shall
participate in the Plan and all of whom shall qualify as disinterested persons
within the meaning of Securities and Exchange Commission Regulation
S 240.16b-3 or any successor regulation. The Committee is authorized, subject
to the provisions of the Plan, to establish such rules and regulations as it
deems necessary for the proper administration of the Plan and to make such
determinations and interpretations and to take such action in connection with
the Plan and any Shares made available hereunder as it deems necessary or
advisable. All determinations and interpretations made by the Committee shall
be binding and conclusive on all participants and their legal representatives.
No member of the Board, no member of the Committee and no employee of the
Company shall be liable for any act or failure to act hereunder, by any other
member or employee or by any agent to whom duties in connection with the
administration of this Plan have been delegated or, except in circumstances
involving his or her bad faith, gross negligence or fraud, for any act or
failure to act by the member or employee.
4. Eligibility. All regular employees of the Company, and of each
-----------
qualified subsidiary of the Company designated for participation by the Board
of Directors, other than:
(a) employees whose customary employment is 20 hours or less per
week;
(b) employees whose customary employment is for not more than 5
months per year; and
(c) Employees who have been employed for less than one year or such
shorter period of time as may be designated by the Committee;
shall be eligible to participate in the Plan. For the purposes of this Plan,
the term "qualified subsidiary" means any subsidiary, 50% or more of the total
combined voting power of all classes of stock in which is now owned or
hereafter acquired by the Company or any such qualified subsidiary.
5. Participation. An eligible employee may elect to participate in
-------------
the Plan as of any "Enrollment Date". Enrollment Dates shall occur on the
first day of an Offering Period (as defined in paragraph 8). Any such
election shall be made by completing and forwarding to the Company an
enrollment and payroll deduction authorization form prior to such Enrollment
Date, authorizing payroll deductions in such amount as the employee may
request but in no event less than the minimum nor more than the maximum amount
as the Committee shall determine. A participating employee may increase or
decrease his payroll deductions as of any subsequent Enrollment Date by
completing and forwarding to the Company a revised payroll deduction
authorization form; provided, that changes in payroll deductions shall not be
permitted to the extent that they would result in total payroll deductions
below the minimum or above the maximum amount specified by the Committee. An
eligible employee may not initiate, increase or decrease payroll deductions as
of any date other than an Enrollment Date except by withdrawing from the Plan
as provided in paragraph 7.
6. Payroll Deduction Accounts. The Company shall establish on its
--------------------------
books and records a "Payroll Deduction Account" for each participating
employee, and shall credit all payroll deductions made on behalf of each
employee pursuant to paragraph 5 to his or her Payroll Deduction Account. No
interest shall be credited to any Payroll Deduction Account.
7. Withdrawals. An employee may withdraw from an Offering Period
-----------
at any time by completing and forwarding a written notice to the Company.
Upon receipt of such notice, payroll deductions on behalf of the employee
shall be discontinued commencing with the immediately following payroll
period, and such employee may not again be eligible to participate in the Plan
until the second subsequent Enrollment Date. Amounts credited to the Payroll
Deduction Account of any employee who withdraws shall be refunded to the
employee as soon as practicable after the withdrawal.
8. Offering Periods. The Plan shall be implemented by consecutive
----------------
three-month Offering Periods with a new Offering Period commencing on the
first trading day on or after the first day of each January, April, July and
October during the term of the Plan, or on such other date as the Committee
shall determine, and continuing thereafter to the end of such period, subject
to termination in accordance with paragraph 17 hereof. The first Offering
Period hereunder shall commence on July 1, 1996. "Trading day" shall mean a
day on which the NASDAQ National Market System is open for trading. The
Committee shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to future offerings.
The last trading day of each Offering Period prior to the termination of the
Plan (or such other trading date as the Committee shall determine) shall
constitute the purchase dates (the "Share Purchase Dates") on which each
employee for whom a Payroll Deduction Account has been maintained shall
purchase the number of Shares determined under paragraph 9(a). Notwithstanding
the foregoing, the Company shall not permit the exercise of any right to
purchase Shares
(a) to an employee who, immediately after the right is granted,
would own shares possessing 5% or more of the total combined voting power
or value of all classes of stock of the Company or any subsidiary; or
(b) which would permit an employee's rights to purchase shares
under this Plan, or under any other qualified employee stock purchase
plan maintained by the Company or any subsidiary, to accrue at a rate in
excess of $25,000 in fair market value for each calendar year.
For the purposes of subparagraph (a), the provisions of Section 424(d) of the
Internal Revenue Code shall apply in determining the stock ownership of an
employee, and the shares which an employee may purchase under outstanding
rights or options shall be treated as shares owned by the employee.
9. Purchase of Shares.
------------------
(a) Subject to the limitations set forth in paragraphs 7 and 8,
each employee participating in an offering shall purchase as many whole
Shares (plus any fractional interest in a Share) as may be purchased with
the amounts credited to his or her Payroll Deduction Account seven days
prior to the Share Purchase Date (or such other date as the Committee
shall determine) (the "Cutoff Date"). Employees may purchase Shares only
through payroll deductions, and cash contributions shall not be
permitted.
(b) The "Purchase Price" for Shares purchased under the Plan shall
be not less than the lesser of (i) an amount equal to 85% of the closing
price of shares of the Common Stock on the first day of the Offering
Period or (ii) an amount equal to 85% of the closing price of shares of
the Common Stock on the Share Purchase Date. For these purposes, the
closing price shall be as reported on the NASDAQ National Market System
in the Wall Street Journal. The Committee shall have the authority to
-------------------
establish a different Purchase Price as long as any such Purchase Price
complies with the provisions of Section 423 of the Code.
(c) On each Share Purchase Date, the amount credited to each
participating employee's Payroll Deduction Account as of the immediately
preceding Cutoff Date shall be applied to purchase as many whole Shares
(plus any fractional interest in a Share) as may be purchased with such
amount at the applicable Purchase Price. Any amount remaining in an
employee's Payroll Deduction Account as of the relevant Cutoff Date in
excess of the amount that may properly be applied to the purchase of
Shares shall be refunded to the employee as soon as practicable.
10. Brokerage Accounts or Plan Share Accounts. By enrolling in the
-----------------------------------------
Plan, each participating employee shall be deemed to have authorized the
establishment of a brokerage account on his or her behalf at a securities
brokerage firm selected by the Committee. Alternatively, the Committee may
provide for Plan share accounts for each participating employee to be
established by the Company or by an outside entity selected by the Committee
which is not a brokerage firm. Shares purchased by an employee pursuant to
the Plan shall be held in the employee's brokerage or Plan share account
("Plan Share Account") in his or her name, or if the employee so indicates on
his or her payroll deduction authorization form, in the employee's name
jointly with a member of the employee's family, with right of survivorship.
11. Rights as Stockholder. An employee shall have no stockholder
---------------------
rights with respect to Shares subject to any purchase rights granted under
this Plan until payment for such Shares has been completed at the close of
business on the relevant Share Purchase Date.
12. Certificates. Certificates for Shares purchased under the Plan
------------
will not be issued automatically. However, certificates for whole Shares
purchased shall be issued as soon as practicable following an employee's
written request. The Company may make a reasonable charge for the issuance of
such certificates. Fractional interests in Shares shall be carried forward in
an employee's Plan Share Account until they equal one whole Share or until the
termination of the employee's participation in the Plan, in which event an
amount in cash equal to the value of such fractional interest shall be paid to
the employee in cash.
13. Termination of Employment. If a participating employee's
-------------------------
employment is terminated for any reason, if an employee dies, if an employee
becomes disabled or if an employee otherwise ceases to be eligible to
participate in the Plan, payroll deductions on behalf of the employee shall be
discontinued and any amounts then credited to the employee's Payroll Deduction
Account shall be refunded as soon as practicable.
14. Rights Not Transferable. Rights granted under this Plan are
-----------------------
not transferable by a participating employee other than by will or the laws of
descent and distribution, and are exercisable during an employee's lifetime
only by the employee.
15. Employment Rights. Neither participation in the Plan, nor the
-----------------
exercise of any right granted under the Plan, shall be made a condition of
employment, or of continued employment with the Company or any subsidiary.
Participation in the Plan does not limit the right of the Company or any
subsidiary to terminate a participating employee's employment at any time or
give to an employee any right to remain employed by the Company or any
subsidiary in any particular position or at any particular rate of
remuneration.
16. Application of Funds. All funds received by the Company for
--------------------
Shares sold by the Company on any Share Purchase Date pursuant to this Plan
may be used for any corporate purpose.
17. Amendments and Termination. The Board of Directors may amend
--------------------------
the Plan at any time, provided that no such amendment shall be effective
unless approved within 12 months after the date of the adoption of such
amendment by stockholder vote if stockholder approval is required for the Plan
to continue to comply with the requirements of Securities and Exchange
Commission Regulation S 240.16b-3 or Section 423 of the Internal Revenue Code.
The Board of Directors may suspend the Plan or discontinue the Plan at any
time. Upon termination of the Plan, all payroll deductions shall cease and
all amounts then credited to the participating employees' Payroll Deduction
Accounts shall be equitably applied to the purchase of whole Shares then
available for sale, and any remaining amounts shall be promptly refunded to
the participating employees.
18. Applicable Laws. This Plan, and all rights granted hereunder,
---------------
are intended to meet the requirements of an "employee stock purchase plan"
under Section 423 of the Internal Revenue Code, as from time to time amended,
and the Plan shall be construed and interpreted to accomplish this intent.
Sales of Shares under the Plan are subject to, and shall be accomplished only
in accordance with, the requirements of all applicable securities and other
laws.
19. Expenses. Except to the extent provided in paragraph 12, all
--------
expenses of administering the Plan, including expenses incurred in connection
with the purchase of Shares in the open market for sale to participating
employees, shall be borne by the Company and its subsidiaries.
20. Stockholder Approval. The Plan was adopted by the Board of
--------------------
Directors on April 1, 1996, subject to stockholder approval. The Plan and any
action taken hereunder shall be null and void if stockholder approval is not
obtained at the next annual meeting of stockholders.
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT dated the 1st day of April, 1996 between Scott L. Mercy
("Employee") and America Service Group Inc. a Delaware corporation (the
"Company").
WHEREAS, the Board of Directors of the Company (the "Board") seeks
to recruit and employ the Employee as President and Chief Executive Officer of
the Company and a Director of the Company;
WHEREAS, the Board desires to foster the continuous employment of
the Employee and has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of the Employee
to his duties.
WHEREAS, the Board seeks the Employee to make a meaningful personal
investment in the common stock of the Company; and
WHEREAS, the Employee accepts the positions contemplated herein;
NOW, THEREFORE, the parties hereby are as follows:
1. Employment and Duties. The Company hereby employs the Employee
---------------------
as President and Chief Executive Officer to perform the duties of such office
and such other duties and services, within Employee's area of expertise and
responsibility, as shall be reasonably assigned to him from time to time by
the Board. The Board shall also take all necessary steps to ensure that
Employee is slated as a management nominee to the Board during his employment.
2. Performance. Employee agrees to actively devote reasonable
-----------
time and effort to the performance of his duties hereunder and to use his
reasonable best efforts and endeavors to promote the interests and welfare of
the Company.
3. Term. The term of Employee's employment hereunder shall
----
commence as of the date hereof and shall continue until December 31, 1998
(the "Term End"); provided, however, that if a change in control (as
defined herein) occurs during the term of this Agreement, the term of this
Agreement shall automatically be extended for a period of thirty-six (36)
months after the end of the month in which the change in control occurs
("Modified Term End"). Upon the Term End or Modified Term End, the Agreement
shall automatically be extended for successive one-year terms unless
terminated by written notice from either party to the other at least ninety
(90) days prior to the end of a term.
4. Compensation. For all services rendered by Employee, the
------------
Company agrees to pay Employee from and after the date hereof: (i) a salary
(the "Base Salary") at a minimum annual rate of $190,000 through the Term End
or Modified Term End, and at an annual rate which reflects inflation and
merit-based increases, to be agreed upon by the parties thereafter, payable
in such installments as the parties shall mutually agree; (i) an annual bonus
(the "Bonus"), with a Target Payout of 100% of Base Salary ("Target Payout"),
to be determined by the Compensation Committee of the Board ("Committee") based
upon the performance of the Company against defined objectives, provided that,
in no case shall the Bonus exceed 200% of the Base Salary for the year in which
the Bonus is paid; plus (iii) such additional compensation as the Committee
shall from time to time determine. Amounts less than the Target Payout amount
may be paid for performance less than the pre-approved targets, and cash
bonuses in excess of the Target Payout will be paid for performance in excess
of the pre-approved targets, or at the discretion of the Committee.
5. Purchase of Stock.
----------------
(a) Purchase. Employee agrees to purchase from the Company, and
--------
the Company agrees to sell to the Employee 146,000 shares of common stock of
the Company at a price of $8.75 per share (the "Purchase Price"), such price
being the approximate fair market value of the Company's common stock on the
date hereof. Employee shall pay the Purchase Price to the Company by wire
transfer in accordance with the Company's instructions, upon delivery of the
stock certificate representing the shares purchased.
(b) Put Option. Upon termination of Employee's employment
----------
hereunder for any reason or without cause, Employee, or Employee's estate if
applicable, shall, for a period of forty-five (45) days following the
Termination Date (as defined hereafter), have the right to sell, and the
Company shall thereupon have an obligation to purchase (or cause a third party
to purchase) such number of the shares purchased under Section 5(a) (the "
Mercy Shares") and of
the shares vested pursuant to the stock award received under Section 6(a) (the
"Vested Award Shares") as Employee, or Employee's estate if applicable, shall
elect, at a price equal to the average closing price of the Company's common
stock for the thirty (30) trading days immediately preceding notification by
the Employee to the Company of Employee's intention to exercise this right.
Completion of said transaction, including stock certificate delivery and wire
transfer of proceeds in accordance with the Employee's instructions, shall
occur within five (5) business days of said notification. Termination Date
shall mean the date of death, or the date specified in the notice of
termination, as the case may be, provided that if a dispute exists, the
Termination Date shall be the date on which the dispute is finally determined
either by mutual written agreement of the parties, or by the final judgment,
order or decree of a court of competition jurisdiction.
(c) Company's Right to Repurchase. Upon termination of Employee's
-----------------------------
employment hereunder for any reason or without cause, the Company shall for a
period for forty-five (45) days following the Termination Date have the right
to purchase (or cause a third party to purchase), and Employee shall thereupon
have an obligation to sell to the Company (or to such purchaser) such number
of the Mercy Shares and of the Vested Award Shares as the Company shall elect,
at a price equal to the average closing price of the Company's common stock
for the thirty (30) trading days immediately preceding notification by the
Company to the Employee of the Company's intention to exercise this right.
Completion of said transaction, including stock certificate delivery and wire
transfer of proceeds in accordance with the Employee's instructions, shall
occur within five (5) business days of said notification.
(d) Registration of Mercy Shares. The sale of the Mercy Shares to
----------------------------
Employee has been registered by the Company on Form S-8 in accordance with all
applicable laws and regulations.
(e) Anything to the contrary notwithstanding, the Company shall not
be obligated to purchase the Mercy Shares or the Vested Award Shares if and to
the extent such purchase would violate the Delaware General Corporation Law,
or any loan agreement to which the Company is then a party. Within five
business days following notification by Employee or his estate, if applicable,
of an election (the "Original Election") to sell shares under Section 5(b),
the Company shall determine whether and to what extent the requested purchase
would violate the Delaware General Corporation Law or any such loan agreement
and so advise the Employee or his estate, in writing (the "Company Notice").
If and to the extent the Employee or his estate sells the shares which the
Company is prohibited from purchasing, as described above (the "Restricted
Shares"), within thirty (30) days (or such longer period as the parties shall
agree) following the Company Notice, the Company shall pay the Employee or his
estate, if applicable, the amount, if any, by which the price otherwise
payable for such shares under Section 5(b) exceeds the net proceeds received,
provided that:
- --------
(i) neither the Employee nor his estate sells any shares of Common
Stock other than Restricted Shares between the date of the Original
Election and the last date on which Restricted Shares are sold hereunder;
and
(ii) Employee and his estate use commercially reasonable efforts to
realize the maximum net proceeds from the sale of Restricted Shares
hereunder.
6. Incentive Compensation.
----------------------
(a) Stock Awards. The Company hereby awards to Employee 40,000
------------
shares of the Company's common stock as a restricted stock award pursuant to
the Company's Incentive Stock Plan, subject to the terms and conditions set
forth in Exhibit A hereto. The issuance of such shares has been registered on
Form S-8.
(b) Stock Options. The Company shall grant to the Employee on the
-------------
date hereof, subject to stockholder approval of the Company's Amended
Incentive Stock Plan, options to purchase 175,000 shares of the Company's
common stock at $8.75 per share (the "Options") pursuant to the terms of the
Company's Amended Incentive Stock Plan and subject to the terms and conditions
set forth in Exhibit B. The Options will expire ten (10) years from the date
of grant and will vest in twenty-five percent (25%) annual installments,
starting on the first anniversary of the date of grant, provided, however,
that, notwithstanding the above, (i) on the date the price of the Company's
common stock first reaches $12, one-third (1/3) of the Options shall vest,
(ii) on the date the price of the Company's common stock first reaches $14, an
additional one-third (1/3) of the Options shall vest, and (iii) on the date
the price of the Company's common stock first reaches $16, all outstanding
options shall vest (the "Stock Price Vesting"). Vesting of the Options
pursuant to the Stock Price Vesting shall apply first to the Options scheduled
to vest last based on vesting hereunder pursuant to the passage of time.
Notwithstanding the above, the Options shall fully vest upon a "change in
control" of the Company as set forth in Section 9(d). The Company hereby
covenants to submit the Amended Incentive Stock Plan to the Company's
stockholders for approval at the Company's annual meeting of stockholders to
be held on May 23, 1996.
7. Employee Benefits. During the period of his employment under
----------------
this Agreement, Employee shall be entitled to vacation, insurance, and other
employment benefits customarily provided by the Company to its executives,
including increased or changed benefits as are from time to time provided to
the Company's executives generally; provided, however, that, regarding medical
benefits, Employee shall have the option (a) to join the Company's health
plan, or (b) to require the Company to pay the premium to maintain in full
force and effect for the benefit of the Employee and the Employee's dependents
and beneficiaries, in Employee's name, on a medical insurance plan of benefit
no less than provided to Employee, prior to the date hereof, under the COBRA
extension of the Columbia/HCA health plan.
8. Expenses. The Company shall promptly pay or reimburse Employee
--------
for all reasonable expenses incurred by him in connection with the performance
of his duties and responsibilities hereunder, including, but not limited to,
payment of reasonable automobile allowance, and payment or reimbursement of
reasonable expenses paid or incurred for travel and entertainment relating to
the business of the Company, including commuting costs between his residences
and the corporate headquarters.
9. Termination.
-----------
(a) Termination for Cause. Employee may be terminated from his
---------------------
employment hereunder by the Company if Employee violates the material terms of
this Agreement, intentionally commits an act, of fails to act, in a manner
which constitutes dishonesty or fraud or which has a direct material adverse
effect on the Company or its business, or is convicted of or pleads guilty to
any felony or crime involving moral turpitude.
(b) Disability; Death. If Employee shall fail to or be unable to
----------------
perform the duties required hereunder because of any physical or mental
infirmity, and such failure or inability shall continue for any six (6)
consecutive months during the term of this Agreement, the Company shall have
the right to terminate this Agreement. Except as otherwise provided herein,
and except for Section 5(b) and 5(c), this Agreement shall terminate upon the
death of Employee, and the estate of Employee shall be entitled to receive all
unpaid amounts due Employee hereunder to such date of death.
(c) Termination Without Cause. The Company shall have the right to
-------------------------
terminate the employment of Employee at any time without cause, cause being
determined under Section 9(a). Termination of Employee's employment pursuant
to a notice from the Company under Section 3 that this Agreement will not be
extended shall constitute a termination without cause.
(d) Change in Control. Employee may terminate his employment
----------------
hereunder in the event of a change in control of the Company within ninety
(90) days after such change in control. For purposes of this Agreement, a
"change in control of the Company" shall mean a change in control of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934
("Exchange Act"); provided however, that without limitation, such a change in
control shall be deemed to have occurred if (i) any "person (as such term is
used in Sections 13(d) and 14(d)(2) of the Exchange Act) other than Employee
or any other person currently the beneficial owner of 10% or more of the
outstanding common stock of the Company, becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 30% or more
of the combined voting power of the Company's then outstanding securities;
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof (unless the
election of each director, who was not a director at the beginning of the
period, was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period); or (iii)
approval by the stockholders of the Company of (A) a complete liquidation of
the Company; (B) an agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any "person", or (C) a
merger, consolidation or reorganization involving the Company, unless (1) the
stockholders of the Company immediately before such merger, consolidation or
reorganization, own, directly or indirectly immediately following such merger,
consolidation or reorganization, at least two thirds of the combined voting
power of the outstanding voting securities of the corporation resulting from
such merger or consolidation or reorganization or its parent company (the
"Surviving Corporation") in substantially the same proportion as their
ownership of the voting shares immediately before such merger, consolidation
or reorganization, or (2) the individuals who were members of the Board
immediately prior to the execution of the agreement for such merger,
consolidation or reorganization constitute at least two-thirds of the members
of the board of directors of the Surviving Corporation.
(e) Voluntary Termination Other Than for "Good Reason". Employee
--------------------------------------------------
may voluntarily terminate his employment hereunder at any time, for any reason
other than those specified in Section 9(f) below, or for no reason. Such a
termination shall be deemed a voluntary termination other than for "Good
Reason". Termination of Employee's employment pursuant to a notice from the
Employee under Section 3 that this Agreement will not be extended shall
constitute a voluntary termination other than for "Good Reason".
(f) Voluntary Termination for "Good Reason". Employee may
---------------------------------------
voluntarily terminate his employment at any time for "Good Reason." In the
event of a voluntary termination for "Good Reason", the Employee's right to
receive the compensation set forth in Section 4 and other benefits hereunder,
shall remain in full force and inure to the benefit of the Employee. "Good
Reason" shall mean the occurrence of any of the following events without the
Employee's expressed written consent:
(i) Any change in the Employee's title, authority or
responsibilities which, in the Employee's reasonable judgment, represents an
adverse change from his status, title, position or responsibilities in effect
immediately prior to such change; the assignment to him of any duties or work
responsibilities which, in his reasonable judgment, are inconsistent with such
status, title, position or work responsibilities; or any removal of the
Employee from, or failure to reappoint or reelect him to, any such positions.
(ii) The relocation of the Employee's office at which he is to
perform his duties, to a location more than thirty (30) miles from the
location at which the Employee performed his duties prior to the relocation.
(iii) The failure of the Company to provide to the Employee
compensation and benefits (including, without limitation, incentive, bonus and
other compensation plans, and any vacation, medical, hospitalization, life
insurance, dental and disability benefit plan), or cash compensation in lieu
thereof, which are, in the aggregate, no less favorable than those provided by
the Company to the Employee immediately prior to the plan change.
(iv) The adverse or substantial alteration of the nature and quality
of the office space within which the Employee performed his duties prior to
such change as well as in the secretarial and administrative support provided
to the Employee, provided however that a reasonable alteration of the
secretarial and administrative support provided to the Employee as a result of
reasonable measures implemented by the Company to effectuate a cost-reduction
or consolidation program shall not constitute Good Reason hereunder.
(v) The failure of the Company to obtain satisfactory agreement
from any successor or assign of the Company as contemplated in Section 12
hereof or failure to obtain shareholder approval for the Amended Incentive
Stock Plan.
(vi) Any material breach by the Company of any material provision of
this Agreement, including failure to grant Stock Awards and Stock Options as
contemplated in Section 6 hereunder.
Continuation of employment by the Employee shall not constitute
consent to, or a waiver with respect to, any circumstances constituting "Good
Reason" hereunder provided, however, that the Employee's continued employment
after 90 days from any action which would constitute Good Reason shall
constitute a waiver of rights with respect to such action constituting Good
Reason hereunder.
(g) Termination Compensation. If Employee's employment hereunder
------------------------
is terminated pursuant to Sections 9(a) or 9(e) of this Agreement, the Company
shall pay the Employee his full base salary through the Termination Date,
plus, within five (5) business days of the Termination Date, any bonuses,
incentive compensation, or other payments due which pursuant to the terms of
any compensation or benefit plan have been earned or vested as of the
Termination Date. If Employee's employment is terminated pursuant to Sections
9(b), 9(c), 9(d) or 9(f) of this Agreement, the Company shall, within five (5)
business days of the Termination Date, pay the Employee the following:
(i) His full base salary through the Termination Date, plus any
bonuses, incentive compensation, or other payments due which pursuant to the
terms of any compensation or benefit plan have been earned or vested as of the
Termination Date.
(ii) As long as the Company, as a whole, is then performing as
evidenced by its most recently available monthly operating results, at a level
not less than 80% of its budgeted level, an amount equal to the Target Payout
that the Employee could have earned under the Company's annual incentive
compensation plan with respect to the fiscal year of the Company in which the
Termination Date occurs multiplied by a fraction, the numerator of which is
the number of full months the Employee was employed by the Company during the
fiscal year of the Company in which the Termination Date occurs and the
denominator of which is 12.
(iii) To compensate for all accrued but unpaid leave such as
holidays, vacation and sick pay under the Company's paid leave plan, an amount
equal to the Employee's then current base salary multiplied by the product of
(A) the total number of leave days accrued, divided by (B) the total number of
work days in the fiscal year in which the Termination Date occurs.
(iv) A lump sum severance payment equal to the sum of (A) the
Employee's annual base salary as of the Termination Date and (B) the Target
Payout that the Employee could have earned under the Company's annual
incentive plan with respect to the then current fiscal year.
Furthermore, the Company shall maintain, for eighteen (18) months
following the Termination Date, in full force and effect for the benefit of
the Employee and Employee's dependents and beneficiaries, at the Company's
expense, all medical insurance under plans and programs in which the Employee
and/or the Employee's dependents and beneficiaries participated immediately
prior to the Termination Date, provided that continued participation is
possible under the general terms and provisions of such plans and programs.
If continued participation in any such plan or program is barred, the Company
shall arrange at its own expense to provide the Employee with benefits
substantially similar to those which he was entitled to receive under such
plans and programs.
10. Covenant Not to Compete.
-----------------------
(a) Employee acknowledges that in the course of his employment he
will become familiar with the Company and its affiliates' confidential
information concerning the Company and its affiliates and that his services
are of special, unique and extraordinary value to the Company and its
affiliates. Therefore, Employee agrees that, during his employment with the
Company, and for one year after Employee ceases to perform duties hereunder,
neither Employee nor any company with which Employee is affiliated as an
employee, consultant or independent contractor, will directly or indirectly
engage in any business similar to the Business of the Company, as described
below, anywhere in the United States of America, or have any interest directly
or indirectly in any Business; provided, however, that nothing herein shall
-------- -------
prohibit Employee from (i) owning in the aggregate not more than 5% of the
outstanding stock of any class of stock of a corporation so long as Employee
has no active participation in the business of such corporation, (ii)
affiliating with any company which may participate in the Business, so long as
that participation at the time of affiliation aggregates less than 10% of such
company's revenue, or (iii) directly or through an affiliate, acquiring,
merging or otherwise gaining control, or purchasing an interest in an
organization as long as the Business represents less than 10% of the
acquiree's revenue at the time of the transaction. For purposes hereof, the
"Business" shall consist of (A) delivery of contract health care to
correctional facilities, (B) drug and alcohol abuse treatment programs by
correctional institutions or criminal justice programs, and (C) any other
business in which the Company is engaged as of the date that Employee ceases
to perform duties hereunder.
(b) If, at the time of enforcement of this Section 10 a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area.
(c) In the event of the breach by Employee of any of the provisions
of this Section 10, the Company, in addition and supplementary to other rights
and remedies existing in its favor, may apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions hereof.
11. Notices. All notices hereunder, to be effective, shall be in
------
writing and shall be deemed delivered when delivered by and or when sent by
first-class, certified mail, postage and fees prepaid, to the following
addresses or as otherwise indicated in writing by the parties:
(i) If to the Company:
America Service Group Inc.
Two Penns Way, Suite 200
New Castle, DE 19720
Attn: Chairman of the Board
(ii) If to Employee:
Mr. Scott L. Mercy
3600 Franklin Road
Nashville, TN 37204
12. Assignment. This Agreement is based upon the personal services
----------
of Employee and the rights and obligations of Employee hereunder shall not be
assignable except as herein expressed provided. This Agreement shall inure to
the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would
still be payable to him hereunder if he would have continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Employee's devisee, legatee or other
designee and if there is no such devisee, legatee or designee, to the
Employee's estate.
13. Entire Agreement. This Agreement supersedes all prior
----------------
understandings and agreements with respect to the provisions hereof and
contains the entire agreement of the parties and may be amended only in
writing, signed by the parties hereto.
14. Severability. The provisions of this Agreement are severable,
------------
and the invalidity of any provision shall not affect the validity of any other
provision. In the event that any arbitrator or court of competent
jurisdiction shall determine that any provision of this Agreement or the
application thereof is unenforceable because of the duration or scope thereof,
the parties hereto agree that said arbitrator or court in making such
determination shall have the power to reduce the duration and scope of each
provision to the extent necessary to make it enforceable, and that the
Agreement in its reduced form shall be valid and enforceable to the full
extent permitted by law.
15. Non-exclusivity of Rights. Nothing in this Agreement shall
-------------------------
prevent or limit the Employee's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company
(except for any severance or termination policies, plans, programs or
practices) and for which the Employee may qualify, nor shall anything herein
limit or reduce such rights as the Employee may have under any other Agreement
with the Company. Amounts which are vested benefits or which the Employee is
otherwise entitled to receive under any plan or program of the Company shall
be payable in accordance with such plan or program, except as explicitly
modified by this Agreement.
16. Governing Law. This Agreement shall be construed under and
-------------
governed by the internal laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a binding contract as of the day and year first above written.
AMERICA SERVICE GROUP INC.
By:
-----------------------------------
W.D. Eberle
Chairman of the Board of Directors
EMPLOYEE:
By:
-----------------------------------
Scott L. Mercy
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT dated the 1st day of April, 1996 between Margaret O.
Harrison ("Employee") and America Service Group Inc., a Delaware
corporation (the "Company").
WHEREAS, the Board of Directors of the Company (the "Board")
seeks to continue to employ the Employee in various executive capacities
at the Company;
WHEREAS, the Employee accepts the positions contemplated
herein;
NOW, THEREFORE, the parties hereby agree as follows:
1. Employment and Duties. The Company hereby employs the
---------------------
Employee as chief financial officer of the Company and/or such other offices and
duties as the chief executive officer shall reasonably determine from
time to time, consistent with Employee's responsibilities. Employee
shall perform the duties and services of the offices and titles for which
she is employed from time to time hereunder.
2. Performance. Employee agrees to actively devote all of
-----------
her time and effort during normal business hours to the performance of her
duties hereunder and to use her reasonable best efforts and endeavors to
promote the interests and welfare of the Company.
3. Term. The term of Employee's employment hereunder shall
----
commence as of the date hereof and shall continue until December 31, 1996 (the
"Term End"). Upon the Term End, the Agreement shall automatically
continue as an employment at will unless terminated by written notice
from either party to the other at least thirty (30) days prior to
termination.
4. Compensation. For all services rendered by Employee, the
------------
Company agrees to pay Employee from and after the date hereof: (i) a salary
(the "Base Salary") at an annual rate of not less than $140,000, payable in
such installments as the parties shall mutually agree; plus (ii) such
additional compensation as the Compensation Committee of the Board (the
"Committee") shall from time to time determine.
5. Employee Benefits. During the period of her employment
----------------
under this Agreement, Employee shall be entitled to vacation, insurance, and
other employment benefits customarily provided by the Company to its
executives, including increased or changed benefits as are from time to
time provided to the Company's executives generally.
6. Expenses. The Company shall promptly pay or reimburse
--------
Employee for all reasonable expenses incurred by her in connection with the
performance of her duties and responsibilities hereunder, including, but
not limited to, payment or reimbursement of reasonable expenses paid or
incurred for travel and entertainment relating to the business of the
Company.
7. Termination.
-----------
(a) Termination for Cause. Employee may be terminated from
---------------------
her employment hereunder, either before Term End or thereafter, and without
advance notice, by the Company for "cause". For purposes hereof, "cause"
shall mean: (i) violation of the material terms of this Agreement, (ii)
intentional commission of an act, or failure to act, in a manner which
constitutes dishonesty or fraud or which has a direct material adverse
effect on the Company or its business, (iii) Employee's conviction of or
a plea of guilty to any felony or crime involving moral turpitude; (iv)
continued incompetence, as determined by the chief executive officer of
the Company, using reasonable standards; (v) drug and/or alcohol abuse
which impairs Employee's performance of her duties or employment; (vi)
breach of loyalty to the Company, whether or not involving personal
profit, as determined by the chief executive officer of the Company using
reasonable standards; or (vii) failure to follow the directions of the
chief executive officer of the Company within 20 days after notice to
Employee of such failure provided that the directions are not
inconsistent with Employee's duties and further provided that Employee is
not directed to violate any law or take any action that she reasonably
deems to be immoral or unethical.
(b) Disability; Death. If Employee shall fail to or be unable
-----------------
to perform the duties required hereunder because of any physical or mental
infirmity, and such failure or inability shall continue for any six (6)
consecutive months while Employee is employed hereunder, the Company
shall have the right to terminate this Agreement. Except as otherwise
provided herein, this Agreement shall terminate upon the death of
Employee, and the estate of Employee shall be entitled to receive all
unpaid amounts due Employee hereunder to such date of death.
(c) Termination Without Cause. The Company shall have the
-------------------------
right to terminate the employment of Employee at any time without cause, cause
being determined under Section 7(a), upon thirty (30) days advance
written notice.
(d) Change in Control. Employee may terminate her employment
-----------------
hereunder in the event of a change in control of the Company within
ninety (90) days after such change in control. For purposes of this
Agreement, a "change in control of the Company" shall mean a change in
control of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934 ("Exchange Act"); provided however, that
without limitation, such a change in control shall be deemed to have
occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) other than Employee or any other person
currently the beneficial owner of 10% or more of the outstanding common
stock of the Company, becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities; (ii)
during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the
Company cease for any reason to constitute at least a majority thereof
(unless the election of each director, who was not a director at the
beginning of the period, was approved by a vote of at least two-thirds of
the directors then still in office who were directors at the beginning of
the period); or (iii) approval by the stockholders of the Company of (A)
a complete liquidation of the Company; (B) an agreement for the sale or
other disposition of all or substantially all of the assets of the
Company to any "person", or (C) a merger, consolidation or reorganization
involving the Company, unless (1) the stockholders of the Company
immediately before such merger, consolidation or reorganization, own,
directly or indirectly immediately following such merger, consolidation
or reorganization, at least two thirds of the combined voting power of
the outstanding voting securities of the corporation resulting from such
merger or consolidation or reorganization or its parent company (the
"Surviving Corporation") in substantially the same proportion as their
ownership of the voting shares immediately before such merger,
consolidation or reorganization, or (2) the individuals who were members
of the Board immediately prior to the execution of the agreement for such
merger, consolidation or reorganization constitute at least two-thirds of
the members of the board of directors of the Surviving Corporation.
(e) Voluntary Termination. Employee may voluntarily terminate
---------------------
her employment hereunder at any time, for any reason or for no reason.
(f) Termination Compensation. If Employee's employment
------------------------
hereunder is terminated pursuant to Sections 7(a) or 7(e) of this Agreement,
the Company shall pay the Employee her full base salary through the
Termination Date, plus, within five (5) business days of the Termination
Date, any bonuses, incentive compensation, or other payments due which
pursuant to the terms of any compensation or benefit plan have been
earned or vested as of the Termination Date. If Employee's employment is
terminated by the Company under Section 7(c) without cause, or if there
is a change in control of the Company as defined in Section 7(d), all
unexercised options granted to Employee under the Company's Incentive
Stock Plan or Amended Incentive Stock Plan shall accelerate and shall
immediately vest. If Employee's employment is terminated pursuant to
Sections 7(b), 7(c) or 7(d) of this Agreement, the Company shall pay the
Employee the following:
(i) within five (5) business days of the termination, her full
base salary through the Termination Date, plus any bonuses, incentive
compensation, or other payments due which pursuant to the terms of any
compensation or benefit plan have been earned or vested as of the
Termination Date.
(ii) within five (5) business days of the termination, to
compensate for all accrued but unpaid leave such as holidays, vacation
and sick pay under the Company's paid leave plan, an amount equal to the
Employee's then current base salary multiplied by the product of (A) the
total number of leave days accrued, divided by (B) the total number of
work days in the fiscal year in which the Termination Date occurs.
(iii) within five (5) business days of a termination pursuant
to Section 7(b) or 7(d), a lump sum severance payment equal to the
Employee's annual base salary as of the Termination Date, less, in the
case of a termination for disability under Section 7(b), any payments to
be received by the Employee under any disability plan or policy
maintained by the Company.
(iv) in the event of a termination pursuant to Section 7(c),
Employee's annual base salary as of the Termination Date shall be
continued for one year following the Termination Date.
If Employee's employment is terminated pursuant to Sections
7(b), 7(c) or 7(d) of this Agreement, the Company shall maintain, for
eighteen (18) months following the Termination Date, in full force and
effect for the benefit of the Employee and Employee's dependents and
beneficiaries, at the Company's expense, all medical insurance under
plans and programs in which the Employee and/or the Employee's dependents
and beneficiaries participated immediately prior to the Termination Date,
provided that continued participation is possible under the general terms
and provisions of such plans and programs. If continued participation in
any such plan or program is barred, the Company shall arrange at its own
expense to provide the Employee with benefits substantially similar to
those which she was entitled to receive under such plans and programs.
8. Covenant Not to Compete, Nonemployment, Noninducement.
-----------------------------------------------------
(a) Employee acknowledges that in the course of her employment
she will become familiar with the Company and its affiliates'
confidential information concerning the Company and its affiliates and
that her services are of special, unique and extraordinary value to the
Company and its affiliates. Therefore, Employee agrees that, during her
employment with the Company, and for one year after Employee ceases to
perform duties hereunder, neither Employee nor any company with which
Employee is affiliated as an employee, consultant or independent
contractor, will directly or indirectly (A) engage in any business
similar to the Business of the Company, as described below, anywhere in
the United States of America, or have any interest directly or indirectly
in any Business; provided, however, that nothing herein shall prohibit
-------- -------
Employee from (i) owning in the aggregate not more than 5% of the outstanding
stock of any class of stock of a corporation so long as Employee has no active
participation in the business of such corporation, (ii) affiliating with
any company which may participate in the Business, so long as that
participation at the time of affiliation aggregates less than 10% of such
company's revenue, or (iii) directly or through an affiliate, acquiring,
merging or otherwise gaining control, or purchasing an interest in an
organization as long as the Business represents less than 10% of the
acquiree's revenue at the time of the transaction, (B) employ or retain
as an independent contractor any employee of the Company, or (C) recruit,
solicit or otherwise induce any employee of the Company to discontinue
such employment relationship. For purposes hereof, the "Business" shall
consist of (A) delivery of contract health care to correctional
facilities, and (B) any other business in which the Company is
significantly engaged as of the date that Employee ceases to perform
duties hereunder.
(b) If, at the time of enforcement of this Section 8 a court
shall hold that the duration, scope or area restrictions stated herein
are unreasonable under circumstances then existing, the parties agree
that the maximum duration, scope or area reasonable under such
circumstances shall be substituted for the stated duration, scope or
area.
(c) In the event of the breach by Employee of any of the
provisions of this Section 8, the Company, in addition and supplementary
to other rights and remedies existing in its favor, may apply to any
court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any
violations of the provisions hereof.
9. Notices. All notices hereunder, to be effective, shall be
-------
in writing and shall be deemed delivered when delivered by and or when sent
by first-class, certified mail, postage and fees prepaid, to the
following addresses or as otherwise indicated in writing by the parties:
(i) If to the Company:
America Service Group Inc.
Two Penns Way, Suite 200
New Castle, DE 19720
Attn: Chief Executive Officer
(ii) If to Employee:
Mr. Margaret O. Harrison
145 Dantes Drive
Hockessin, DE 19707
10. Assignment. This Agreement is based upon the personal
----------
services of Employee and the rights and obligations of Employee hereunder
shall not be assignable except as herein expressed provided. This Agreement
shall inure to the benefit of and be enforceable by the Employee's
personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Employee
should die while any amounts would still be payable to her hereunder if
she would have continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this
Agreement to the Employee's devisee, legatee or other designee and if
there is no such devisee, legatee or designee, to the Employee's estate.
11. Entire Agreement. This Agreement supersedes all prior
----------------
understandings and agreements with respect to the provisions hereof and
contains the entire agreement of the parties and may be amended only in
writing, signed by the parties hereto.
12. Severability. The provisions of this Agreement are
------------
severable, and the invalidity of any provision shall not affect the validity
of any other provision. In the event that any arbitrator or court of
competent jurisdiction shall determine that any provision of this Agreement
or the application thereof is unenforceable because of the duration or scope
thereof, the parties hereto agree that said arbitrator or court in making
such determination shall have the power to reduce the duration and scope
of each provision to the extent necessary to make it enforceable, and
that the Agreement in its reduced form shall be valid and enforceable to
the full extent permitted by law.
13. Non-exclusivity of Rights. Nothing in this Agreement
-------------------------
shall prevent or limit the Employee's continuing or future participation in
any benefit, bonus, incentive or other plan or program provided by the
Company (except for any severance or termination policies, plans,
programs or practices) and for which the Employee may qualify, nor shall
anything herein limit or reduce such rights as the Employee may have
under any other Agreement with the Company. Amounts which are vested
benefits or which the Employee is otherwise entitled to receive under any
plan or program of the Company shall be payable in accordance with such
plan or program, except as explicitly modified by this Agreement.
14. Governing Law. This Agreement shall be construed under
-------------
and governed by the internal laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a binding contract as of the day and year first above
written.
AMERICA SERVICE GROUP INC.
By:
------------------------------
W.D. Eberle
Chairman of the Board of Directors
EMPLOYEE:
By:
------------------------------
Margaret O. Harrison
EMPLOYMENT AGREEMENT
---------------------
AGREEMENT dated the 1st day of April, 1996 between Stuart H.
Shapiro ("Employee") and America Service Group Inc., a Delaware corporation
(the "Company").
WHEREAS, the Board of Directors of the Company (the "Board")
seeks to continue to employ the Employee in various executive capacities
at the Company;
WHEREAS, the Employee accepts the positions contemplated herein;
NOW, THEREFORE, the parties hereby agree as follows:
1. Employment and Duties. The Company hereby employs the
--------------------
Employee as chief operating officer of the Company and/or such other
offices and duties as the chief executive officer shall reasonably
determine from time to time, consistent with Employee's responsibilities.
Employee shall perform the duties and services of the offices and titles
for which he is employed from time to time hereunder.
2. Performance. Employee agrees to actively devote all of his
-----------
time and effort during normal business hours to the performance of his
duties hereunder and to use his reasonable best efforts and endeavors to
promote the interests and welfare of the Company.
3. Term. The term of Employee's employment hereunder shall
----
commence as of the date hereof and shall continue until December 31, 1996
(the "Term End"). Upon the Term End, the Agreement shall automatically
continue as an employment at will unless terminated by written notice from
either party to the other at least thirty (30) days prior to termination.
4. Compensation. For all services rendered by Employee, the
------------
Company agrees to pay Employee from and after the date hereof: (i) a salary
(the "Base Salary") at an annual rate of not less than $180,000, payable in
such installments as the parties shall mutually agree; plus (ii) such
additional compensation as the Compensation Committee of the Board (the
"Committee") shall from time to time determine.
5. Employee Benefits. During the period of his employment
-----------------
under this Agreement, Employee shall be entitled to vacation, insurance,
and other employment benefits customarily provided by the Company to its
executives, including increased or changed benefits as are from time to
time provided to the Company's executives generally.
6. Expenses. The Company shall promptly pay or reimburse
--------
Employee for all reasonable expenses incurred by him in connection with
the performance of his duties and responsibilities hereunder, including,
but not limited to, payment or reimbursement of reasonable expenses paid
or incurred for travel and entertainment relating to the business of the
Company.
7. Termination.
-----------
(a) Termination for Cause. Employee may be terminated from his
---------------------
employment hereunder, either before Term End or thereafter, and without
advance notice, by the Company for "cause". For purposes hereof, "cause"
shall mean: (i) violation of the material terms of this Agreement, (ii)
intentional commission of an act, or failure to act, in a manner which
constitutes dishonesty or fraud or which has a direct material adverse
effect on the Company or its business, (iii) Employee's conviction of or
a plea of guilty to any felony or crime involving moral turpitude; (iv)
continued incompetence, as determined by the chief executive officer of
the Company, using reasonable standards; (v) drug and/or alcohol abuse
which impairs Employee's performance of his duties or employment; vi)
breach of loyalty to the Company, whether or not involving personal
profit, as determined by the chief executive officer of the Company using
reasonable standards; or (vii) failure to follow the directions of the
chief executive officer of the Company within 20 days after notice to
Employee of such failure provided that the directions are not inconsistent
with Employee's duties and further provided that Employee is not directed
to violate any law or take any action that he reasonably deems to be
immoral or unethical.
(b) Disability; Death. If Employee shall fail to or be unable
-----------------
to perform the duties required hereunder because of any physical or mental
infirmity, and such failure or inability shall continue for any six (6)
consecutive months while Employee is employed hereunder, the Company shall
have the right to terminate this Agreement. Except as otherwise provided
herein, this Agreement shall terminate upon the death of Employee, and the
estate of Employee shall be entitled to receive all unpaid amounts due
Employee hereunder to such date of death.
(c) Termination Without Cause. The Company shall have the
-------------------------
right to terminate the employment of Employee at any time, without cause,
cause being determined under Section 7(a), upon thirty (30) days advance
written notice.
(d) Change in Control. Employee may terminate his employment
-----------------
hereunder in the event of a change in control of the Company within ninety
(90) days after such change in control. For purposes of this Agreement,
a "change in control of the Company" shall mean a change in control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange
Act of 1934 ("Exchange Act"); provided however, that without limitation,
such a change in control shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act) other than Employee or any other person currently the
beneficial owner of 10% or more of the outstanding common stock of the
Company, becomes the beneficial owner, directly or indirectly, of securities
of the Company representing 30% or more of the combined voting power of the
Company's then outstanding securities; (ii) during any period of two
consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company cease for any reason to
constitute at least a majority thereof (unless the election of each
director, who was not a director at the beginning of the period, was
approved by a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period); or (iii)
approval by the stockholders of the Company of (A) a complete liquidation
of the Company; (B) an agreement for the sale or other disposition of all
or substantially all of the assets of the Company to any "person", or
(C) a merger, consolidation or reorganization involving the Company,
unless (1) the stockholders of the Company immediately before such merger,
consolidation or reorganization, own, directly or indirectly immediately
following such merger, consolidation or reorganization, at least two
thirds of the combined voting power of the outstanding voting securities
of the corporation resulting from such merger or consolidation or
reorganization or its parent company (the "Surviving Corporation") in
substantially the same proportion as their ownership of the voting shares
immediately before such merger, consolidation or reorganization, or
(2) the individuals who were members of the Board immediately prior to the
execution of the agreement for such merger, consolidation or
reorganization constitute at least two-thirds of the members of the board
of directors of the Surviving Corporation.
(e) Voluntary Termination. Employee may voluntarily terminate
---------------------
his employment hereunder at any time, for any reason or for no reason.
(f) Termination Compensation. If Employee's employment
------------------------
hereunder is terminated pursuant to Sections 7(a) or 7(e) of this
Agreement, the Company shall pay the Employee his full base salary through
the Termination Date, plus, within five (5) business days of the
Termination Date, any bonuses, incentive compensation, or other payments
due which pursuant to the terms of any compensation or benefit plan have
been earned or vested as of the Termination Date. If Employee's
employment is terminated by the Company under Section 7(c) without cause,
or if there is a change in control of the Company as defined in Section
7(d), all unexercised options granted to Employee under the Company's
Incentive Stock Plan or Amended Incentive Stock Plan shall accelerate and
shall immediately vest. If Employee's employment is terminated pursuant
to Sections 7(b), 7(c) or 7(d) of this Agreement, the Company shall pay
the Employee the following:
(i) within five (5) business days of the termination, his full
base salary through the Termination Date, plus any bonuses, incentive
compensation, or other payments due which pursuant to the terms of any
compensation or benefit plan have been earned or vested as of the
Termination Date;
(ii) within five (5) business days of the termination, to
compensate for all accrued but unpaid leave such as holidays, vacation and
sick pay under the Company's paid leave plan, an amount equal to the
Employee's then current base salary multiplied by the product of (A) the
total number of leave days accrued, divided by (B) the total number of
work days in the fiscal year in which the Termination Date occurs;
(iii) within five (5) business days of a termination pursuant
to Section 7(b) or 7(d), a lump sum severance payment equal to the
Employee's annual base salary as of the Termination Date, less, in the
case of a termination for disability under Section 7(b), any payments to
be received by the Employee under any disability plan or policy maintained
by the Company;
(iv) in the event of a termination pursuant to Section 7(c),
Employee's annual base salary as of the Termination Date shall be
continued for one year following the Termination Date.
If Employee's employment is terminated pursuant to
Sections 7(b), 7(c) or 7(d) of this Agreement, the Company shall maintain,
for eighteen (18) months following the Termination Date, in full force and
effect for the benefit of the Employee and Employee's dependents and
beneficiaries, at the Company's expense, all medical insurance under plans
and programs in which the Employee and/or the Employee's dependents and
beneficiaries participated immediately prior to the Termination Date,
provided that continued participation is possible under the general terms
and provisions of such plans and programs. If continued participation in
any such plan or program is barred, the Company shall arrange at its own
expense to provide the Employee with benefits substantially similar to
those which he was entitled to receive under such plans and programs.
8. Covenant Not to Compete, Nonemployment, Noninducement.
-----------------------------------------------------
(a) Employee acknowledges that in the course of his employment
he will become familiar with the Company and its affiliates' confidential
information concerning the Company and its affiliates and that his
services are of special, unique and extraordinary value to the Company and
its affiliates. Therefore, Employee agrees that, during his employment
with the Company, and for one year after Employee ceases to perform duties
hereunder, neither Employee nor any company with which Employee is
affiliated as an employee, consultant or independent contractor, will
directly or indirectly (A) engage in any business similar to the Business
of the Company, as described below, anywhere in the United States of
America, or have any interest directly or indirectly in any Business;
provided, however, that nothing herein shall prohibit Employee from (i)
- -------- -------
owning in the aggregate not more than 5% of the outstanding stock of any
class of stock of a corporation so long as Employee has no active
participation in the business of such corporation, (ii) affiliating with
any company which may participate in the Business, so long as that
participation at the time of affiliation aggregates less than 10% of such
company's revenue, or (iii) directly or through an affiliate, acquiring,
merging or otherwise gaining control, or purchasing an interest in an
organization as long as the Business represents less than 10% of the
acquiree's revenue at the time of the transaction, (B) employ or retain as
an independent contractor any employee of the Company, or (C) recruit,
solicit or otherwise induce any employee of the Company to discontinue
such employment relationship. For purposes hereof, the "Business" shall
consist of (A) delivery of contract health care to correctional
facilities, and (B) any other business in which the Company is
significantly engaged as of the date that Employee ceases to perform
duties hereunder.
(b) If, at the time of enforcement of this Section 8 a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall
be substituted for the stated duration, scope or area.
(c) In the event of the breach by Employee of any of the
provisions of this Section 8, the Company, in addition and supplementary
to other rights and remedies existing in its favor, may apply to any court
of law or equity of competent jurisdiction for specific performance and/or
injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof.
9. Notices. All notices hereunder, to be effective, shall be
------
in writing and shall be deemed delivered when delivered by and or when
sent by first-class, certified mail, postage and fees prepaid, to the
following addresses or as otherwise indicated in writing by the parties:
(i) If to the Company:
America Service Group Inc.
Two Penns Way, Suite 200
New Castle, DE 19720
Attn: Chief Executive Officer
(ii) If to Employee:
Mr. Stuart H. Shapiro
10. Assignment. This Agreement is based upon the personal
----------
services of Employee and the rights and obligations of Employee hereunder
shall not be assignable except as herein expressed provided. This
Agreement shall inure to the benefit of and be enforceable by the
Employee's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Employee
should die while any amounts would still be payable to him hereunder if he
would have continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to
the Employee's devisee, legatee or other designee and if there is no such
devisee, legatee or designee, to the Employee's estate.
11. Entire Agreement. This Agreement supersedes the agreement
----------------
between the parties dated November 24, 1993 and all prior understandings
and agreements with respect to the provisions hereof and contains the
entire agreement of the parties and may be amended only in writing, signed
by the parties hereto.
12. Severability. The provisions of this Agreement are
------------
severable, and the invalidity of any provision shall not affect the
validity of any other provision. In the event that any arbitrator or
court of competent jurisdiction shall determine that any provision of this
Agreement or the application thereof is unenforceable because of the
duration or scope thereof, the parties hereto agree that said arbitrator
or court in making such determination shall have the power to reduce the
duration and scope of each provision to the extent necessary to make it
enforceable, and that the Agreement in its reduced form shall be valid and
enforceable to the full extent permitted by law.
13. Non-exclusivity of Rights. Nothing in this Agreement shall
-------------------------
prevent or limit the Employee's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company
except for any severance or termination policies, plans, programs or
practices) and for which the Employee may qualify, nor shall anything
herein limit or reduce such rights as the Employee may have under any
other Agreement with the Company. Amounts which are vested benefits or
which the Employee is otherwise entitled to receive under any plan or
program of the Company shall be payable in accordance with such plan or
program, except as explicitly modified by this Agreement.
14. Governing Law. This Agreement shall be construed under and
-------------
governed by the internal laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a binding contract as of the day and year first above
written.
AMERICA SERVICE GROUP INC.
By:
-----------------------------------
W.D. Eberle
Chairman of the Board of Directors
EMPLOYEE:
By:
-----------------------------------
Stuart H. Shapiro
HEALTH CARE SERVICES CONTRACT
This agreement is made this 3rd day of June, 1996, by
and between Prison Health Services, Inc. (``PHS'') and the
State of Delaware, Department of Correction (``State'').
RECITALS
WHEREAS, the State desires to purchase the health care
services offered by PHS, to serve the needs of the State and
the inmate population in Delaware; and
WHEREAS, the State has asked prospective vendors to
submit proposals for contract No. 96-333-MS; and
WHEREAS, PHS intends to provide the aforementioned
health care services to the State and its proposal was
accepted by the State.
NOW THEREFORE, in consideration for the mutual promises
contained herein, the parties enter into this agreement and
its related documents to govern their relationship. The
Terms and Conditions of this agreement are contained within
the State's Health Care Services Contract Request for
Proposal (with all addenda thereto) and the proposal
response submitted by PHS; however, the State requests and
PHS agrees to modification of the Request for Proposal and
the response thereto pursuant to Section III A.3. of the
Request for Proposal as follows:
1. Management Information System
-----------------------------
PHS will provide a basic computer based information
system capable of reporting aggregate data and
providing E-mail linkage to the Department.
The Department agrees to allow the installation of the
secure telephone lines and other connections required
to operate the system. PHS guarantees the system will
be installed and operational by October 1, 1996.
2. Medical Escorts
---------------
PHS agrees that the Department will not be required to
provide security escorts for PHS' personnel within the
department's facilities when those personnel are
performing routine job functions. The Department
agrees, however, to provide security escorts for PHS
personnel only to the extent that such escorts would
normally be provided for any other civilian personnel.
3. Secure Inpatient Hospital Facilities
------------------------------------
PHS agrees to diligently pursue, with hospitals located
within the State of Delaware, the establishment of a
secure unit within one or more of those hospitals. The
size of the secure unit(s) will be determined by need
as determined by the Department, PHS and the
hospital(s). The secure unit(s) will be established,
in cooperation with the Department, as expeditiously as
possible.
4. Staffing of Baylor Women's Correctional Institution
---------------------------------------------------
PHS agrees that the medical unit at the Baylor's
Women's Correctional Institution (BWCI) can be staffed
24 hours per day, 7 days per week by medical personnel
without requiring similar 24 hour staffing by a
correctional officer. The Department agrees that
patient rooms in the BWCI infirmary will have locking
doors and that keys to those rooms will be provided to
PHS personnel. The Department agrees that security
personnel will be provided to within a reasonable
period of time following a request from PHS personnel
when there is a need to provide medical services to a
maximum security inmate, or other inmate who poses a
security risk to the medical unit staff or the
facility, who is housed in the infirmary. The
Department may, at its discretion, provide such limited
security services in the infirmary via either
correctional officers assigned ``rover'' duties or
permanent position assignments within the infirmary.
5. Mental Health Staffing
----------------------
PHS will provide mental health staff on a regionalized
basis to meet the requirements of the Department's
Request for Proposal. Staffing is projected in Full
Time Equivalents (FTE's) at 3.2 FTE Mental Health
Counselors (MHC's), 2.2 FTE Psychologists (Psychol),
and 1.0 FTE Psychiatrist (Psych). The Department
agrees that PHS may have mental health evaluations
performed by nursing personnel.
6. Dental Services
---------------
PHS agrees to use only Delaware licensed dentists to
provide the dental services described in its proposal.
PHS intends to hire dentists as employees of PHS.
Staff will be obtained first by recruiting those
dentists already providing services within the
facilities. The parties agree, however, that retention
of existing staff is at the option of PHS. Additional
staff, if needed, will be recruited locally through
advertising and professional referrals. PHS will also
work with the Board of Dental Examiners to identify
dentists seeking employment. Should PHS determine a
need to subcontract dental services in the future, it
will provide the Department advance notice of its
intent and will further provide copies of any such
subcontract agreements to the Department in advance of
the effective date of the subcontract.
7. Effect of Population Increase on Contract Cost
----------------------------------------------
Tables A - F are deleted and replaced by the following
formula
Fixed annual cost $4,867,720+
Variable Cost of $65.50 per inmate per month
with co-pay and
$66.50 per inmate per month
without co-pay
Thus, if one assumes an average daily population of
5,000 inmates, the annual variable cost with co-pay
would be $3,930,000, and the total annual cost would be
$8,797,720. The per inmate variable cost is not
intended to cover the increased staffing cost resulting
from the expansion of the inmate population into new
housing units, excluding the Boot Camp, Prison
Industries Dorm and Pre-Trial Building at Sussex
Correctional Institution as described in the Request
For Proposal. The 600 cell facility at Delaware
Correctional Center will require staffing increases.
When it is determined that additional staffing above
the staffing plan identified in PHS' proposal is
needed, the Department will negotiate in good faith
with PHS as to the dollar amount to be added to the
contract to cover increased staffing costs.
8. Contract Implementation Not Dependent on Receipt of
---------------------------------------------------
Data
----
The Department agrees to provide as much of the medical
information and data requested in PHS' proposal as is
reasonable available prior to the effective date of the
contract. The Department agrees to provide PHS with
access to inmate medical files and facility medical
units following the formal award of contract in order
to allow PHS to gather critical medical information
needed to facilitate a smooth contract transition. PHS
agrees that implementation of contracted services in
not dependent upon the receipt of such data.
9. Second Option Costs
-------------------
The Department and PHS agree that the costs associated
with a second medical opinion, when that opinion is
requested by an inmate, are the responsibility of the
inmate and not the Department or PHS. Such costs
include, but are not limited to, physician fees,
charges for any tests or studies, hospital charges,
transportation costs and salaries for escort officers.
The inmate will be required, prior to obtaining a
second opinion, to sign a release of financial
responsibility form that releases the Department and
PHS from the responsibility for such costs. The inmate
will also be required to make or secure advance payment
for all such costs.
10. Disaster Plan
-------------
PHS will develop, for each of the Department's
facilities where PHS provides services, comprehensive
disaster plans in compliance with the Department's
Request For Proposal requirements and in keeping with
NCCHC Standards. Each individual disaster plan will
define the emergency medical procedures to be followed
in the event of man-made or natural disaster, either
internal or external to the facility. The plans will
be developed in coordination with the facilities'
security plan and will be incorporated into the
facilities' overall emergency plan.
In addition to detailing the actual emergency medical
procedures to be followed by health care staff, the
disaster plans will address staffing, transportation,
supply, equipment and communication needs in emergency
situations. Orientation of new health care staff will
include a review of the responsibilities of each staff
member with respect to the disaster plan. Detailed,
written procedures will be maintained in the medical
unit for responding to disasters.
Disaster plans will be exercised annually. Such drills
will provide familiarization training to staff members
to ensure that appropriate action will be taken in the
event of an actual disaster.
11. Subcontractors
--------------
PHS agrees to provide the Department with copies of all
contracts for services PHS subcontracts in advance of
those services being provided. The Department
acknowledges that all such subcontracts are proprietary
in nature and agrees, subject to any applicable
Delaware Law, to treat them as confidential and not
subject to release to anyone outside of the Department
without PHS' written approval.
12. Acceptance of Performance Guarantees
------------------------------------
PHS acknowledges and, without exception, accepts all
performance guarantees identified in the Department's
Request For Proposal. The Department agrees to provide
PHS with written notice of any deficiency. If the
deficiency is corrected within 15 calendar days of such
notice, no penalties will be imposed.
13. Medicaid Rates
--------------
PHS agrees to identify an savings it obtains should the
Department secure the ability to utilize Medicaid
reimbursement schedules for services provided to
inmates. PHS further agrees to share any such savings
it may realize with the Department with 75% of the
savings realized to be credited to the Department.
PHS, in the normal course of dealing with hospitals and
other providers, negotiates discounts from charges as
well as other payment schedules and rates. To
calculate the savings if providers accept Medicaid
rates, PHS will subtract the Medicaid rates from the
negotiated PHS rates in place at that time. That
difference is the ``Medicaid Savings''. Adjustments
will be made with the Department on a quarterly basis
based on a ``Medicaid Savings Report'' which PHS will
provide 60 days after the close of each quarter.
14. Laboratory Services
-------------------
The Department agrees that laboratory tests for
sexually transmitted diseases including, but not
limited to, RPR/VDRL's and smears for chlamydia and
gonorrhea, as well as sputum cultures for communicable
diseases and throat cultures for Strep will be
performed by the state health department at no expense
to PHS.
15. OTC Medications
---------------
The Department agrees, subject to security
considerations, to have over-the-counter-medications
(OTC's) that are identified by PHS placed on the inmate
commissary list. PHS agrees to limit such OTC's to no
more than thirty.
16. Chronic Care Unit
-----------------
PHS agrees to staff the Chronic Care Unit at the Sussex
Correctional Institution (SCI) with two full time
Mental Health Counselors (MHC's) and one additional
full time staff person. These positions, which will
not be back filled during periods of paid leave, are
intended to replace the Mental Health Counselor and
Recreational Therapist positions specified as ``As
Required in Appendix I & J'' in Proposed Staffing Plan
for SCI on page 168 of PHS' proposal. Payment for this
staff is included in the Annual Fixed Rate.
17. Transition Unit
---------------
PHS acknowledges that the ``Transition Unit'' referred
to in Section II,D, on page 125, of its proposal is
located at the Multi-Purpose Criminal Justice Facility
and not, as stated in the proposal, at the Sussex
Correctional Institution.
18. Backfill
--------
PHS agrees to maintain minimum staffing levels and
agrees to maintain reasonable back-fill. PHS agrees to
back-fill at least solo coverage to meet work
performance.
19. Position Reclassifications
--------------------------
With the approval of the Department, which may not be
unreasonably denied, the job classifications of up to 4
positions may be changed by PHS to a lower
classification.
20. Flexibility
-----------
PHS agrees to work in a flexible manner with the
Department to seek mutually beneficial mechanisms to
reduce the cost of inmate health care services
throughout the term of the contract.
21. NCCHC STANDARDS:
---------------
PHS guarantees that it will comply with all NCCHC
Standards necessary to maintain accreditation.
22. Termination for Convenience
---------------------------
In addition to the State's rights to termination as
outlined in the Request For Proposal, PHS may terminate
the Agreement upon 180 days written notice to the
Department. Such written notice shall be served by
certified mail.
IN WITNESS WHEREOF, the parties hereto have signed this
agreement:
STATE OF DELAWARE PRISON HEALTH SERVICES,
DEPARTMENT OF CORRECTION INC.
BY:______________________ BY: ________________________
TITLE:___________________ TITLE:______________________
DATE:___________________ DATE:_______________________
Exhibit 11.1
------------
AMERICA SERVICE GROUP
<TABLE>
<S> <C> <C> <C> <C>
Six Months Ended June 30, Quarter Ended June 30,
------------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
Net income (loss) ($3,098,954) $676,618 ($3,473,984) $368,467
Weighted average shares outstanding 3,050,981 3,053,692 3,219,572 3,024,876
Common stock equivalents -- 255,364 -- 312,932
------------ --------- ------------ ----------
Total weighted average common and
common equivalent shares 3,050,981 3,309,056 3,219,572 3,337,808
------------ --------- ------------ -----------
------------ --------- ------------ -----------
Earnings per common and common and
equivalent share ($1.02) $0.20 ($1.08) $0.11
----------- --------- ------------ ----------
----------- --------- ------------ ----------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from America
Service Group Inc.'s Form 10-Q and is qualified in its entirety by reference to
such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,016,487
<SECURITIES> 700,000
<RECEIVABLES> 22,952,405
<ALLOWANCES> 0
<INVENTORY> 350,637
<CURRENT-ASSETS> 32,376,442
<PP&E> 5,936,449
<DEPRECIATION> 0
<TOTAL-ASSETS> 46,904,980
<CURRENT-LIABILITIES> 32,538,537
<BONDS> 0
0
0
<COMMON> 34,040
<OTHER-SE> 7,687,705
<TOTAL-LIABILITY-AND-EQUITY> 49,904,980
<SALES> 77,934,546
<TOTAL-REVENUES> 77,934,546
<CGS> 75,404,037
<TOTAL-COSTS> 75,404,037
<OTHER-EXPENSES> 7,864,759
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,455
<INCOME-PRETAX> (5,170,952)
<INCOME-TAX> (2,072,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,098,952)
<EPS-PRIMARY> (1.02)
<EPS-DILUTED> (1.02)
</TABLE>
