<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
AMERICAN SERVICE GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
AMERICA SERVICE GROUP INC.
105 WESTPARK DRIVE
SUITE 300
BRENTWOOD, TENNESSEE 37027
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of
America Service Group Inc.:
The Annual Meeting of Stockholders of America Service Group Inc. will
be held at the Boston Park Plaza Hotel and Towers, 64 Arlington Street, Boston,
Massachusetts 02116-3912, on Tuesday, April 22, 1997, at 10:00 a.m., local time,
to consider and vote on:
1. The election of directors for the ensuing year.
2. The ratification of the appointment of Ernst & Young LLP as
independent auditors for 1996.
3. Such other matters as may properly come before the meeting or any
adjournments thereof.
The close of business on March 25, 1997, has been fixed as the record
date for determination of stockholders entitled to notice of, and to vote at,
the Annual Meeting or any adjournments thereof. A list of stockholders entitled
to vote at the Annual Meeting will be maintained during the ten-day period
preceding the meeting at the offices of the General Manager of the Boston Park
Plaza Hotel and Towers in Boston, Massachusetts. Your attention is directed to
the proxy statement accompanying this notice.
By Order of the Board of Directors,
/s/ Michael Catalano
MICHAEL CATALANO
SECRETARY
Brentwood, Tennessee
April 2, 1997
<PAGE>
AMERICAN SERVICE GROUP INC.
105 WESTPARK DRIVE, SUITE 300
BRENTWOOD, TENNESSEE 37027
PROXY STATEMENT
--------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 22, 1997
This Proxy Statement is furnished to the holders of shares of the $.01 par
value per share Common Stock (the "Common Stock") of America Service Group Inc.
(the "Company") in connection with the solicitation by the Company's Board of
Directors of proxies for use at the Annual Meeting of Stockholders to be held at
the Boston Park Plaza Hotel and Tower, 64 Arlington Street, Boston,
Massachusetts 02116-3912, on April 22, 1997, at 10:00 a.m. local time, and at
any adjournments thereof (the "1997 Annual Meeting"). It is anticipated that
this Proxy Statement and accompanying form of proxy will be mailed to
stockholders on or about April 2, 1997.
The cost of this solicitation will be borne by the Company. In addition to
solicitation by mail, certain officers and employees of the Company, who will
receive no compensation for their services other than their regular salaries,
may solicit proxies in person or by telephone or telegraph. The Company may
also make arrangements with brokerage houses, custodians, nominees and other
fiduciaries to send proxy material to their principals at the Company's expense.
The Company has retained Chase Mellon Shareholder Services to aid in
solicitation of proxies at a fee of approximately $5,000, plus certain expenses.
VOTING PROCEDURES
VOTING STOCK
Only holders of record of the Company's Common Stock, as of the close of
business on March 25, 1997 (the "Record Date") will be entitled to vote at the
1997 Annual Meeting. The Company had outstanding 3,422,329 shares of Common
Stock on the Record Date, each share being entitled to one vote on each matter
submitted to the stockholders.
Stockholders who do not expect to attend the 1997 Annual Meeting are
urged to execute and return the enclosed proxy card promptly. Any
stockholder signing and returning a proxy may revoke the same at any time
prior to the voting of the proxy by giving written notice to the Secretary of
the Company or by voting in person at the meeting. All properly executed
proxy cards delivered by stockholders and not revoked will be voted at the
1997 Annual Meeting in accordance with the directions given. With respect
to the proposal regarding election of directors, stockholders may (a) vote in
favor of all nominees, (b) withhold their votes as to all nominees, or (c)
withhold their votes as to specific nominees by so indicating in the
appropriate space on the enclosed proxy card. With respect to each other
proposal being submitted to the stockholders for their consideration,
stockholders may (i) vote "FOR" such proposal, (ii) vote "AGAINST" such
proposal, or (iii) abstain from voting on such proposal. If no specific
instructions are given with regard to the matters to be voted upon, the
shares represented by a signed proxy card will be voted "FOR" the election of
all nominees for director and "FOR" the appointment of Ernst & Young LLP as
independent accountants. Management knows of no other matters that may come
before the meeting for consideration by the stockholders. However, if any
other matter properly comes before the meeting, the persons named in the
enclosed proxy card as proxies will vote upon such matters in accordance with
their judgment.
QUORUM AND VOTING REQUIREMENTS
A quorum at the Annual Meeting will consist of a majority of the votes
entitled to be cast by the holders of all shares of Common Stock that are
outstanding and entitled to vote. A majority of the votes entitled to be cast
by the holders of all shares of Common Stock that are present at the meeting and
entitled to vote will be necessary to elect the director-nominees listed herein
and to ratify the appointment of Ernest & Young LLP as independent auditors.
Abstentions and proxies relating to "street name" shares for which brokers have
not received voting instruction from the beneficial owner ("Broker Non-Votes")
are counted in determining whether a quorum is present. With respect to all
matters submitted to the stockholders for their consideration, other than the
election of directors, abstention will be
<PAGE>
counted as part of the total number of votes cast on such proposals in
determining whether the proposals have received the requisite number of
favorable votes, whereas Broker Non-Votes will not be counted as part of the
total number of votes cast on such proposals. Thus abstentions will have the
same effect as votes against any given proposal, whereas Broker Non-Votes will
have no effect in determining whether any given proposal has been approved by
the stockholders. In the election of directors, the nominees receiving the
highest number of votes will be elected. Therefore, withholding authority to
vote for a director nominee will have no effect.
ELECTION OF DIRECTORS (PROPOSAL NO. 1)
A board of seven directors will be elected at the 1997 Annual Meeting. The
Board of Directors has nominated: Thomas F. Bogan, William D. Eberle, John W.
Gildea, Carol R. Goldberg, Douglas L. Jackson, Jack O. Bovender, Jr. and Scott
L. Mercy to serve as directors until the next annual meeting of stockholders or
until their successors are elected and qualified. Each of the nominees is
currently a member of the Board of Directors. Each nominee has consented to
serve on the Board until the next annual meeting of stockholders or until his or
her successor is duly elected and qualified. If any of the nominees should be
unable to serve for any reason (which management has no reason to anticipate at
this time), the Board of Directors may designate a substitute nominee or
nominees (in which case the persons named as proxies in the enclosed proxy card
will vote all valid proxy cards for the election of such substitute nominee or
nominees), allow the vacancy or vacancies to remain open until a suitable
candidate or candidates are located, or eliminate the vacancy. The affirmative
vote of holders of a majority of the issued and outstanding shares of Common
Stock having voting power, present in person or by proxy, of the 1997 Annual
Meeting is required to elect the persons nominated.
Mr. Mercy, the President and Chief Executive Officer of the Company, has
entered into an Employment Agreement with the Company. Such Employment
Agreement provides, among other things, that the Board shall, during the term of
such Employment Agreement, take all necessary steps to ensure that Mr. Mercy is
slated as a management nominee to the Board. See "Executive Compensation -
Employment and Severance Agreements."
The Board of Directors recommends a vote FOR each nominee for director.
-2-
<PAGE>
INFORMATION AS TO DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table sets forth certain information, including ownership of
the Company's Common Stock, as of March 17, 1997, with respect to: (i) each
director or nominee; (ii) each executive officer and (iii) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
Principal Occupation or Number of Shares of
Employment (by the Company Director Common Stock
Name and Age unless otherwise indicated) Since Owned Percentage
------------ ------------------------------- --------- -------------------- ----------
<S> <C> <C> <C> <C>
Thomas F. Bogan, 45 President and Chief Executive Officer 1993 17,600(1) *
Officer of FQA, Inc. since 1997;
President and Chief Executive Officer,
Pacific Data Products Co, Inc., supplier
of data communications products, from
1993 to 1996; President and Chief
Executive Officer of Avatar Corporation,
a supplier of computer products from
1987 to 1993.
Jack O. Bovender, Jr., 50(2) Retired since 1994; Executive Vice 1996 14,000(2) *
President and Chief Operating Officer of
Hospital Corporation of America from 1992
through 1994; Eastern Group President of
Hospital Corporation of America from 1987
through 1992.
William D. Eberle, 73(3) Chairman of the Board of the Company since 1991 41,002(1) 1.2%
March 1995; Chairman, Manchester Associates,
Ltd., an international consulting company,
since 1977, and of counsel to Kaye Scholder,
Fierman, Hays & Handler, a law firm, since
1993.
John W. Gildea, 53(4) Managing Director, Gildea Management Co., 1986 31,115(1) *
an investment management company.
Carol R. Goldberg, 66(5) President, AVCAR Group, Ltd., a management 1991 15,000(1) *
consulting firm.
Douglas L. Jackson, 50 President, Di/Mac Technologies, Inc. since 1986 81,155(1) 2.4%
1996; Chairman, Legacy Fine Jewelry Company,
Inc., from 1994 to 1995; Chairman of the
Board of the Company from 1987 to 1992;
private investor from 1991 to 1993.
-3-
<PAGE>
<CAPTION>
Principal Occupation or Number of Shares of
Employment (by the Company Director Common Stock
Name and Age unless otherwise indicated) Since Owned Percentage
------------ ------------------------------- --------- -------------------- ----------
<S> <C> <C> <C> <C>
Scott L. Mercy, 35 President and Chief Executive Officer 1996 361,000(6) 10.2%
of the Company since April 1, 1996;
Senior Vice President-Financial
Operations of Columbia/HCA Healthcare
Corporation from 1994 through 1995;
Vice President-Financial Operations and
Director-Financial Operations Support
of Hospital Corporation of America
from 1987 to 1994.
OTHER EXECUTIVE OFFICERS
Michael Catalano, 45(7) Executive Vice President and General --- 4,700 *
Counsel since July 1996; Senior Vice
President Planning and Development and
Chief Legal Counsel of Magellan Health
Services, Inc. (formerly Charter Medical
Corporation) from 1989 through
February 1996.
Jeffrey J. Bairstow, 39 Chief Operating Officer since November ---
1996; President and Chief Operating
Officer of Managed Health Network from
October 1995 to November 1996; President
Vendell Healthcare from December 1993 to
October 1995, Chief Financial Officer of
Vendell Healthcare from July 1991 to
December 1993.
Bruce A. Teal, 35 Vice President, Controller and Treasurer --- 1,000 *
since December 1996; Vice President of
Financial Operations of Vendell Healthcare
from October 1992 to November 1996;
Corporate Controller of Vendell Healthcare
from November 1989 to October 1992.
All Directors and executive 566,572 16.8%
officers as a group (10 persons)
- ----------------
</TABLE>
* Less than 1%
(1) Includes the following shares subject to options exercisable presently or
within 60 days: Mr. Bogan, 15,000 shares; Mr. Eberle, 40,000 shares; Mr.
Gildea, 30,000 shares; Ms. Goldberg, 15,000 shares; Mr. Jackson, 60,000
shares; Mr. Mercy, 175,000 shares; and all directors and executive officers
as a group 335,000 shares.
-4-
<PAGE>
(2) Mr. Bovender also serves on the Boards of Directors of Quorum Health Group;
Response Oncology; Southcap; Healthcare Resources Management; Behavioral
Healthcare Corporation and American Retirement Corporation. His shares
include 4,000 shares held in trust for the benefit of his son, beneficial
ownership of which he disclaims.
(3) Mr. Eberle also serves on the Boards of Directors of Fibreboard
Corporation, Ampco-Pittsburgh Corporation, Barry's Jewelers, Inc.,
Mid-States PLC, Mitchell Energy & Development Corporation, Sirrom Capital
Corporation and Showcase Entertainment, Inc.
(4) Mr. Gildea also serves on the Board of Directors of Hain Food Group.
(5) Ms. Goldberg also serves on the Board of Directors of The Gillette Company;
Barry's Jewelers, Inc. and Selfcare, Inc.
(6) Includes 146,000 shares of Redeemable Common Stock purchased by Mr. Mercy
from ASG, 40,000 shares of Redeemable Common Stock issued under his
Employment Agreement (which are presently held in the name of his spouse),
and options to purchase 175,000 shares of Common Stock.
(7) Charter Medical Corporation ("Charter") filed a petition for reorganization
under Chapter 11 of the United States Bankruptcy Code in April 1992. Mr.
Catalano was Chief Legal Counsel of Charter at that time. Charter was
discharged from bankruptcy in July 1992.
-5-
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock, as of March 17, 1997, by
each person who was known by the Company to own beneficially more than 5% of the
Company's Common Stock as of such date, based on information furnished to the
Company. Except as otherwise indicated, each person has sole voting and
dispositive power with respect to the shares beneficially owned by such person.
<TABLE>
<CAPTION>
Name and Address Shares Beneficially Owned % of Shares Outstanding
- ---------------- ------------------------- -----------------------
<S> <C> <C>
Scott L. Mercy . . . . . . . . . . 361,000(1) 10.2%
105 Westpark Drive
Suite 300
Brentwood, Tennessee 37027
A group comprised of North
American Private Equity Fund II,
North American II Entrepreneurs'
Fund, Grid Venture Partners, Inc.,
and Ronald L. Chez . . . . . . . . 336,434(2) 10.0%
1603 Orrington Avenue, Suite 2050
Evanston, Illinois 60201
Value Partners, Ltd. . . . . . . . 267,175(3) 7.9%
4600 Texas Commerce Tower West
2200 Rose Avenue
Dallas, Texas 75201
</TABLE>
- ---------------
(1) Includes 146,000 shares of Redeemable Common Stock purchased by Mr. Mercy
from ASG, 40,000 shares of Redeemable Common Stock issued under his
Employment Agreement (which are presently held in the name of his spouse),
and options to purchase 175,000 shares of Redeemable Common Stock.
(2) Based upon an Amendment No. 2 to Schedule 13D filed with the Securities and
Exchange Commission ("SEC") on May 2, 1995, North American Private Equity
Fund II beneficially owns 192,776 shares of Common Stock and has sole voting
and investment power with respect to such shares; North American II
Entrepreneurs' Fund beneficially owns 20,622 shares of Common Stock and has
sole voting and dispositive power with respect to such shares; Grid Venture
Partners, Inc. beneficially owns 24,036 shares of Common Stock and has sole
voting and dispositive power with respect to such shares; and Ronald L.
Chez owns 99,000 shares of Common Stock and has sole voting and investment
power with respect to such shares. The reporting persons have disclaimed
membership in a group under Item 2(b) of Schedule 13D.
(3) Based upon a Schedule 13D filed with the SEC on November 24, 1993.
According to such Schedule 13D, Fisher Ewing Partners is the general
partner of Value Partners, Ltd., Richard W. Fisher and Timothy G. Ewing are
the general partners of Fisher Ewing Partners and Messrs. Fisher and Ewing
may be deemed to share the power to dispose of and to vote on the shares
held by Value Partners, Ltd.
-6-
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of
the Company's Chief Executive Officer and the four most highly compensated
executive officers other than the CEO (the "Named Executives") for each of the
years 1996, 1995 and 1994.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------------- ---------------------------
OTHER
NAME AND PRINCIPAL ANNUAL RESTRICTED STOCK ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION STOCK($) OPTIONS(#) COMPENSATION(1)
- ------------------ ---- --------- --------- ------------ ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Scott L. Mercy 1996 $ 138,846 $ -- $ -- $ 350,000 175,000 $ 9,223
President and Chief
Executive Officer(2)
Michael Catalano 1996 $ 83,077 $ -- $ -- -- 60,000 $ 4,452
Executive Vice
President and
General Counsel(3)
Jeffrey J. Bairstow 1996 $ 22,884 $ 5,000 $ -- -- 75,000 $ 1,259
Chief Operating
Officer(4)
Bruce A. Teal(5) 1996 $ 4,423 $ -- $ -- -- 17,000 $ 9
Vice President,
Controller and
Treasurer
Jeffrey A. Reasons(6) 1996 $ 104,004 $ -- $ 2,030,862 -- -- $110,542
President and Chief 1995 195,050 -- -- -- 30,000 5,295
Executive Officer 1994 190,000 100,000 -- -- -- 5,482
Margaret O. Harrison(7) 1996 $ 136,931 $ -- $ 159,212 -- -- $ 17,461
Vice President of 1995 128,556 -- -- -- 10,000 4,500
Finance and 1994 123,000 57,250 -- -- -- 3,211
Administration,
Treasurer, and Chief
Financial Officer
Robert L. Bowen(7) 1996 $ 140,616 $ -- $ 135,800 -- -- $ 53,994
Vice President 1995 138,819 116,915 -- -- -- 4,500
Marketing and Sales 1994 125,080 52,808 -- -- -- 4,989
</TABLE>
- ---------------
(1) Includes matching contributions by the Company to its 401(k) Profit Sharing
and life and health insurance premiums paid by the Company on behalf of the
Named Executives.
(2) Mr. Mercy became President and Chief Executive Officer of the Company on
April 1, 1996.
(3) Mr. Catalano became Executive Vice President and General Counsel of the
Company on July 12, 1996.
(4) Mr. Bairstow became Chief Operating Officer of the Company on November 1,
1996.
(5) Mr. Teal became Vice President, Controller and Treasurer of the Company on
December 10, 1996.
-7-
<PAGE>
(6) Mr. Reasons ceased to be an employee of the Company on March 8, 1996.
Other Annual Compensation consists of gain from the exercise of stock
options and the sale of stock options to the Company.
(7) Ms. Harrison and Mr. Bowen ceased to be employees of the Company on
January 31, 1997. Ms. Harrison's and Mr. Bowen's Other Annual Compensation
consists of gain from the exercise of stock options.
STOCK OPTION GRANTS AND VALUES
The following table sets forth certain information regarding option grants
to the Named Executives during 1996.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
PERCENTAGE ANNUAL RATES OF STOCK
NUMBER OF OF TOTAL PRICE APPRECIATION FOR
SECURITIES OPTIONS EXERCISE OPTION TERM
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5% 10%
---- ---------- ----------- ------ ---- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Scott L. Mercy 175,000 37% $8.7500 04/01/06 $962,995 $2,440,418
Michael Catalano 60,000 13 13.1250 07/12/06 495,255 1,255,072
Jeffrey J. Bairstow 75,000 16 9.3125 12/18/06 439,244 1,113,129
Bruce A. Teal 17,000 4 9.3125 12/18/06 99,562 252,309
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES TABLE
The following table sets forth certain information with respect to
option exercises by the Named Executives during 1996 and the value of options
owned by the Named Executives at December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT FY-END
AT FY-END(#) ($)(1)
NAME SHARES EXERCISABLE/ EXERCISABLE/
---- ACQUIRED ON VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
EXERCISE (#) ($) ------------- -------------
------------ ---
<S> <C> <C> <C> <C>
Scott L. Mercy -- $ -- 175,000/0 $262,500/0
Jeffrey A. Reasons 180,000 1,687,079(2) -- --
Michael Catalano -- -- 0/60,000 --
Jeffrey J. Bairstow -- -- 0/75,000 0/70,313
Bruce A. Teal -- -- 0/17,000 0/15,929
Margret O. Harrison 12,000 159,212 45,000/0 320,925/0
Robert L. Bowen 10,000 135,800 50,000/0 379,000/0
</TABLE>
-8-
<PAGE>
- -------------
(1) Based on the closing price of the Company's Common Stock on the Nasdaq
National Market System on December 31, 1996 of $10.25 per share.
(2) Excludes $324,630 realized from Mr. Reasons' sale of options to purchase
100,000 shares of the Company's Common Stock back to the Company.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Until February 26, 1996, Jeffrey A. Reasons served as President and
Chief Executive Officer of the Company, and Don C. Brown served as Executive
Vice President, Secretary and General Counsel of the Company, pursuant to
employment agreements with the Company (the "Prior Employment Agreements").
Pursuant to the Prior Employment Agreements, Messrs. Reasons and Brown received
annual base salaries for 1995 of $195,050 and $138,677, respectively.
On March 8, 1996, Messrs. Reasons and Brown ceased serving as officers
and directors of the Company. In connection therewith, the Prior Employment
Agreements were terminated and replaced with new agreements (the "New
Agreements") pursuant to which Messrs. Reasons and Brown were employed by the
Company until June 30, 1996 to perform such duties and services within their
respective areas of expertise and responsibility as shall be assigned to them
from time to time by the Board of Directors. From July 1, 1996 until June 30,
1997, Messrs. Reasons and Brown will remain employees of the Company but will be
on leave of absence with no obligations to perform services to the Company,
except as requested from time to time by the Company for additional compensation
of $100 per hour. The New Agreements provide for annual compensation for
Messrs. Reasons and Brown of $196,500 and $139,750, respectively, through June
30, 1997, and additional one-time payments of $25,000 and $17,500, respectively,
on April 1, 1997, and prohibit Messrs. Reasons and Brown from competing with the
Company prior to July 1, 1997. The New Agreements also contain covenants of
confidentiality and indemnification. In connection with their resignation as
officers and directors, Messrs. Reasons and Brown surrendered to the Company
options to purchase 100,000 shares and 46,000 shares of Common Stock,
respectively, in exchange for cash payments of $324,630 and $162,860,
respectively, representing approximately 50% of the difference between the fair
market value of the Common Stock on the surrender date and the option exercise
price.
Scott L. Mercy has been employed as President and Chief Executive
Officer of the Company since April 1, 1996 pursuant to an employment agreement
(the "Mercy Agreement") which establishes a minimum annual base salary of
$190,000 through December 31, 1998, an annual bonus based upon performance
objectives, and such additional compensation as may be determined from time to
time. Pursuant to the Mercy Agreement, Mr. Mercy purchased 146,000 shares of
Common Stock from the Company at $8.75 per share, the mean between the high and
low sale prices for the Company's Common Stock on April 1st, received 40,000
shares as a restricted stock award under the Company's Incentive Stock Plan, and
was awarded options to purchase 175,000 additional shares of Common Stock, at
$8.75 per share. The Merger Agreement provided that restricted stock and stock
options vest in installments over four years, or earlier in one-third
installments when the closing price of the Common Stock reaches $12, $14 and
$16, respectively. Mr. Mercy's restricted stock and stock options vested in
1996 when the closing price of the Common Stock exceeded $16 per share. Mr.
Mercy will have the right to require the Company to purchase (and the Company
will have the right to require Mr. Mercy to sell) the purchased shares and the
award shares, but not the option shares, in the event of a change in control of
the Company or upon Mr. Mercy's termination of employment. The Mercy Agreement
provides for an initial employment term through December 31, 1998, one year
extensions thereafter unless either party elects to terminate the agreement, and
an automatic extension in the event of a change in control. Upon termination,
including termination following a change in control, Mr. Mercy or his estate, is
entitled to one year's compensation and Mr. Mercy is subject to certain
non-competition and confidentiality commitments. The Employment Agreement also
provides that the Board of Directors shall take all necessary actions to ensure
that Mr. Mercy is slated as a management nominee to the Board during his
employment.
Stuart Shapiro, formerly the Company's Chief Operating Officer, ceased
to be an employee of the Company on September 28, 1996. Pursuant to his
Employment Agreement with the Company, the Company will continue paying Dr.
Shapiro his full base salary of $180,000 through September 28, 1997.
-9-
<PAGE>
Margaret O. Harrison, formerly the Company's Chief Financial Officer,
ceased to be an employee of the Company on January 31, 1997. Pursuant to the
terms of her Employment Agreement, the Company will continue paying Ms.
Harrison's full base salary of $140,000 through January 31, 1998.
Jeffery J. Bairstow has been employed as Executive Vice President and
Chief Operating Officer of the Company since November 1, 1996 pursuant to an
employment agreement (the "Bairstow Agreement") which establishes a minimum
annual base salary of $170,000 and such additional compensation as may be
determined by the Compensation Committee from time to time. The Bairstow
Agreement may be terminated by written notice from either party upon thirty days
notice. On December 18, 1996, the Company awarded to Mr. Bairstow options to
purchase 75,000 shares of Common Stock at $9.3125 per share. The stock options
vest ratably on each of the succeeding three anniversaries of the date of the
options and shall be exercisable for a period of ten years from the date of the
grant. If there is a change of control of the Company, all unexercised stock
options granted to Mr. Bairstow shall accelerate and immediately vest. Also, in
the event of a termination without cause, Mr. Bairstow's options shall vest and
his annual base salary as of the date of his termination shall be continued for
one year following such termination date.
Michael Catalano has been employed as Executive Vice President of
Development, General Counsel and Secretary of the Company since July 12, 1996
pursuant to an employment agreement (the "Catalano Agreement") which
establishes a minimum annual base salary of $160,000 and such additional
compensation that may be determined by the Compensation Committee from time
to time. The Catalano Agreement may be terminated by either party upon
thirty days notice. On July 12, 1996, the Company awarded to Mr. Catalano
options to purchase 60,000 shares of Common Stock at $13.125 per share
pursuant to the Company's Amended Incentive Stock Plan. The stock options
vest ratably on each of the succeeding three anniversaries of the date of the
options and shall be exercisable for a period of ten years from the date of
the grant. If there is a change of control of the Company, all unexercised
stock options granted to Mr. Catalano under the Company's Amended Incentive
Stock Plan shall accelerate and immediately vest. Also, in the event of a
termination without cause, Mr. Catalano's options shall vest and his annual
base salary as of the date of his termination shall be continued for the
longer of one year following such termination date or one year following July
12, 1997.
COMPENSATION OF DIRECTORS
The Company paid each non-employee Director $12,000 annually for
attending Board and committee meetings. The Chairman of the Board of Directors
of the Company, Mr. William D. Eberle, received an additional $39,000 for his
service to the Company in such capacity. Directors who are also employees of
the Company receive no additional compensation from the Company for attendance
at Board or committee meetings. Under the terms of the Company's Amended
Incentive Stock Plan, any person who is not an employee or independent
contractor of the Company, and who becomes a Director will receive an option to
purchase 15,000 shares of the Company's Common Stock at an exercise price equal
to the fair market value of the Common Stock on the date such person becomes a
Director. Such options will vest with respect to 25% of the shares covered
thereby on each successive anniversary of the date of grant.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee (the "Committee") of the Board of Directors
consists of five non-employee members of the Board of Directors. The Incentive
Stock Committee (the "Stock Committee"), which is responsible for administering
the Company's Amended Incentive Stock Plan, is comprised of Ms. Goldberg, Mr.
Jackson, Mr. Bogan and Mr. Gildea.
EXECUTIVE COMPENSATION POLICIES
Generally, the Company's executive compensation program is designed to
be competitive with that offered by other companies against which the Company
competes for executive resources. At the same time, the Company links a
significant portion of executive compensation to the achievement of the
Company's short- and long-term financial and strategic objectives and to the
performance of the Company's Common Stock. The Company's executive compensation
program consists of three primary elements: base salary, annual incentive bonus
and stock options or other stock benefits. Base salary is intended to be
competitive in the marketplace. However, although the Committee
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considers competitive data, salaries are determined subjectively by the
Committee rather than by reference to any specific target group of companies.
Base salary is reviewed at a minimum annually and adjusted based on changes
in competitive pay levels, the executive's performance as measured against
individual, business group, and Company-wide goals, as well as changes in the
executive's role in the Company. The Committee awards incentive bonuses to
the Named Executives based on the achievement of certain targets and
objectives which are set at the beginning of each year. The Company does not
make annual stock option or other stock benefit grants to all executives.
Rather, the Stock Committee determines each year which, if any, executives
will receive benefits, based on individual performance and each executive's
existing stock option position.
EXECUTIVE OFFICER COMPENSATION
During 1996, the Company replaced all of its executive officers. The
persons recruited to become the Chief Executive Officer, Chief Operating
Officer and Executive Vice President and General Counsel of the Company
entered into employment agreements with the Company during 1996. The base
compensation, incentive bonus and stock option agreements entered into by the
Company with such individuals were determined by arm's-length negotiations
between the Compensation Committee and other members of the Board of
Directors and such individuals. The Company did not enter into an employment
agreement with the individual recruited to become Vice President, Controller
and Treasurer of the Company. The terms of such individual's employment with
the Company were determined by arm's length negotiations by the Committee and
officers of the Company and such individual. The Compensation Committee
believes that the specific base compensation, incentive bonus and stock
option arrangements were necessary to attract management of the caliber
sought by the Board. Future adjustments of such arrangements will be made in
accordance with the general principles outlined above.
The Company did not pay bonuses to any of its executive officers during
1996 (except a recruiting bonus to Mr. Bairstow) because the Company's
performance did not meet the performance targets established by the Board for
the year. The Company did not award stock options to its executive officers
during 1996 other than those awarded to individuals recruited to become
executive officers during the year.
COMPENSATION OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER
On April 1, 1996, Scott L. Mercy entered into an employment agreement
with the Company as described above. See "Employment and Severance
Agreements." The terms of the agreement, including the restricted stock
awards and stock options issued pursuant to the agreement, were approved by
the Committee, the Stock Committee and subsequently by the stockholders. The
employment agreement provides for the payment of an annual bonus to Mr. Mercy
in an amount to be determined by the Compensation Committee based upon the
performance of the Company against defined objectives. The target amount of
the bonus is an amount equal to Mr. Mercy's base compensation; in no event
shall the annual bonus exceed an amount equal to twice Mr. Mercy's base
salary. Amounts less than the target amount may be paid for performance less
than the pre-approved performance targets, and cash bonuses in excess of the
target amount will be paid for performance in excess of the pre-approved
targets, or otherwise at the discretion of the Committee. Mr. Mercy did not
receive a bonus for 1996. The Committee believes that the incentive bonus
provisions of Mr. Mercy's employment agreement create an appropriate
relationship between Mr. Mercy's level of compensation and the Company's
performance.
This report by the Committee shall not be deemed to be incorporated by
reference by a general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or the Exchange
Act and shall not otherwise be deemed filed under such Acts.
Respectfully submitted by
The Compensation Committee:
Carol R. Goldberg, Chair
Thomas F. Bogan
William D. Eberle
John W. Gildea
Douglas L. Jackson
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PERFORMANCE GRAPH
The following graph sets forth the total return (stock price plus
dividends) on a $100 investment in each of (i) the Company's Common Stock,
(ii) the Wilshire 5000 Index and (iii) the NASDAQ Health Care Services Index,
from December 31, 1991 through December 31, 1996. The NASDAQ Health Care
Services Index is produced by the Center for Research in Securities Prices,
University of Chicago.
[Graph]
<TABLE>
<CAPTION>
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12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
America Service Group Inc. $100 $42 $25 $44 $68 $91
- --------------------------------------------------------------------------------------------------------
NASDAQ Health Care Services Index $100 $104 $120 $128 $163 $163
- --------------------------------------------------------------------------------------------------------
Wilshire 5000 Index $100 $106 $115 $112 $150 $178
- --------------------------------------------------------------------------------------------------------
</TABLE>
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RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS (PROPOSAL NO. 2)
The Board of Directors appointed Ernst & Young LLP as independent
accountants of the Company for 1996. Although stockholder ratification is not
required, the Board of Directors has directed that such appointment be
submitted to the stockholders for ratification. A representative of Ernst &
Young LLP is expected to attend the 1997 Annual Meeting. Such representative
will be given the opportunity to make a statement and will be available to
respond to appropriate questions.
On October 4, 1996, the Company dismissed Price Waterhouse LLP as its
independent accountants. The Company's Audit Committee participated in and
approved the decision to change independent accountants. The reports of Price
Waterhouse LLP on the financial statements for the past two fiscal years
contained no adverse opinion or disclaimer of opinion and were not qualified
or modified as to uncertainty, audit scope or accounting principles. In
connection with audits for the two most recent fiscal years and through
October 4, 1996, there were no disagreements with Price Waterhouse LLP on any
matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Price Waterhouse LLP, would have caused them to make
reference thereto in their report on the financial statements for such years.
During the two most recent fiscal years and through October 4, 1996, there
were no "reportable events" (as defined in the rules of the Securities and
Exchange Commission.)
The affirmative vote of the holders of a majority of the shares of
Common Stock present in person or represented by proxy and voting at the 1997
Annual Meeting is required to adopt the proposal. The Board of Directors has
also appointed Ernst & Young LLP as independent accountants of the Company
for 1997. If the proposal is not adopted, the Board of Directors may
reconsider the appointment.
The Board of Directors Recommends a vote FOR this proposal.
ADDITIONAL INFORMATION
PROPOSALS FOR 1997 MEETING
Any proposal of stockholders that are intended to be presented at the
Company's 1998 Annual Meeting of Stockholders must be received at the
Company's principal executive offices no later than December 22, 1997 and
must comply with all other applicable legal requirements in order to be
included in the Company's proxy statement and form of proxy for that meeting.
COMMITTEES AND MEETINGS
The Board of Directors of the Company held 7 meetings during the year
ended December 31, 1996. The Audit Committee, which consists of Messrs.
Bogan, Bovender, Eberle, Gildea and Jackson, and Ms. Goldberg, held 3
meetings during the year ended December 31, 1996. The functions of the Audit
Committee are (i) to recommend the appointment of the Company's independent
accountants, (ii) to meet periodically with the Company's management and its
independent accountants on matters relating to the annual audit, internal
controls, and accounting principles of the Company, and the Company's
financial reporting and (iii) to review potential conflict of interest
situations, where appropriate. The Compensation Committee, which consists of
Messrs. Bogan, Eberle, Gildea and Jackson, and Ms. Goldberg, held 2 meetings
during the year ended December 31, 1996. The functions of the Compensation
Committee are (i) to review and approve all employment and termination of
executive officers, (ii) to monitor compensation of all management staff and
(iii) to review and approve compensation of the Chief Executive Officer and
other senior management. The Stock Committee, which consists of Messrs.
Bogan, Gildea and Jackson and Ms. Goldberg, did not meet during 1996 but
acted from time to time by unanimous written consent. The function of the
Stock Committee is to administer the Company's Amended Incentive Stock Plan
and the Employee Stock Purchase Plan. The Company does not have a standing
nominating committee. The Executive Committee, which consists of Messrs.
Mercy and Eberle, was formed on December 18, 1996 and did not meeting during
1996. The function of the Executive Committee is to exercise all powers and
authority of the Board of Directors in the management of the business and
affairs of the Company except as may be limited by the Delaware General
Corporation Law. During 1996, each director attended more than 75% of all
meetings of the Board of Directors and the committees on which he or she
served.
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ANNUAL REPORT
The Company's 1996 Annual Report on Form 10-K is being mailed with this
Proxy Statement. It is not to be deemed a part of the proxy solicitation
material and is not incorporated herein by reference.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities
and Exchange Commission. Officers, directors and greater than ten percent
shareowners are required by law to furnish the Company copies of all Forms 3,
4 and 5 they file.
Based solely on the Company's review of the copies of such forms it has
received and representations from certain reporting persons that they were
not required to file Forms 5 for specified fiscal years, the Company believes
that its officers, directors and greater than ten percent beneficial owners
complied with all filing requirements applicable to them with respect to
transactions during 1996.
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