<PAGE> 1
FORM 10-Q - QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) 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.
105 Westpark Drive, Suite 300, Brentwood, Tennessee 37027
- ---------------------------------------------------------
(Address and zip code of principal executive office)
(615) 373-3100
- --------------
(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
--- ---
There were 3,479,229 shares of Common Stock outstanding as of April 30, 1997
<PAGE> 2
AMERICA SERVICE GROUP INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page Number
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at March 31, 1997 and
December 31, 1996 3
Condensed Consolidated Statements of Operations for the quarters ended March 31, 1997
and March 31, 1996 4
Condensed Consolidated Statements of Cash Flows for the quarters ended March 31, 1997
and March 31, 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 6-7
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
Signature Page
</TABLE>
2
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AMERICA SERVICE GROUP INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
--------------- ----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,596,000 $ 12,550,000
Short-term investments 2,165,000 2,105,000
Accounts receivable:
Healthcare sites, less allowance for doubtful accounts 11,543,000 8,666,000
Advance billings and other 4,465,000 4,228,000
Assets held for sale 2,900,000 2,900,000
Prepaid expenses and other current assets 4,416,000 3,688,000
Current deferred taxes 2,152,000 2,152,000
------------ ------------
Total currents assets 37,237,000 36,289,000
Restricted investments 5,459,000 5,458,000
Property and equipment, net 3,166,000 3,036,000
Deferred taxes 1,056,000 1,056,000
Cost in excess of net assets acquired, net 443,000 453,000
Other assets 165,000 165,000
============ ============
$ 47,526,000 $ 46,457,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,396,000 $ 7,656,000
Accrued expenses 24,001,000 23,351,000
Deferred revenue 8,920,000 8,748,000
------------ ------------
Total current liabilities 40,317,000 39,755,000
Noncurrent portion of accrued expenses 2,318,000 2,318,000
Commitments and contingencies
Redeemable common stock 1,842,000 1,916,000
Common stock 34,000 34,000
Additional paid in capital 7,469,000 7,546,000
Accumulated deficit (4,454,000) (4,904,000)
Treasury stock -- (208,000)
============ ============
Total liabilities and stockholders' equity $ 47,526,000 $ 46,457,000
============ ============
</TABLE>
3
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AMERICA SERVICE GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter Ended March 31
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues
Healthcare revenue $ 38,660,000 $ 38,970,000
Interest income 183,000 113,000
------------ ------------
Total Revenue 38,843,000 39,083,000
Healthcare expenses 36,160,000 35,827,000
------------ ------------
Gross margin 2,683,000 3,256,000
Selling, general and administrative expenses 2,290,000 2,621,000
------------ ------------
Income from operations 393,000 635,000
Interest expense -- 9,000
------------ ------------
Income before income taxes 393,000 626,000
Provision for income taxes -- 251,000
------------ ------------
Net income 393,000 375,000
Redeemable common stock decrease 57,000 --
============ ============
Net income attributable to common shares $ 450,000 $ 375,000
============ ============
Net income per common and common equivalent share $ 0.13 $ 0.12
============ ============
Weighted average common and common equivalent shares outstanding 3,542,000 3,151,000
============ ============
</TABLE>
4
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AMERICA SERVICE GROUP INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter Ended March 31
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Operating activities:
Net income $ 393,000 $ 375,000
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 200,000 299,000
Non-cash compensation adjustment (16,000) --
Deferred income tax provision - (330,000)
(Increase) decrease in:
Accounts receivable (3,115,000) (1,545,000)
Prepaid expenses and other current assets (728,000) (487,000)
Other assets -- (11,000)
Increase (decrease) in:
Accounts payable (260,000) (382,000)
Accrued expenses 650,000 (1,160,000)
Deferred revenue 172,000 18,000
Income taxes payable -- 329,000
------------ ------------
Net cash used in operating activities (2,704,000) (2,894,000)
Investing activities:
Change in short-term investments (60,000) --
Change in restricted investments (1,000) (93,000)
Capital expenditures (320,000) (1,416,000)
------------ ------------
Net cash used in investing activities: (381,000) (1,509,000)
Financing activities:
Purchase of treasury stock -- (875,000)
Proceeds from notes payable -- 1,161,000
Exercise of stock options 131,000 --
------------ ------------
Net cash provided by financing activities 131,000 286,000
Net decrease in cash and cash equivalents (2,954,000) (4,117,000)
Cash and cash equivalents beginning of period 12,550,000 12,050,000
============ ============
Cash and cash equivalents end of period $ 9,596,000 $ 7,933,000
============ ============
</TABLE>
5
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AMERICA SERVICE GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. BASIS OF PRESENTATION
The interim consolidated financial statements as of March 31, 1997 and for the
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 three months presented are not necessarily indicative of the
results to be expected for the year ending December 31, 1997. The interim
consolidated financial statements should be read in connection with the audited
consolidated financial statements for the year ended December 31, 1996.
2. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per common and common equivalent share is based on the average number
of common shares and dilutive common share equivalents outstanding for the
quarters ended March 31, 1997 and 1996. The amount of dilution is computed
using the treasury stock method and the risk free rate of return methodology
for determining common stock equivalents in excess of 20% of common stock
outstanding.
ITEM 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
FIRST QUARTER 1997 VERSUS FIRST QUARTER 1996
Revenues exclusive of interest income for the first quarter 1997 decreased to
$38,660,000 from $38,970,000 in the first quarter 1996. The contract with the
Georgia Department of Corrections expiring June 1997, accounted for $14,534,000
and $13,826,000 of revenue for the three months March 1997 and 1996,
respectively. Seven contracts which commenced subsequent to March 1996
contributed $3,950,000 in revenue for the quarter ended March 31, 1997.
Contracts accounting for $4,930,000 of revenue in the first quarter of 1996
expired subsequent to March 1996. Interest income increased due to the higher
levels of cash during 1997.
Healthcare expenses during the first quarter 1997 were $36,160,000 or 93.5% of
healthcare revenue versus $35,827,000 or 91.9% of healthcare revenue for the
same period in 1996. Healthcare expenses exclusive of the Georgia contract
were 89.6% and 87.0% for the quarters ended March 1997 and 1996.
6
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Selling, general and administrative expenses for the first quarter 1997 were
$2,290,000 versus $2,621,000 for March 1996. The 12.6% decrease is a direct
result of the corporate relocation, reengineering and reduction of corporate
non-clinical support staff.
March 1997 does not reflect income taxes due to the utilization of income tax
loss carryforwards.
Liquidity and Capital Resources
The Company's cash, cash equivalents and short term investments at March 31,
1997 were $11,761,000 compared with cash, cash equivalents and short term
investments of $14,655,000 at December 31, 1996. Cash used in operating
activities during the quarter ended March 31, 1997 was $2,704,000 compared to
cash used in operations of $2,894,000 for the comparable 1996 period. The
primary use of cash during the period was the increase in accounts receivable
of $3,115,000. The increase in accounts receivable is attributable to the
timing of cash receipts relating to significant contracts. These receipts,
approximating $2,400,000, were received early in April 1997.
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 immediate foreseeable cash requirements.
7
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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.
Dated: May 13, 1997
/s/ MICHAEL CATALANO
---------------------------------------
Michael Catalano
Executive Vice President
& General Counsel
/s/ BRUCE A. TEAL
---------------------------------------
Bruce A. Teal
Vice President, Controller and Treasurer
(Acting Principal Financial Officer and
Principal Accounting Officer)
<PAGE> 9
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
3.1 - Amended and Restated Certificate of Incorporation of America Service
Group, Inc. (incorporated by reference to Exhibit 3.1 of the
Registrant's Registration Statement on form S-1, Registration No.
33-43306, as amended).
3.2 - Amended and Restated By-Laws of America Service Group Inc.
(incorporated by reference to Exhibit 3.2 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1996).
4.1 - Specimen Common Stock Certificate (incorporated by reference to
Exhibit 4.1 of the Registrant's Registration Statement on Form S-1,
(Registration No. 33-43306).
10.24 - Sublease Agreement dated April 22, 1997, for office located at Two
Penns Way, Suite 200, New Castle, Delaware 19720 and Citibank
Delaware as the subtenant.
11.1 - Statement re-computation of per share earnings.
27.1 - Financial Data Schedule (for SEC use only).
99.1 - Safe Harbor Compliance Statement (incorporated by reference to
Exhibit 99.1 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996).
(B) REPORTS ON FORM 8-K
(None)
<PAGE> 10
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of
America Service Group, Inc.......................................
3.2 Amended and Restated By-Laws of America Service Group, Inc..........
4.1 Specimen Common Stock Certificate...................................
10.24 Sublease Agreement Between America Service Group, Inc.
Citibank Delaware................................................
11.1 Statement re-computation of per share earnings......................
27.1 Financial Data Schedule (for SEC use only)..........................
99.1 Safe Harbor Compliance Statement....................................
</TABLE>
<PAGE> 1
EXHIBIT 11.1
AMERICA SERVICE GROUP
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
Net income attributable to common shares $ 450,000 $ 375,000
Adjust for interest income under the modified treasury calculation 5,000
---------- ----------
Net income attributable to common shares $ 450,000 $ 380,000
========== ==========
Weighted average shares outstanding 3,392,000 2,886,000
Common stock equivalents 150,000 265,000
---------- ----------
Total weighted average common and common equivalent shares 3,542,000 3,151,000
========== ==========
Net income per common and common equivalent share $ 0.13 $ 0.12
========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 10.24
SUBLEASE AGREEMENT
THIS SUBLEASE AGREEMENT (the "Sublease"), dated as of 4-22-97,
is entered into by and between America Service Group Inc. as the
Sublandlord ("Sublandlord") and Citibank Delaware as the subtenant
("Subtenant"). Commons Development Group ("Prime Landlord") joins in this
Sublease Agreement pursuant to the terms hereof.
WITNESSETH
WHEREAS, by an Office Lease Agreement dated June 23, 1994 (the "Primary
Lease") Sublandlord now leases from Prime Sublandlord certain Premises (the
"Leased Premises") at 2 Penns Way, New Castle, Delaware, 19720 (the
"Building"). A portion of the Leased Premises includes the premises being
subleased hereunder, 21,000 square feet on the second floor of the Building,
Suite 200, (the "Subleased Premises").
WHEREAS, Sublandlord is willing to sublease to Subtenant and Subtenant
is willing to sublease from Sublandlord the Subleased Premises, as more fully
described herein, on the terms and conditions set forth herein.
NOW THEREFORE, Prime Landlord, Sublandlord and Subtenant agree as
follows:
1. SUBLEASED PREMISES. Sublandlord hereby subleases to Subtenant and
Subtenant hereby subleases 21,000 square feet of the Leased Premises, located
on the second floor of 2 Penns Way, New Castle, Delaware, such subleased space
shown on Exhibit "A" attached hereto.
2. TERM. The term of Sublease will be for a period of 24 months,
commencing on May 1, 1997 and terminating on April 30, 1999. Provided
Subtenant is not in default in any of the terms and conditions of this Sublease
Agreement, Sublandlord hereby grants the Subtenant two (2) option periods (the
"Option Period") of 6 months, the first option period commencing on May 1, 1999
and the second option period commencing November 1, 1999 to extend this
Sublease as between Subtenant, Sublandlord, and Prime Landlord. Subtenant must
give Sublandlord and Prime Landlord written notice prior to the commencement of
the option periods of its intention to exercise said option; said notice to be
given on or before November 1, 1998 with respect to the First Option Period and
May 1, 1999 with respect to the Second Option Period. In order for the Option
Periods to apply, Subtenant must also not be in breach of any obligation under
this Sublease to Sublandlord and Prime Landlord both at the time Subtenant
gives written notice of its intention to exercise the option herein granted and
on May 1, 1999, or November 1, 1999, when the Option Period begins.
Sublandlord agrees that it shall give Subtenant a reminder notice with regard
to each applicable option no earlier than August 1, 1998 for the first Option
Period and no earlier than February 1, 1999 for the second Option Period and
the period within which Subtenant
<PAGE> 2
shall be required to exercise each applicable option shall be as set forth
above or thirty (30) days after Sublandlord's reminder notice, whichever is
later.
3. USE. During the term hereof, Subtenant shall use and occupy the
Subleased Premises for general office use, and for any other use permitted
under the Primary Lease and complying with all local building and zoning laws.
4. RENTAL RATE. As rental for the Subleased Premises, Subtenant
shall pay monthly base rental to Prime Landlord, during the Sublease term and
any option period, based on the following rental schedule:
<TABLE>
<CAPTION>
Term Monthly Base Rent
---- -----------------
<S> <C>
05/01/97 - 04/30/99 $27,125.00
</TABLE>
If exercised, Subtenant shall pay monthly base rental to Prime
Landlord, during the term of the Option Periods, at a rate of $28,000.00 per
month.
Rents will be due and payable in advance of the first day of each
month during the term hereof. In the event this Sublease commences or
terminates on other than the first day of any particular month, all rents
hereunder shall be prorated.
5. OPERATING EXPENSES. Subtenant shall pay to Prime Landlord, as
additional rent, its electric usage during the Sublease term and any extension
thereof. Prime Landlord will read submeter monthly and bill Subtenant according
to the average kilowatt hour charge per month for the building. Subtenant
shall have no obligation to pay any other operating expenses or real estate
taxes with respect to the Subleased Premises.
6. IMPROVEMENTS. It is understood and agreed that the Subtenant will
accept the Premises in "as-is" condition. Sublandlord shall provide the
Premises to Subtenant on April 1, 1997 for commencement of Subtenant
Improvement work. All plans and specifications must be approved by Prime
Landlord prior to construction. No rent will be due during this period April
1, 1997 - April 30, 1997.
7. SECURITY DEPOSIT.
Intentionally omitted.
8. PRIMARY LEASE INCORPORATION. Subtenant acknowledges and agrees that
this Sublease shall be in all respects subject and subordinate to the Primary
Lease. In the event that the Primary Lease is canceled or terminated for any
reason, the term of this Sublease shall automatically terminate simultaneously
therewith subject, however to the provisions of Paragraph
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convenient for the maintenance and operation thereof and including to show the
space to other prospective subtenants. Sublandlord shall comply while in
Subleased Premises with all reasonable safety and security measures instituted
by Subtenant all in a manner such as not to unreasonably interfere with
Subtenants's operation.
10. COMPLIANCE WITH LAW. Subtenant shall comply with all applicable
statutes, ordinances, rules, regulations, orders and directives of any
governmental authority specifically applicable to Subtenant's use or occupancy
thereof and shall perform, at its own expense, all obligations imposed
thereby.
11. RELEASE AND INDEMNITY.
Intentionally Omitted.
12. INSURANCE.
Notwithstanding any provision contained herein or in the Primary
Lease to the contrary, all insurance for which Subtenant is responsible
hereunder may include or consist entirely of alternative risk management
programs, including self insurance, for so long as Subtenant or its affiliates,
parent or subsidiary is the tenant hereunder.
13. DEFAULTS. The occurrence of any of the following shall constitute
a default by Subtenant under this Sublease:
(a) Subtenant fails to pay any sum as required hereunder and such
failure continues for ten (10) days following receipt of notice;
(b) Subtenant becomes insolvent or makes transfers in fraud of
creditors or makes any assignment for the benefit of creditors; or (iii) files
a petition for protection under any state or federal bankruptcy act or a
trustee or receiver is appointed for all or substantially all of Subtenant's
assets, and with regard to any of the foregoing, Subtenant fails to cure any of
the foregoing within thirty (30) days after Subtenant's receipt of written
notice of such default from Sublandlord or Prime Landlord.
14. REMEDIES UPON DEFAULT.
(A) Upon the occurrence of any of the aforesaid Events of Default,
Sublandlord shall:
(I) serve upon Subtenant a written notice that this Sublease and
the Term will terminate on a date to be specified therein, which shall not be
less than three days after the giving of such notice, and upon the date so
specified therein, this Sublease and the Term shall terminate and come to an
end as fully and completely as if such date were the date herein definitely
fixed for the end and expiration of this Sublease and the Term, and Subtenant
shall then quit and
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surrender the Premises to Sublandlord, but Subtenant shall nevertheless remain
liable as hereinafter set forth. If the notice above provided legal shall have
been given and this Sublease shall be terminated, Sublandlord may, without
notice, re-enter the Premises either by legal process or by summary proceedings
or otherwise, dispossess Subtenant and the legal representative of Subtenant or
other occupant of the Premises as if this Sublease had not been made.
(ii) Without terminating this Sublease, Sublandlord may re-enter or take
possession pursuant to legal proceedings or pursuant to any notice provided by
law and, may, from time to time, without terminating this Sublease, relet the
Premises or any part thereof in Sublandlord's or Subtenant's name, for such
term or terms (which may be greater or less than the period which would
otherwise have constituted the balance of the Term) and on such terms and
conditions as Sublandlord, in its sole discretion, may determine, and
Sublandlord may collect and receive the rents therefor without relieving
Subtenant of any liability under this Sublease or otherwise affecting any such
liability. Sublandlord shall have no obligation to relet the Premises or any
part thereof, but shall use reasonable efforts to do so. No such re-entry or
taking possession of the Premises by Sublandlord shall be construed as an
election on Sublandlord's part to terminate this Sublease unless a written
notice of such intention be given to subtenant. No notice from Sublandlord
hereunder or under a forcible entry and detainer statute or similar law shall
constitute an election by Sublandlord to terminate this Sublease unless such
notice specifically so states. Sublandlord reserves the right following any
such re-entry and/or reletting to exercise its right to terminate this Sublease
by giving Subtenant written notice thereof, in which event this Sublease will
terminate as specified in said notice.
(iii) enter upon the demised Premises by legal process, if necessary,
without being liable for prosecution or any claim of damages therefor, and do
whatever Subtenant is obligated to do under the terms of this Sublease, and
Subtenant agrees to reimburse Sublandlord on demand for any expenses including,
without limitation, reasonable attorney's fees which Sublandlord may incur in
thus effecting compliance with Subtenant's obligations under this Sublease and
Subtenant further agrees that Sublandlord shall not be liable for any damages
resulting to Subtenant from such action, whether caused by negligence of
Sublandlord or otherwise; or
(b) If this Sublease and the Term shall expire and come to an end as provided
in this Agreement, or by or under any summary proceeding or any other action or
proceeding; or if Sublandlord shall re-enter the Premises as provided in Section
(b)(ii), or by or under any summary proceeding or any other action or
proceeding, then, in any of said events:
(I) Subtenant shall pay Sublandlord all Rent payable under this
Sublease by Subtenant to Sublandlord to the date upon which date this Sublease
and the Term shall have expired and come to an end or to the date of re-entry
upon the Premises by Sublandlord, as the case may be;
(ii) Subtenant also shall be liable for and shall pay to Sublandlord,
as damages, any deficiency (the "Deficiency") between the Rent for the period
which otherwise would have
5
<PAGE> 5
constituted the unexpired portion of the Term and the net amount, if any, of
rents collected in respect of any reletting effected pursuant to the provisions
of Section (b)(ii) for such period, together with all of Sublandlord's expenses
in connection with the termination of this Sublease with Sublandlord's re-entry
upon the Premises and with such reletting including, but not limited to, all
possession costs, brokerage commissions, legal expenses, attorney's fees and
disbursements, alteration costs and other expenses of preparing the Premises
for such reletting. Subtenant shall pay Sublandlord these costs as and when
such expenses are incurred by Sublandlord. Any such Deficiency shall be paid
in monthly installments by Subtenant on the days specified in this Sublease for
payment of installments of Rent. Sublandlord shall be entitled to recover from
Subtenant each monthly Deficiency as the same shall arise, and no suit to
collect the amount of the Deficiency for any month shall prejudice
Sublandlord's right to collect the Deficiency for any subsequent month by a
similar proceeding; and
(iii) Whether or not Sublandlord shall have collected any monthly
Deficiencies as aforesaid, Sublandlord shall be entitled to recover from
Subtenant, and Subtenant shall pay Sublandlord, on demand, in lieu of any
further Deficiencies, as and for liquidated and agreed final damages, a sum
equal to the amount of the Rent for the period which otherwise would have
constituted the unexpired portion of the Term discounted at the prime rate then
announced by Citibank, Delaware.
(c) Pursuit of any of the foregoing remedies shall not preclude pursuit of
any other remedy herein provided or any other remedy herein provided constitute
an election of remedies thereby excluding the later election of any alternate
remedy, or a forfeiture or waiver of any Gross Base Rent, additional rent or
other charges and assessment payable by Subtenant and due to Sublandlord
hereunder or of any damages accruing to Sublandlord by reason of violation of
any of the terms, covenants, warranties and provisions herein contained. No
action taken by or on behalf of Sublandlord shall be construed to be an
acceptance of a surrender of this Sublease. Forbearance by Sublandlord to
enforce one or more of the remedies herein provided upon an event of default
shall not be deemed or construed to constitute a waiver of such default. In
determining the amount of loss or damage which Sublandlord may suffer by reason
of termination of this Sublease or the deficiency arising by reason of any
reletting of the Premises by Sublandlord as above provided, allowance shall be
made for expense of repossession and the Gross Base Rent and additional rent
herein provided, for the period from the time of an event of default until the
end of the term hereof, shall be deemed to be equal to the highest Base Rent
and additional rent required to be paid hereunder by Subtenant during any
preceding lease year multiplied by the number of calendar years or portions
thereof remaining in the term hereof. Subtenant agrees to pay to Sublandlord
all costs and expenses incurred by Sublandlord in the enforcement of this
Sublease, including without limitation, the reasonable fees of Sublandlord's
attorneys when such attorneys are employed by Sublandlord to effect collection
of any sums due hereunder or to enforce any right or remedy of Sublandlord.
15. CUMULATIVE RIGHTS. Sublandlord's and Prime Landlord's rights and
remedies hereunder shall be cumulative and shall not be exclusive of one
another, and Sublandlord and
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<PAGE> 6
Prime Landlord shall have the right to pursue any one or more of them.
Sublandlord's or Prime Landlord's acceptance of any rent or other payments due
hereunder or Sublandlord's or Prime Landlord's failure to take any action on
account of default if such default persists requiring Sublandlord's or Prime
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Sublandlord's or Prime Landlord's consent or approval to any
subsequent or similar acts by Subtenant.
16. SURRENDER OF SUBLEASED PREMISES/HOLDING OVER. At the expiration
or earlier termination of this Sublease, Subtenant shall surrender the
Subleased Premises to Sublandlord or Prime Landlord in good conditions, broom
clean, reasonable wear and tear, condemnation and casualty excepted. In the
event that Subtenant remains in possession after the expiration of or
termination of this Sublease without a written agreement, or without Subtenant
being engaged in active negotiations with Prime Landlord or Sublandlord in good
faith to renew or extend the term, the tenancy shall be deemed to be a
month-to-month tenancy at a monthly rent equal to one and one-half (1 1/2)
times the sum of the Base Rent payable during the last month of the Term.
Notwithstanding any provision of the Primary Lease or this Sublease, Subtenant
shall not have any obligation to remove any tenant improvement existing on the
date hereof or made by Subtenant with the consent of Prime Landlord during the
term of the Sublease.
17. ASSIGNMENT AND SUBLEASE. Subtenant shall not assign this Sublease
or any right hereunder or sublet the Subleased Premises during the term of this
Sublease, without the prior written consent of Sublandlord and Prime Landlord,
such consent not to be unreasonably withheld, delayed or denied. In the event
of an assignment or sublease, Sublandlord during the original term of this
Sublease or Prime Landlord during the Option Period, shall be entitled to
receive fifty percent (50%) of the excess of the rent and other sums payable to
the Subtenant under such Sublease over the amount of Rent payable hereunder for
the Sublease space. Sublandlord's or Prime Landlord's acceptance of rent from
any person other than Subtenant shall not be deemed to be a waiver of this
provision. Consent to one assignment or subletting shall not be deemed to be
consent to any subsequent assignment or subletting. Notwithstanding any
provision contained herein or in the Primary Lease to the contrary, none of (1)
an assignment or subletting of all or a portion of the Subleased Premises to a
parent, subsidiary or affiliate of Subtenant or Subtenant's parent
(collectively, an "Affiliate") or to a purchaser of all or substantially all of
the assets of Subtenant or any Affiliate, (ii) a transfer, by operation of law
or otherwise, in connection with the merger, consolidation or other
reorganization of Subtenant or any Affiliate, (iii) or the use or occupancy of
portions of the Subleased Premises by an Affiliate, or by a party or parties in
connection with the transaction of business with Subtenant or any Affiliate on
a temporary basis, shall require the prior written consent of Sublandlord or
Prime Landlord.
18. ACCORD AND SATISFACTION. No payment or receipt by Sublandlord or
Prime Landlord of a lesser amount than the rent or other charges herein
stipulated shall be deemed to be other than on account of the rent or such
charges. Further, no endorsement or statement on any check or any letter
accompanying any check shall be deemed to be an accord and satisfaction.
Sublandlord or Prime Landlord may accept such check or payment without
prejudice to
7
<PAGE> 7
Sublandlord's or Prime Landlord's right to recover the balance of such rent or
other charges or pursue any other remedy provided in this Sublease.
19. ENTIRE AGREEMENT. This Sublease constitutes the complete
agreement of the parties with respect to the subject matter hereof and
supersedes all previous agreements, representation and undertakings concerning
the same, whether written or oral. The provisions of the Sublease may be
modified, amended or waived only by a written instrument executed by
Sublandlord, Prime Landlord and Subtenant.
20. PRIME LANDLORD'S NON-DISTURBANCE AGREEMENT. In the event of any
termination of the Prime Lease Prior to the expiration of its term, including
without limitation, any termination by reason of rejection of the Prime Lease
or other action by a trustee, court or debtor in possession pursuant to the
Federal Bankruptcy Code, as amended, or any other Federal, state or local
insolvency laws, effective as of the date of termination of the Prime Lease,
Subtenant shall be deemed attorned to the Prime Landlord and Subtenant shall
become a tenant of the Prime Landlord under this Sublease and the Prime
Landlord (as landlord) shall be bound to Subtenant under all of the covenants,
agreements, terms, provisions and limitations (including any options to renew)
of the Sublease; provided, however, upon the written request of the Subtenant,
the Prime Landlord shall enter into a new lease of the Subleased Premises with
the Subtenant for the remainder of the term of the Sublease, effective as of
the date of termination of Prime Lease, on the same covenants, agreements,
terms, provisions and limitations (including any options to renew) as the
Sublease.
21. NOTICES. Any notice required or sent hereunder shall be in
writing and shall be sent as follows:
To: Sublandlord
America Service Group, Inc.
Attention: General Counsel
Suite 300
105 West Park Drive
Brentwood, TN 37027
To: Subtenant
Citicorp North America, Inc.
Corporate Realty Services
12401 Prosperity Drive
Silver Spring, MD 20904
Attention: Simon Key
8
<PAGE> 8
with a copy to:
Citi Bank Delaware
1 Penns Way
New Castle, DE 19720
Attention: Ben Walsh
Copies of any notices commencing or relating to any action, suite or proceeding
against Subtenant arising hereunder shall also be sent to:
Citicorp/Citibank Real Estate and Infrastructure Legal Division
Attention: General Counsel
599 Lexington Avenue
24th Floor, Zone 9
New York, NY 10043
with a copy to:
Weil, Gotshal & Manges LLP
701 Brickell Avenue, Suite 2100
Miami, FL 33131
Attention: Barry Frank
Invoice or insurance requests shall be sent in writing to:
Citicorp North America
201 S. Biscayne Blvd., 5th Floor
Miami, FL 33131
Attention: Lease Administrator
To: Prime Landlord
Commons Development Group
c/o Emory Hill Management Company, Inc.
92 Read's Way, Suite 100
New Castle, DE 19720
Either party from time to time, may change its address by written notice
to the other party. Notices hereunder shall be deemed effective when delivered
by hand delivery or overnight courier, or three days after deposit in the
United States mail, first class, postage prepaid.
22. BINDING EFFECT. Subject to prohibitions against assignment, this Sublease
shall be binding upon the parties their personal representatives, successors
and assigns.
9
<PAGE> 9
23. APPROVALS. Whenever in this Sublease, the written approval of
either Sublandlord or Subtenant is required, the parties hereto agree that such
approval shall not be unreasonably withheld.
24. ADDITIONAL PROVISIONS.
A. Signage.
Subtenant may have an interior Building Standard tenant
plaque and a listing on the interior tenant directory, which shall be ordered,
paid for, provided and mounted by Sublandlord in such a manner as to be
consistent with the Building Standards.
B. Nondisturbance.
Subtenant will agree to not require a Non-Disturbance
Agreement as part of this Sublease Agreement from any fee Mortgagee.
C. Consent
Whenever the approval of Sublandlord shall be required with
respect to any matter under this Sublease, such approval shall be deemed given
if the Prime Landlord has given its approval with respect to such matter.
D. Parking.
Subtenant agrees to accept the existing parking ratio in
the building which is 3.3 space per 1,000 square feet of rentable area.
E. Brokerage
Unless otherwise disclosed, broker, any cooperating broker,
and any salesperson working with either, are representing the Sublandlord's
interest and have fiduciary responsibilities to Sublandlord, but are obligated
to treat all parties fairly. Broker, any cooperating broker, and any
salesperson working either, without breaching the fiduciary responsibilities
to lessor, may, among other services, provide a potential tenant with
information about the attributes of properties and available financing, show
properties, and assist in preparing an offer to lease. Broker, any cooperating
broker, and any salesperson working with either, also have the duty to respond
accurately and honestly to a potential tenant's questions and disclose material
facts about properties, submit promptly any offers to lease and offer
properties without unlawful discrimination.
Except for Commonwealth Emory Hill Development Company, Inc.
("Broker"), Subtenant and Sublandlord represent that they have dealt only with
each other in connection with this
10
<PAGE> 10
Sublease Agreement and that no other broker negotiated this Sublease Agreement
or is entitled to any commission in connection with it. Sublandlord shall
compensate Broker under the terms of separate agreement between Sublandlord and
Broker and shall hold Subtenant harmless from liability to Broker in connection
with this Sublease Agreement.
F. Elevator.
Prime Landlord agrees that at least one passenger
elevator shall be maintained in operation for Subtenant's use twenty-four hours
a day, seven days a week.
G. ADA/Hazardous Materials.
(a) The Term "Hazardous Substances" as used in this
Sublease shall include, without limitation, flammables, explosives,
radioactive materials, asbestos, polychlorinated biphenyl's ("PCB's"),
chemicals known to cause cancer or reproductive toxicity, pollutants,
contaminants, hazardous wastes, toxic substances or related materials,
petroleum and petroleum products, and substances declared to be hazardous or
toxic under any law or regulation now or hereafter enacted or promulgated by
any governmental authority.
(b) Sublandlord represents and warrants that to the best
of its knowledge, (I) no Hazardous Substances have been stored, used, spilled,
released, located or disposed of, on or under the Subleased Premises (except a
full storage tank for the emergency generator serving the building), and (ii)
the Building and the use thereof conform and are not in violation of any
federal, state or local laws, rules or regulations regulating or governing the
use, generation, storage, transportation or disposal of Hazardous Substances
("Laws").
(c) Sublandlord covenants and agrees that it will not
use or allow the Subleased Premises to be used for the storage (except as
stated above), treatment or disposal of any Hazardous Substances, and
Subandlord shall continue to comply with such laws with respect to the
Subleased Premises.
(d) Sublandlord shall indemnify and hold harmless
Subtenant, its parent, their respective subsidiaries and affiliates, and the
agents, officers, directors, shareholders, partners and employees thereof from
all fines, suits, procedures, claims, losses, and actions of every kind and all
costs associated therewith to the extent resulting from the storage, use,
spillage, release, location or disposal of any Hazardous Substances in, on or
under Subleased Premises whether or not Sublandlord has acted negligently with
respect to such Hazardous Substances, excepting any Hazardous Substances in,
on or under the Subleased Premises resulting from Subtenants's use, handling,
generation, treatment, storage, disposal or release of any Hazardous Substances
at or from the Subleased Premises. Sublandlord's obligations and liabilities
under this paragraph 24 (G) shall survive the expiration or sooner termination
of this Sublease.
11
<PAGE> 11
(e) Sublandlord hereby acknowledges that Subtenant shall arrange
for a Phase I environmental site assessment to be conducted of the Subleased
Premises (the "Assessment").
(f) Sublandlord represents that the Premises shall be in
compliance with ADA as of the Commencement Date. In the event Subtenant
performs any alterations to the Premises during the Term which triggers an ADA
modification, Subtenant shall be responsible at Subtenant's sole cost and
expense to comply with ADA requirements. Except insofar as same is Subtenant's
obligation pursuant to the preceding sentence, in the event Sublandlord
receives any notices of non-compliance with ADA Sublandlord shall promptly, at
Sublandlord's sole cost and expense comply with ADA requirements.
H. Condemnation.
(a) If title to any part of the Premises is taken for any public
or quasi-public use by virtue of the exercise of the power of eminent domain or
by private purchase in lieu thereof, or if title to so much of the Building of
which the Premises are a part is taken that a reasonable amount of
reconstruction thereof will not in Sublandlord's reasonable discretion result
in the Premises or the Building being reasonably suitable for use for the
purpose for which they are designed, then, in either event, this Sublease shall
terminate, on the date that the condemning authority actually takes possession
to the part so condemned or purchased.
(b) If this Sublease is terminated under the provisions of this
Section, rent shall be apportioned and adjusted as of the date of termination.
Subtenant shall have no claim against Sublandlord or against the condemning
authority for the value of any leasehold estate or for the value of the
unexpired term of this Sublease.
(c) If there is a partial taking of the Premises or the Building
and this Sublease is not thereupon terminated under the provisions of this
Section, then this Sublease shall remain in full force and effect, and
Sublandlord shall, within a reasonable time thereafter, repair and restore the
remaining portion of the Premises, should they be affected, to the extent
necessary to render the same tenantable, and shall repair or reconstruct the
remaining portion of the Building to the extent necessary to make the same a
complete architectural unit.
(d) All compensation awarded or paid when a total or partial
taking of the Premises or the Building shall belong to and be the property of
Sublandlord without any participation by Subtenant. Nothing herein shall be
construed to preclude Subtenant from prosecuting any claim directly against the
condemning authority for loss of business, moving expenses, and damage to, and
cost of removal of, trade fixtures, furniture and other personal property
belonging to Subtenant.
(e) After any partial taking of the Premises which does not
result in a termination of this Sublease, the Base Rent and Subtenant's
proportional share of Expenses of
12
<PAGE> 12
Operation for the remainder of the term hereof shall be reduced by the same
percentage as the floor area of the space taken bears to the total floor area
in the Premises.
I. Estoppel.
Subtenant does hereby agree that, within twenty (20) days
following request of Subtenant by Sublandlord by Prime Landlord or by Prime
Landlord's mortgagee, Subtenant shall deliver to such requesting party, in
form reasonably satisfactory to such requesting party, a written statement to
the effect that there are no defaults of Sublandlord or Prime Landlord or
defenses or offsets against Prime Landlord under this Sublease, that the
Sublease (plus any modifications and amendments shall be identified) is
unmodified and in full force and effect, that the rent has commenced to accrue,
that the rent and all other charges have been paid as of the date to which such
charges have been paid and that Subtenant has accepted and is occupying the
Premises.
J. Quiet Enjoyment.
Sublandlord covenants and agrees that Subtenant shall
have complete and quiet enjoyment of, and may peaceably enjoy, the Subleased
Premises.
K. Restoration.
Prime Landlord covenants and agrees with Subtenant that
in the event of any damage or destruction to the Subleased Premises, to the
extent repair os required under the Prime Lease, Prime Landlord shall promptly
undertake such repair and shall diligently prosecute the same to completion.
WITNESS the signature of the parties of the date first written above.
SUBLANDLORD:
AMERICA SERVICE GROUP INC.
/s/ Michael Catalano
- ------------------------
Signature
Michael Catalano
- ------------------------
Print name
Executive Vice President
- ------------------------
Title
4/23/97
- ------------------------
Date
13
<PAGE> 13
SUBTENANT
CITIBANK DELAWARE
/s/ Bernard A. Wash, Jr.
- --------------------------
Signature
Bernard A. Walsh, Jr.
- ---------------------------
Print name
Vice President
- ---------------------------
Title
4-22-97
- ---------------------------
PRIME LANDLORD:
COMMONS DEVELOPMENT GROUP
/s/ Carmen J. Facciolo Jr.
- ---------------------------
Signature
Carmen J. Facciolo, Jr.
- ---------------------------
Print Name
6P
- ---------------------------
Title
4/24/97
- ---------------------------
Date
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,596,000
<SECURITIES> 2,165,000
<RECEIVABLES> 18,024,000
<ALLOWANCES> 2,016,000
<INVENTORY> 0
<CURRENT-ASSETS> 37,237,000
<PP&E> 6,296,000
<DEPRECIATION> 3,130,000
<TOTAL-ASSETS> 47,526,000
<CURRENT-LIABILITIES> 40,317,000
<BONDS> 0
0
0
<COMMON> 34,000
<OTHER-SE> 4,857,000
<TOTAL-LIABILITY-AND-EQUITY> 47,526,000
<SALES> 38,660,000
<TOTAL-REVENUES> 38,843,000
<CGS> 36,160,000
<TOTAL-COSTS> 38,450,000
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 393,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 393,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 457,000<F1>
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
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<F1>
NET INCOME INCLUDES $57,000 RELATING TO THE ADJUSTMENT OF REDEEMABLE COMMON
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</FN>
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