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~September~30,~1996
~
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to .
----- ------
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
(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 3,295,112 shares of Common Stock outstanding as of November 11,
1996
<PAGE>
AMERICA SERVICE GROUP INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<C>
<S> Page Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at September 30, 3
1996 and December 31, 1995
4
Consolidated Statements of Operations for
the nine months and the quarters ended
September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows for
the nine months and the quarters ended 6
September 30, 1996 and 1995
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of 7-9
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1: Legal Proceedings
Item 4: Submission of Matters to a Vote of
Security Holders
Item 6: Exhibits and Reports on Form 8-K
</TABLE>
<PAGE>
AMERICA SERVICE GROUP INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<C> <C>
<S> September 30, 1996 December 31, 1995
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Current assets
Cash and cash equivalents $11,521,092 $12,049,855
Investments, at cost which approximates market 700,000 700,000
Accounts receivable:
Healthcare sites (net of allowance) 5,489,567 11,669,007
Advance billings and other 9,748,560 4,919,797
Inventory 334,870 454,434
Prepaid expenses and income taxes 2,807,435 1,098,211
Current deferred taxes 3,046,353 2,054,200
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Total currents assets 33,647,877 32,945,504
Restricted investments 4,755,162 4,574,624
Property and equipment, net 6,020,223 3,239,004
Deferred taxes 1,572,000 1,153,800
Cost in excess of net assets of acquired company, net 464,077 495,771
Other assets 104,416 92,635
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$46,563,755 $42,501,338
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $5,713,533 $7,015,264
Accrued expenses 17,051,767 13,845,039
Deferred revenue 9,092,188 9,109,469
Income taxes payable 49,755 284,093
Notes payable 51,202 --
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Total current liabilities 31,958,445 30,253,865
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Noncurrent portion of accrued expenses and notes payable 4,407,000 3,581,000
Deferred non-cash compensation charge 2,034,375 --
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Total liabilities 38,399,820 33,834,865
Commitments and contingent liabilities
Stockholders' equity:
Common stock 34,040 34,040
Additional paid-in-capital 7,604,850 6,886,721
Retained earnings 1,335,603 4,007,501
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8,974,493 10,928,262
Less: Treasury stock (810,558) (2,261,789)
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Total stockholders' equity 8,163,935 8,666,473
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$46,563,755 $42,501,338
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</TABLE>
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AMERICA SERVICE GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C>
Quarter Ended September 30, Nine Months Ended September 30,
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<C> <C> <C> <C>
1996 1995 1996 1995
---- ---- ---- ----
Revenues $37,472,333 $25,784,466 $115,406,879 $75,960,086
Health care expenses 34,100,935 22,904,817 109,504,972 67,299,315
----------- ----------- ------------ -----------
Gross Profit 3,371,398 2,879,649 5,901,907 8,660,771
Selling, general and administrative expenses 2,739,040 2,373,395 8,219,424 7,101,554
Non-cash, non-recurring compensation charge -- -- 2,384,375 --
---------- ----------- ------------ -----------
Income (loss) from operations 632,358 506,254 (4,701,892) 1,559,217
Other income (expense):
Interest income 87,155 27,493 285,928 110,731
Other income (expense) (5,459) (3,314) (40,914) (12,897)
----------- ------------ ------------ ------------
Total other income 81,696 24,179 245,014 97,834
Income before taxes 714,054 530,433 (4,456,878) 1,657,051
Provision for income taxes 287,000 204,000 (1,784,980) 654,000
----------- ------------ ------------ -----------
Net income (loss) $427,054 $326,433 ($2,671,898) $1,003,051
----------- ------------ ------------ -----------
----------- ------------ ------------ -----------
Earnings (loss) per common and common equivalent share $0.12 $0.10 ($0.85) $0.30
----------- ------------ ------------ ------------
----------- ------------ ------------ ------------
Common and common equivalent shares outstanding 3,516,726 3,348,808 3,128,413
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</TABLE>
<PAGE>
AMERICA SERVICE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<S> <C>
Nine Months Ended September 30,
-------------------------------
<C> <C>
1996 1995
---- ----
Cash flows from operating activities:
Net income (loss) ($2,671,898) $1,003,051
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 698,331 496,430
Non-cash, non-recurring compensation charge 2,034,375 --
(Increase) decrease in:
Accounts receivable 1,350,677 3,045,816
Inventory 119,564 (76,477)
Prepaid expenses and income taxes (1,709,224) (128,930)
Deferred tax assets (1,410,353) (305,988)
Other assets (11,781) 20,295
Increase (decrease) in:
Accounts payable (1,301,731) (830,338)
Accrued expenses 4,032,728 (2,575,318)
Deferred revenue (17,281) --
Income taxes payable (234,338) --
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Net cash provided by operating activities 879,069 648,541
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Cash flows from investing activities:
Change in restricted investments, net (180,538) 206,497
Sales and maturities of investments 33,495
Capital expenditures (3,447,856) (635,891)
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Net cash used in investing activities (3,628,394) (395,899)
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Cash flows from financing activities
Proceeds from notes payable borrowings 51,202 --
Exercise of stock options 1,766,762 302,163
Sale of common stock 1,277,500 --
Purchase of treasury shares (874,902) (525,000)
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Net cash provided (used in) financing activities 2,220,562 (222,837)
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Net increase (decrease) in cash and cash equivalents (528,763) 29,805
Cash and cash equivalents beginning of period 12,049,855 3,829,888
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Cash and cash equivalents end of period $11,521,092 $3,859,693
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</TABLE>
<PAGE>
AMERICA SERVICE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. BASIS OF PRESENTATION
The interim consolidated financial statements as of September 30, 1996 and
for the nine 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 periods presented. The results of operations for the nine 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 nine months and the quarters ended September 30, 1996 and 1995. The
amount of dilution is computed using the treasury stock method. For the nine
months ended September 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.
<PAGE>
AMERICA SERVICE GROUP INC.
THIRD QUARTER 1996 VERSUS THIRD QUARTER 1995
Revenues for the third quarter 1996 increased $11,688,000 or 45% to
$37,472,000 from $25,784,000 in the third quarter 1995. The contract with
the State of Georgia which will expire on June 30, 1997, accounted for
$14,087,000 of revenues durng the third quarter 1996. Two contracts which
commenced during the third quarter of 1996 contributed revenues of
$2,629,000. Eight contracts which produced revenue of $5,762,000 during the
third quarter of 1995 were terminated prior to the third quarter of 1996 and
therefore produced no revenue in the current quarter. Repricing and renewals
of continuing contracts contributed an additional $734,000 in revenue during
the current quarter.
Health care expenses during the third quarter 1996 were $34,101,000 or 91% of
revenue. Health care expenses in the third quarter of 1995 were 88.8% of
revenue. The increase in health care expenses and the increase in the
percentage of revenue can be attributed to specific cost issues relating to
the contract with the State of Georgia. During the second quarter of 1996,
the Company established reserves directly attributable to these cost issues
in Georgia and implemented operational, management and staffing changes
intended to bring the health care expenses in line with expectations. The
Company experienced higher than expected utilization of outside services,
pharmacy and laboratory 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.
Selling, general and administrative expenses for the third quarter 1996 were
$2,739,000 or 7.3% of revenue, compared with $2,373,000 or 9.2% of revenue in
the third quarter of 1995. The percentage decrease is due primarily to
leveraging the Company's administrative cost structure over greater revenues
associated with the Georgia contract.
Other income, net, including interest income, was $82,000 for the third
quarter 1996 compared with $24,000 during the 1995 third quarter. 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 $5,000 during the third quarter 1996 and relates
principally to an equipment financing loan that was repaid in August 1996.
The provisions for income taxes was $287,000 for the third quarter 1996
compared with a provision for income taxes of $204,000 in the third quarter
of 1995. The effective income tax rate was approximately 40% in the third
quarter of 1996. The effective tax rate has increased in 1996 from
approximately 39% in 1995 as an increasing percentage of the Company's pretax
income is being generated in states with higher income tax rates.
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 VERSUS NINE MONTHS ENDED SEPTEMBER 30,
1995
Revenues of $115,407,000 for the nine months ended September 30, 1996
increased 52% over revenues of $75,960,000 for the corresponding 1995 period.
The contract with the State of Georgia accounted for $41,856,000 of revenues
during the nine months ended September 30, 1996. Five contracts that either
commenced during 1996 or were not operating the full nine months of 1995,
contributed $5,759,000 more revenue in the nine months ended September 30,
1996 than the nine months of 1995. Seven contracts that were terminated
during 1995 generated revenue of $8,478,000 during the nine months ended
September 30, 1995, while four contracts were terminated in 1996 resulting in
a decrease in revenue of $3,494,000 when comparing 1996 revenue to 1995.
Repricing and renewals of continuing contracts and revenue associated with
increased inmate populations contributed an additional $3,804,000 in revenue
during the current nine months.
Health care expenses during the nine months ended September 30, 1996 were
$109,505,000 or 94.9% of revenue. Health care expenses include $2,100,000 in
contract accounting and reserve adjustments recorded during the second
quarter of 1996. Excluding the $2,100,000 charge, health care expenses were
93.1% of revenue compared with 88.6% in the nine month period ended September
30, 1995. The increase in health care expenses and the increases in the
percentage of revenue is attributable to specific cost issues relating to the
contract with the State of Georgia. The Company has experienced higher than
expected utilization of outside services, pharmacy and laboratory 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 nine-month period ended
September 30, 1996 were $10,604,000, 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 nine months ended September 30, 1996
increased $893,000 over the comparable 1995 period and were 6.9% of revenue
compared with 9.4% of revenue for the comparable 1995 period. The percentage
decrease is due primarily to leveraging the Company's administrative cost
structure over greater revenues associated with the Georgia contract, while
the increase in the costs is directly attributable to the administrative
costs associated with the Georgia contract.
Other income, net, including interest income, was $245,000 for the nine
months ended September 30, 1996 compared with $98,000 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 $41,000 during the 1996 period
and relates principally to an equipment financing loan that was repaid in
August 1996.
An income tax benefit of $1,785,000 was recorded during the nine months ended
September 30, 1996 as a result of the losses incurred. The benefit rate is
approximately 40%. The 1995 tax provision of $654,000 was recorded at an
effective tax rate of approximately 40%.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and investments at September 30, 1996
were $12,221,000 compared with cash, cash equivalents and investments of
$12,750,000 at December 31, 1995. Cash provided by operating activities
during the nine months ended September 30, 1996 was $879,000 compared to cash
provided by operating activities of $649,000 for the comparable 1995 period.
The primary sources of cash during the period were the decrease in accounts
receivable of $1,351,000, and a net increase in the combined line items of
accounts payable and accrued expenses. The decrease in accounts receivable
is the result of settlement of contract year issues with a large state
contract. Accounts payable decreased $1,302,000 during the period as a
result of Georgia contract related invoices which began being paid in volume
during 1996. Accrued expenses increased by $4,032,000 during the period, of
which approximately $2,000,000 relates to the contract reserves recorded
during the second quarter. The increase in prepaid expenses and income taxes
is due to the fact that estimated taxes have been paid during the nine month
period ended September 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 1996 losses under the assumption
that previously paid income taxes will be recoverable. Capital expenditures
of approximately $3,448,000 have been made during 1996 primarily on computer
and related software development associated with the Georgia contract.
As previously disclosed, the non-cash, non-recurring compensation charge
relates to the grant and vesting of stock options awarded to the newly
appointed president and chief executive officer. While this charge has been
deducted for financial reporting purposes, the amount of the tax 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 the Company and the bank
mutually restructured the components of the lines, 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 November 4, 1996,
collateralized letters of credit of approximately $10.8 million had been
issued to support various performance bonds outstanding. An equipment
financing note of $4.6 million, issued on March 29, 1996, was repaid during
August 1996.
Management believes that the current levels of cash and investments, when
coupled with internally generated funds, are sufficient to meet the Company's
immediately foreseeable cash needs.
<PAGE>
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Employment Agreement, dated July 12, 1996 between Michael
Catalano and America Service Group Inc.*
11.1 Statement re computation of per share earnings
27 Financial Data Schedule
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*Denotes management agreement or compensatory plan or aarrangement.
<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: November 14, 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)
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT dated the 12th day of July, 1996 between Michael
Catalano ("Employee") and America Service Group Inc., a Delaware corporation
(the "Company").
WHEREAS, the Board of Directors of the Company (the "Board") seeks
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 executive vice president of development, general
counsel and secretary 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, reporting to Scott L. Mercy, chief executive officer
of the Company.
2. Performance. Employee agrees to actively devote all of his
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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 July 12, 1997 (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 as herein provided.
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 $160,000.00, 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; plus (iii) as of the date
hereof, the Company shall grant to Employee 60,000 stock options pursuant to
the Company's Amended Incentive Stock Plan, which stock options, except as
otherwise herein provided, shall vest at the rate of 25% on each of the
succeeding four anniversaries of the date hereof and shall be exercisable
for a period of ten years from the date of grant.
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, travel
to the Company's headquarters presently located in Delaware and such
residential relocation expenses as are reimbursed for other executive officers
under policies to be developed in connection with the relocation of Company's
headquarters to Nashville, Tennessee.
7. Termination.
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(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. Except as provided under Sections 7(a), (b) or (e), if Employee no
longer substantially retains his responsibilities herein described or under
any circumstances no longer reports to Scott L. Mercy as the Company's chief
executive officer, then, at Employee's election, it shall be deemed a
termination without cause pursuant to this Section 7(c).
(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 stock-
holders 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, including those described in (ii) below. 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 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.
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(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. Notwithstanding the foregoing, after the
termination of this Agreement, Employee shall not be restricted from the
practice of law under any circumstances which do not involve a professional
conflict of interest.
(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. Michael Catalano
--------------------
--------------------
--------------------
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 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 (as the parties may
agree) 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:
------------------------------
Michael Catalano
EHIBIT 11.1
AMERICA SERVICE GROUP INC.
<TABLE>
<S> <C> <C>
Quarter Ended Nine Months Ended
------------- -----------------
September 30, September 30,
-------------- -----------------
<C> <C> <C> <C>
1996 1995 1996 1995
---- ---- ---- ----
Net income (loss) $427,054 $326,433 ($2,671,878) $1,003,051
Adjust for Interest Income under the Modified
Treasury Calculation 11,013 3,918 -- 3,918
--------- -------- ------------ ----------
Net Income $438,067 $330,351 ($2,671,878) $1,006,969
--------- -------- ------------ ----------
--------- -------- ------------ ----------
Weighted average shares outstanding 3,281,516 3,070,563 3,128,413 3,059,377
Common stock equivalents 327,668 299,041 -- 275,761
Adjust for 20% limit under the modified treasury
calculation (92,458) (20,796) -- (20,796)
---------- ----------- ---------- ------------
Total weighted average common and common
equivalent shares 3,516,726 3,348,808 3,128,413 3,314,342
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Earnings per common and common and equivalent
share $0.12 $0.10 ($0.85) $0.30
---------- ---------- ----------- ------------
---------- ---------- ----------- ------------
</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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1996
<CASH> 11,521,092
<SECURITIES> 700,000
<RECEIVABLES> 15,238,127
<ALLOWANCES> 0
<INVENTORY> 334,870
<CURRENT-ASSETS> 33,647,877
<PP&E> 9,849,122
<DEPRECIATION> 3,828,899
<TOTAL-ASSETS> 46,563,755
<CURRENT-LIABILITIES> 31,958,445
<BONDS> 0
0
0
<COMMON> 34,040
<OTHER-SE> 8,129,895
<TOTAL-LIABILITY-AND-EQUITY> 46,563,755
<SALES> 115,406,879
<TOTAL-REVENUES> 115,406,879
<CGS> 109,504,972
<TOTAL-COSTS> 120,108,771
<OTHER-EXPENSES> (245,014)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,914
<INCOME-PRETAX> (4,456,878)
<INCOME-TAX> (1,784,980)
<INCOME-CONTINUING> (2,671,898)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,671,898)
<EPS-PRIMARY> (.85)
<EPS-DILUTED> (.85)
</TABLE>
