<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 June 30, 1998
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 charter)
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 3,564,485 shares of Common Stock outstanding as of August 3, 1998
<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 June 30, 1998 and
December 31, 1997 3
Condensed Consolidated Income Statements for the quarters and
six months ended June 30, 1998 and June 30, 1997 4
Condensed Consolidated Statements of Cash Flows for the quarters
and six months ended June 30, 1998 and June 30, 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-10
PART II. OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders 11
Item 5: Other Events 11
Item 6: Exhibits and Reports on Form 8-K 11-12
Signature page
</TABLE>
2
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PART I: FINANCIAL INFORMATION
AMERICA SERVICE GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,743,000 $ 3,445,000
Short-term investments 240,000 1,559,000
Accounts receivable: Healthcare and other,
less allowance for doubtful accounts 7,390,000 8,242,000
Prepaid expenses and other current assets 1,456,000 2,384,000
Current deferred taxes 2,116,000 2,116,000
----------- -----------
Total currents assets 18,945,000 17,746,000
Restricted investments 7,191,000 5,639,000
Property and equipment, net 1,702,000 2,468,000
Deferred taxes 1,193,000 1,193,000
Cost in excess of net assets acquired, net -- 411,000
Other assets 267,000 297,000
=========== ===========
$29,298,000 $27,754,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,091,000 $ 3,243,000
Accrued expenses 13,693,000 12,836,000
Deferred revenue -- 1,410,000
----------- -----------
Total current liabilities 16,784,000 17,489,000
Noncurrent portion of accrued expenses 3,145,000 3,624,000
Commitments and contingencies
Redeemable common stock 1,842,000 1,842,000
Common stock 36,000 35,000
Additional paid in capital 8,193,000 7,926,000
Accumulated deficit (702,000) (3,162,000)
=========== ===========
Total liabilities and stockholders' equity $29,298,000 $27,754,000
=========== ===========
</TABLE>
3
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AMERICA SERVICE GROUP INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Healthcare revenue $27,831,000 $40,027,000 $55,463,000 $78,687,000
Investment and interest income 202,000 202,000 334,000 385,000
----------- ----------- ----------- -----------
Total revenue 28,033,000 40,229,000 55,797,000 79,072,000
Healthcare expenses 24,795,000 37,328,000 49,338,000 73,488,000
----------- ----------- ----------- -----------
Gross margin 3,238,000 2,901,000 6,459,000 5,584,000
Selling, general and administrative expenses 2,309,000 2,354,000 4,654,000 4,644,000
Nonrecurring gain (74,000) -- (660,000) --
----------- ----------- ----------- -----------
Income before taxes 1,003,000 547,000 2,465,000 940,000
Provision for income taxes 5,000 -- 5,000 --
----------- ----------- ----------- -----------
Net income 998,000 547,000 2,460,000 940,000
Redeemable common stock decrease -- -- -- 57,000
=========== =========== =========== ===========
Net income attributable to common shares $ 998,000 $ 547,000 $ 2,460,000 $ 997,000
=========== =========== =========== ===========
Net income per common share:
Basic $ 0.28 $ 0.16 $ 0.69 $ 0.29
=========== =========== =========== ===========
Diluted $ 0.27 $ 0.15 0.67 $ 0.28
=========== =========== =========== ===========
Weighted average common shares
outstanding:
Basic 3,556,000 3,486,000 3,542,000 3,448,000
=========== =========== =========== ===========
Diluted 3,735,000 3,584,000 3,663,000 3,572,000
=========== =========== =========== ===========
</TABLE>
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AMERICA SERVICE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998 1997
---- ----
<S> <C> <C>
Operating Activities:
Net income $ 2,460,000 $ 940,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 415,000 720,000
Write-off of cost in excess of net assets acquired 397,000 --
Non-cash compensation adjustment -- (16,000)
Changes in operating assets and liabilities:
Accounts receivable 852,000 (570,000)
Prepaid expenses and other current assets 928,000 (564,000)
Other assets 30,000 (7,000)
Accounts payable (152,000) (2,367,000)
Accrued expenses 378,000 (1,065,000)
Deferred revenue (1,410,000) (4,575,000)
----------- -----------
Net cash provided by (used in) operating activities 3,898,000 (7,504,000)
Investing Activities:
Change in short-term investments 1,319,000 (377,000)
Change in restricted investments (1,552,000) (38,000)
Capital expenditures (168,000) (639,000)
Sale of property and equipment, net 533,000 --
----------- -----------
Net cash provided by (used in) investing activities 132,000 (1,054,000)
Financing Activities:
Exercise of stock options 268,000 522,000
----------- -----------
Net cash provided by financing activities 268,000 522,000
Net increase (decrease) in cash and cash equivalents 4,298,000 (8,036,000)
Cash and cash equivalents, beginning of period 3,445,000 12,550,000
=========== ===========
Cash and cash equivalents, end of period $ 7,743,000 $ 4,514,000
=========== ===========
</TABLE>
5
<PAGE> 6
AMERICA SERVICE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
1. BASIS OF PRESENTATION
The interim consolidated financial statements as of June 30, 1998 and for the
six months and quarter then ended, are unaudited, but in the opinion of
management, have been prepared in conformity with generally accepted accounting
principles applied on a basis consistent with those of the annual audited
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 six
months and quarter presented. The results of operations for the six months
presented are not necessarily indicative of the results to be expected for the
year ending December 31, 1998. The interim consolidated financial statements
should be read in connection with the audited consolidated financial statements
for the year ended December 31, 1997.
2. INCOME PER SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement No.
128, Earnings Per Share ("Statement 128"). Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share exclude any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share, and uses the treasury stock method in
calculating dilution. All earnings per share amounts for all periods have been
presented and restated to conform to Statement 128 requirements.
3. REPORTING COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement No. 130, Reporting
Comprehensive Income, ("Statement 130"). Statement 130 establishes new rules for
the reporting and display of comprehensive income and its components. The
adoption of this Statement had no impact on the Company's net income or
stockholders' equity.
4. RELEASE AND SETTLEMENT AGREEMENT
On October 1, 1997, the Company entered into a Plan and Agreement of Merger (the
"Merger Agreement") with MedPartners, Inc., a Delaware corporation
("MedPartners"), and a wholly owned subsidiary of MedPartners, pursuant to which
the Company would have been acquired by MedPartners (the "Merger"). In
connection with the Merger, each issued and outstanding share of the Company's
Common Stock, $0.01 par value per share (the "Company's Common Stock") would
have been converted into the right to receive 0.71 of a share of MedPartners'
Common Stock. On October 28, 1997, MedPartners entered into a Plan and Agreement
of Merger (the
6
<PAGE> 7
"PhyCor Merger Agreement") with PhyCor, Inc., a Delaware corporation ("PhyCor"),
pursuant to which MedPartners would have been acquired by PhyCor and each issued
and outstanding share of MedPartners' Common Stock would have been converted
into the right to receive 1.18 shares of PhyCor Common Stock.
The Company mailed a Proxy Statement to the holders of its Common Stock on
November 20, 1997. The Proxy Statement related to a special meeting of the
Company's stockholders scheduled to be held on December 29, 1997, for the
purpose of considering and voting upon the Merger. On December 29, the Company
postponed the special meeting at the request of MedPartners until January 20,
1998.
On January 20, 1998, the Company announced that it would not hold the special
meeting of its stockholders originally scheduled for December 29, 1997, and that
it was engaged in discussions with MedPartners regarding the Merger Agreement.
On February 26, 1998, the Company announced the termination of the Merger
Agreement and the execution of a Release and Settlement Agreement (the
"Settlement Agreement") with MedPartners relating to the Merger Agreement.
Pursuant to the Settlement Agreement, MedPartners agreed to pay the Company
approximately $3.5 million in cash and to reimburse or assume certain other
costs incurred by the Company in connection with the Merger in the amount of
approximately $2.0 million. The Company and MedPartners and certain of their
respective affiliates also entered into a Non-Compete, Non-Solicitation and
Standstill Agreement in connection with the termination of the Merger Agreement
for a three-year period.
Results of operations of the Company as of June 1998 do not include any direct
costs relating to the Merger Agreement as all such amounts are to be reimbursed
as part of the Settlement Agreement. The Company's gross margin for the quarter
and six months ended June 1998 includes the reimbursement of $0.3 million and
$0.7 million in employee healthcare costs by MedPartners. An additional $0.1
million and $0.7 million of net payments from MedPartners are reflected as a
non-recurring gain for the quarter and six months ended June 1998.
ITEM 2. -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This quarterly report on Form 10-Q contains and incorporates by reference
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Those statements include, among other things, discussions of the
Company's business strategy and expectations concerning the Company's position
in the industry, future operations, margins, profitability, liquidity and
capital resources. All these forward-looking statements are based on estimates
and assumptions made by management of the Company that, although believed to be
reasonable, are inherently uncertain. Therefore, undue reliance should not be
placed on such statements and estimates. No assurance can be given that any of
such estimates or statements will be realized, and it is likely that actual
results may differ materially from those contemplated by such forward-looking
statements. Factors that may cause such differences include, but are not limited
to, those set
7
<PAGE> 8
forth in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (the "1997 Form 10-K") under the heading "Item 1. Business -
Cautionary Statements," which cautionary statements are hereby incorporated
herein by reference. All forward-looking statements attributable to the Company
or persons acting on behalf of the Company are expressly qualified in their
entirety by the cautionary statements set forth in the 1997 Form 10-K. In light
of these and other uncertainties, the inclusion of a forward-looking statement
herein or in any statement made by the Company should not be regarded as a
representation by the Company that the Company's plans and objectives will be
achieved.
RESULTS OF OPERATIONS
SECOND QUARTER 1998 VERSUS SECOND QUARTER 1997
Revenues, exclusive of interest income for the second quarter 1998, decreased to
$27.8 million from $40.0 million in the second quarter 1997. The Company had a
contract with the Georgia Department of Corrections which expired June 1997 and
accounted for $16.3 million of revenue for the three months ended June 1997.
Five additional contracts accounting for $3.9 million of revenue in the second
quarter of 1997, expired subsequent to June 1997, in large part due to the
Company's concerted effort to re-bid contracts in a more financially prudent
manner. Three contracts that commenced subsequent to June 1997 contributed $7.0
million in revenue for the quarter ended June 30, 1998. Revenues in 1998 include
$1.0 million in growth under existing contracts through contract renegotiations,
automatic pricing adjustments and growth in inmate population. Interest income
of $.2 million increased due to the growth of cash and cash equivalent balances
during the second quarter.
Healthcare expenses during the second quarter 1998 were $24.8 million or 88.4%
of revenue versus $37.3 million or 92.8% of revenue for the same period in 1997.
Healthcare expenses exclusive of the Georgia contract were 87.9% for the quarter
ended June 1997. The June 1998 medical loss ratio was favorably impacted by
certain employee healthcare costs being reimbursed by MedPartners pursuant to
the Settlement Agreement. These costs approximated $.3 million or 1% of all
healthcare expenses for the quarter ended June 1998.
Selling, general and administrative expenses for the second quarter 1998 were
$2.3 million versus $2.4 million for June 1997. The decrease relates to the
closure of Unisource, Inc., the Company's medical supply distributor, during the
second quarter.
The Company recorded a nonrecurring gain of $0.1 million in the second quarter
of 1998 which is directly related to the Settlement Agreement between the
Company and MedPartners. As part of the Settlement Agreement, the Company
received a payment of $0.6 million in June 1998. The Company, in contemplation
of the MedPartner's transaction, had notified all Unisource employees of its
intent to cease operations effective March 1998 and sell or dispose of all of
Unisource's operating assets. During the second quarter of 1998, the building
was sold, impaired tangible assets were written off, including $.4 million in
unamortized cost in excess of net assets acquired, and severance and other
miscellaneous accruals were recognized. Such costs have been offset against the
non-recurring gain as they were incurred in anticipation of the
8
<PAGE> 9
MedPartners' transaction. The Company will receive an additional payment in the
month of September 1998, totaling $0.6 million as part of the Settlement
Agreement.
The Company's June 1998 financial statements reflect minimal income taxes, as
the Company intends to utilize $1.5 million of its $7.5 million income tax loss
carryforward.
SIX MONTHS ENDED 1998 VERSUS SIX MONTHS ENDED 1997
Revenues, exclusive of interest income for the six months 1998, decreased to
$55.5 million from $78.7 million for the six months 1997. The Company had a
contract with the Georgia Department of Corrections which expired June 1997 and
accounted for $30.9 million of revenue for the six months ended June 1997. Five
additional contracts accounting for $7.8 million of revenue for the six months
ended 1997, expired subsequent to June 1997, in large part due to the Company's
concerted effort to re-bid contracts in a more financially prudent manner. Three
contracts that commenced subsequent to June 1997, contributed $13.4 million in
revenue for the six months ended June 30, 1998. Revenues in 1998 include $2.1
million in growth under existing contracts through contract renegotiations,
automatic pricing adjustments and growth in inmate population. Interest income
of $.3 million is slightly less than 1997 due to the prepayment component of
base fees with the Georgia contract being eliminated effective June 1997.
Healthcare expenses for the six months 1998 were $49.3 million or 88.4% of
revenue versus $73.5 million or 92.9% of revenue for the same period in 1997.
Healthcare expenses exclusive of the Georgia contract were 88.4% for the six
months ended June 1997. The June 1998 medical loss ratio was favorably impacted
by certain employee healthcare costs being reimbursed by MedPartners pursuant to
the Settlement Agreement. These costs approximated $.7 million or 1% of all
healthcare expenses for the six months ended June 1998.
Selling, general and administrative expenses for the six months ended 1998 and
1997 were $4.6 million.
The Company recorded a nonrecurring gain of $0.7 million for the six months
ended 1998 which is directly related to the Settlement Agreement between the
Company and MedPartners. As part of the Settlement Agreement, the Company has
received payments of $2.9 million through June 1998. Approximately $1.7 million
of such payments reimbursed the Company for costs directly associated with the
terminated merger. The Company, in contemplation of the MedPartner's
transaction, notified all Unisource employees of its intent to cease operations
effective March 1998 and sell or dispose of all of Unisource's operating assets.
During the second quarter of 1998, the building was sold, impaired tangible
assets were written off, including $.4 million in unamortized cost in excess of
net assets acquired, and severance and other miscellaneous accruals were
recognized. Such costs have been offset against the non-recurring gain as they
were incurred in anticipation of the MedPartners' transaction. The Company will
receive an additional payment in the month of September 1998, totaling $0.6
million as part of the Settlement Agreement.
9
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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments at June 30,
1998, were $8.0 million compared with cash, cash equivalents and investments of
$5.0 million at December 31, 1997. Cash provided by operating activities during
the six months ended June 30, 1998 was $3.9 million compared to cash used in
operations of $7.5 million for the comparable 1997 period.
The increase in cash from December 1997 to June 1998 is attributable to the
Company's operating performance and Settlement Agreement payments received
during the first six months of 1998. The Company has provided an additional $1.6
million in funding to its wholly owned captive insurance subsidiary, Harbour
Insurance, Inc.
Management believes that the current levels of cash, when coupled with
internally generated funds and the line of credit, are sufficient to meet the
Company's foreseeable cash needs.
10
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PART II: OTHER INFORMATION
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of stockholders, held May 19, 1998, the
stockholders of the Company voted to:
(A) Elect the Company's Board of Directors: William D. Eberle, Chairman
(3,324,373 affirmative votes and 33,129 votes withheld); Thomas F.
Bogan, Director (3,324,373 affirmative votes and 33,129 votes
withheld); Jack O. Bovender, Jr., Director ( 3,273,730 affirmative
votes and 83,772 votes withheld); John W. Gildea, Director (3,324,373
affirmative votes and 33,129 votes withheld); Carol R. Goldberg,
Director (3,318,873 affirmative votes and 38,629 votes withheld);
Scott Mercy, Director (3,320,363 affirmative votes and 37,139 votes
withheld).
(B) Ratification of the appointment of Ernst & Young, LLP as independent
auditors for 1997 (3,306,650 affirmative votes, 50,100 negative votes
and 752 abstentions).
(C) An amendment to the Company's Amended Incentive Stock Plan increasing
the shares issuable pursuant to the Plan to 1,482,500 shares
(1,428,212 affirmative votes, 1,033,208 negative votes and 35,853
abstentions).
ITEM 5. -- OTHER EVENTS
On July 23, 1998, the Company issued a press release discussing its
second quarter 1998 operating performance. A copy of such press
release is attached hereto as Exhibit 99.1 and is hereby incorporated
herein by reference.
ITEM 6. -- EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
2.1 -- Release and Settlement Agreement dated February 25,
1998 by and among America Service Group Inc.,
MedParners Inc., and ASG Merger Corporation and EMSA
Correctional Care, Inc. (incorporated by reference to
Exhibit 2.3 of the Registrant's Annual Report on Form
10-K for the year ended December, 1997).
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).
10.1 -- America Service Group Inc., Gerard F. Boyle Incentive
Stock Plan (incorporated by reference to the
Registration Statement on Form S-8, Registration No.
333-50161).
10.2 -- America Service Group Inc., Lawrence H. Pomeroy,
Incentive Stock Plan (incorporated by reference to
the Registration Statement on form S-8, Registration
No. 333-50171).
11
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10.3 -- Employment Agreement dated March 24, 1998 between
Lawrence H. Pomeroy and America Service Group Inc.
10.27 -- Amended and revised Employee Stock Purchase Plan
11.1 -- Statement re-computation of per share earnings.
27.1 -- Financial Data Schedule for the quarter and six months
ended June 30, 1998
27.2 -- Financial Data Schedule for the quarter and six months
ended June 30, 1998
99.1 -- June 1998 Earnings Release
(B) REPORTS ON FORM 8-K
1. -- The Company filed a Form 8-K on January 19, 1998
announcing the final adjournment of its special
meeting for shareholders and a Consent and Agreement
regarding the Merger Agreement between America
Service Group Inc., MedPartners, Inc., and ASG Merger
Corporation.
2. -- The Company filed a Form 8-K on February 25, 1998
announcing the Release and Settlement Agreement by
and among America Service Group Inc., MedPartners,
Inc., ASG Merger Corporation and EMSA Correctional
Care.
12
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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: August 13, 1998 /s/ MICHAEL CATALANO
-----------------------------------
Michael Catalano
Executive Vice President
& General Counsel
/s/ BRUCE A. TEAL
-----------------------------------
Bruce A. Teal
(Senior Vice President/
Chief Financial Officer)
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.3 Employment Agreement between Lawrence H. Pomeroy and America Service
Group Inc.............................................................
11.1 Statement re-computation of per share earnings........................
27.1 Financial Data Schedule for the quarter and six months ended
June 30, 1998.........................................................
27.2 Financial Data Schedule for the quarter and six months ended
June, 1997............................................................
99.1 June 1998 Earnings Release............................................
</TABLE>
<PAGE> 1
Exhibit 10.3
EMPLOYMENT AGREEMENT
AGREEMENT dated the 24th day of March, 1998 between LAWRENCE H. POMEROY
("Employee") and AMERICA SERVICE GROUP INC., a Delaware corporation (the
"Company").
WHEREAS, the Company 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
senior vice president responsible for sales and marketing of Prison Health
Services, Inc. ("PHS"), a wholly-owned subsidiary of the Company, and/or such
other offices and duties as the chief executive officer of the Company or PHS
shall reasonably determine from time to time, consistent with Employee's
responsibilities. Employee shall perform the duties and services of the offices
and titles for which he is employed from time to time hereunder.
2. Performance. Employee agrees to actively devote all of his time and
effort during normal business hours to the performance of his duties hereunder
and to use his reasonable best efforts and endeavors to promote the interests
and welfare of the Company.
3. Term. The term of Employee's employment hereunder shall commence on
or about April 15, 1998 and shall continue as an employment-at-will unless
terminated by written notice from either party to the other at least thirty (30)
days prior to termination.
4. Compensation. For all services rendered by Employee, the Company
agrees to pay Employee from and after the date hereof: (i) a salary (the "Base
Salary") at an annual rate of not less than $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.
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.
<PAGE> 2
7. Termination.
(a) Termination for Cause. Employee may be terminated from his
employment hereunder, either before Term End or thereafter, and without advance
notice, by the Company for "cause." For purposes hereof, "cause" shall mean: (i)
violation of the material terms of this Agreement, (ii) intentional commission
of an act, or failure to act, in a manner which constitutes dishonesty or fraud
or which has a direct material adverse effect on the Company or its business;
(iii) Employee's conviction of or a plea of guilty to any felony or crime
involving moral turpitude; (iv) continued incompetence, as determined by the
chief executive officer of the Company, using reasonable standards; (v) drug
and/or alcohol abuse which impairs Employee's performance of his duties or
employment; (vi) breach of loyalty to the Company, whether or not involving
personal profit, as determined by the chief executive officer of the Company
using reasonable standards; or (vii) failure to follow the directions of the
chief executive officer of the Company within 20 days after notice to Employee
of such failure, provided that the directions are not inconsistent with
Employee's duties and further provided that Employee is not directed to violate
any law or take any action that he reasonably deems to be immoral or unethical.
(b) Disability, Death. If Employee shall fail to or be unable to
perform the duties required hereunder because of any physical or mental
infirmity, and such failure or inability shall continue for any six (6)
consecutive months while Employee is employed hereunder, the Company shall have
the right to terminate this Agreement. Except as otherwise provided herein, this
Agreement shall terminate upon the death of Employee, and the estate of Employee
shall be entitled to receive all unpaid amounts due Employee hereunder to such
date of death.
(c) Termination Without Cause. The Company shall have the right to
terminate the employment of Employee at any time, without cause, cause being
determined under Section 7(a), upon thirty (30) days' advance written notice.
(d) Change in Control. Employee may terminate his employment
hereunder in the event of a change in control of the Company within ninety (90)
days after such change in control. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934 ("Exchange Act");
provided however, that without limitation, such a change in control shall be
deemed to have occurred if: (i) any "person" (as such term is used in Sections
13(d) and 14(d) (2) of the Exchange Act) other than Employee or any other person
currently the beneficial owner of 10% or more of the outstanding common stock of
the Company, becomes the beneficial owner, directly or indirectly, of securities
of the Company representing 30% or more of the combined voting power of the
Company's then outstanding securities; (ii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors of the Company cease for any reason to constitute at least a majority
thereof (unless the election of each director, who was not a director at the
beginning of the period, was approved by
2
<PAGE> 3
a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period); or (iii) approval by the stockholders
of the Company of (A) a complete liquidation of the Company; (B) an agreement
for the sale or other disposition of all or substantially all of the assets of
the Company to any "person"; or (C) a merger, consolidation or reorganization
involving the Company, unless (1) the stockholders of the Company immediately
before such merger, consolidation or reorganization own, directly or indirectly
immediately following such merger, consolidation or reorganization, at least
two-thirds of the combined voting power of the outstanding voting securities of
the corporation resulting from such merger or consolidation or reorganization or
its parent company (the "Surviving Corporation") in substantially the same
proportion as their ownership of the voting shares immediately before such
merger, consolidation or reorganization; or (2) the individuals who were members
of the Board immediately prior to the execution of the agreement for such
merger, consolidation or reorganization constitute at least two-thirds of the
members of the board of directors of the Surviving Corporation.
(e) Voluntary Termination. Employee may voluntarily terminate his
employment hereunder at any time, for any reason or for no reason.
(f) Termination Compensation. If Employee's employment hereunder is
terminated pursuant to Sections 7(a) or 7(e) of this Agreement, the Company
shall pay the Employee his full base salary through the termination date, plus,
within five (5) business days of the termination date, any bonuses, incentive
compensation, or other payments due which pursuant to the terms of any
compensation or benefit plan have been earned or vested as of the termination
date. If Employee's employment is terminated by the Company under Section 7(c)
without cause, or if there is a change in control of the Company as defined in
Section 7(d), all unexercised options granted to Employee under the Company's
Incentive Stock Plan or Amended Incentive Stock Plan shall accelerate and shall
immediately vest. If Employee's employment is terminated pursuant to Sections
7(b), 7(c) or 7(d) of this Agreement, the Company shall pay the Employee the
following:
(i) within five (5) business days of the termination, his full
base salary through the termination date, plus any bonuses, incentive
compensation, or other payments due which pursuant to the terms of any
compensation or benefit plan have been earned or vested as of the termination
date;
(ii) within five (5) business days of the termination, to
compensate for all accrued but unpaid leave such as holidays, vacation and sick
pay under the Company's paid leave plan, an amount equal to the Employee's then
current base salary multiplied by the product of (A) the total number of leave
days accrued, divided by (B) the total number of work days in the fiscal year in
which the termination date occurs;
(iii) within five (5) business days of a termination pursuant to
Section 7(b) or 7(d), a lump sum severance payment equal to the Employee's
annual base salary as of the termination date, less, in the case of a
termination for disability under Section 7(b), any
3
<PAGE> 4
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 (1) year following the termination date.
If Employee's employment is terminated pursuant to Sections 7(b),
7(c) or 7(d) of this Agreement, the Company shall maintain, for eighteen (18)
months following the termination date, in full force and effect for the benefit
of the Employee and Employee's dependents and beneficiaries, at the Company's
expense, all medical insurance under plans and programs in which the Employee
and/or the Employee's dependents and beneficiaries participated immediately
prior to the termination date, provided that continued participation is possible
under the general terms and provisions of such plans and programs. If continued
participation in any such plan or program is barred, the Company shall arrange
at its own expense to provide the Employee with benefits substantially similar
to those which he was entitled to receive under such plans and programs.
8. Covenant Not to Compete, Nonemployment, Noninducement.
(a) Employee acknowledges that in the course of his employment he
will become familiar with the Company and its affiliates' confidential
information concerning the Company and its affiliates and that his services are
of special, unique and extraordinary value to the Company and its affiliates.
Therefore, Employee agrees that, during his employment with the Company, and for
one year after Employee ceases to perform duties hereunder, neither Employee nor
any company with which Employee is affiliated as an employee, consultant or
independent contractor, will directly or indirectly (i) engage in any business
similar to the Business of the Company, as described below, anywhere in the
United States of America, or have interest directly or indirectly in any
Business; provided, however, that nothing herein shall prohibit Employee from
(A) 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; (B) 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 (C) 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; (ii)
employ or retain as an independent contractor any employee of the Company; or
(iii) recruit, solicit or otherwise induce any employee of the Company to
discontinue such employment relationship. For purposes hereof, the "Business"
shall consist of (i) delivery of contract health care to correctional
facilities, and (ii) any other business in which the Company is significantly
engaged as of the date that Employee ceases to perform duties hereunder.
(b) If, at the time of enforcement of this Section 8 a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then
4
<PAGE> 5
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:
(a) If to the Company:
America Service Group Inc.
105 Westpark Drive, Suite 300
Brentwood, TN 37027
Attn: Chief Executive Officer
(b) If to Employee:
Lawrence H. Pomeroy
9152 Saddlebow Drive
Brentwood, TN 37027
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 expressly provided. This Agreement shall inure to
the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, and 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 or court of competent jurisdiction
shall determine that any provision of this Agreement
5
<PAGE> 6
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 from 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 Tennessee.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a binding contract as of the day and year first above written.
EMPLOYEE AMERICA SERVICE GROUP INC.
By: By:
-------------------------- ------------------------------
Lawrence H. Pomeroy Scott L. Mercy
Chief Executive Officer
6
<PAGE> 1
AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN
OF
AMERICA SERVICE GROUP INC.
1. Purpose. America Service Group Inc., a Delaware corporation (the
"Company"), hereby adopts this Employee Stock Purchase Plan (the "Plan"). The
purpose of the Plan is to provide an opportunity for the employees of the
Company and any designated subsidiaries to purchase shares of Common Stock
("Common Stock") of the Company through voluntary automatic payroll deductions,
thereby attracting, retaining and rewarding such persons and strengthening the
mutuality of interest between such persons and the Company's stockholders.
2. Shares Subject to Plan. An aggregate of 500,000 shares (the
"Shares") of Common Stock of the Company may be sold pursuant to the Plan. Such
Shares may be authorized but unissued shares, treasury shares or shares
purchased in the open market. If there is any change in the outstanding shares
of Common Stock by reason of a stock dividend or distribution, stock split,
recapitalization, combination or exchange of shares, or a merger, consolidation
or other corporate reorganization in which the Company is the surviving
corporation, the number of Shares available for sale shall be equitably adjusted
by the Committee appointed to administer the Plan to give proper effect to such
change.
3. Administration. The Plan shall be administered by a committee (the
"Committee") which shall be the Incentive Stock Committee of the Board of
Directors or another committee consisting of not less than two directors of the
Company appointed by the Board of Directors, all of whom shall qualify as
Non-Employee Directors within the meaning of Securities and Exchange Commission
Regulation Section 240.16b-3(b)(3) or any successor regulation. The Committee is
authorized, subject to the provisions of the Plan, to establish such rules and
regulations as it deems necessary for the proper administration of the Plan and
to make such determinations and interpretations and to take such action in
connection with the Plan and any Shares made available hereunder as it deems
necessary or advisable. All determinations and interpretations made by the
Committee shall be binding and conclusive on all participants and their legal
representatives. No member of the Board, no member of the Committee and no
employee of the Company shall be liable for any act or failure to act hereunder,
by any other member or employee or by any agent to whom duties in connection
with the administration of this Plan have been delegated or, except in
circumstances involving his or her bad faith, gross negligence or fraud, for any
act or failure to act by the member or employee.
4. Eligibility. All regular employees of the Company, and of each
qualified subsidiary of the Company designated for participation by the Board of
Directors, other than:
(a) employees whose customary employment is 20 hours or
less per week; and
(b) employees whose customary employment is for not more
than 5 months per year
<PAGE> 2
shall be eligible to participate in the Plan. For the purpose of this Plan, the
term "qualified subsidiary" means any subsidiary, 50% or more of the total
combined voting power of all classes of stock in which is now owned or hereafter
acquired by the Company or any such qualified subsidiary.
5. Participation. An eligible employee may elect to participate in the
Plan as of any "Enrollment Date." Enrollment Dates shall occur on the first day
of an Offering Period (as defined in paragraph 8). Any such election shall be
made by completing and forwarding to the Company an enrollment and payroll
deduction authorization form prior to such Enrollment Date, authorizing payroll
deductions in such amount as the employee may request but in no event less than
the minimum nor more than the maximum amount as the Committee shall determine. A
participating employee may increase or decrease his payroll deductions as of any
subsequent Enrollment Date by completing and forwarding to the Company a revised
payroll deduction authorization form; provided, that changes in payroll
deductions shall not be permitted to the extent that they would result in total
payroll deductions below the minimum or above the maximum amount specified by
the Committee. An eligible employee may not initiate, increase or decrease
payroll deductions as of any date other than an Enrollment Date except by
withdrawing from the Plan as provided in paragraph 7.
6. Payroll Deduction Accounts. The Company shall establish on its books
and records a "Payroll Deduction Account" for each participating employee, and
shall credit all payroll deductions made on behalf of each employee pursuant to
paragraph 5 to his or her Payroll Deduction Account. No interest shall be
credited to any Payroll Deduction Account.
7. Withdrawals. An employee may withdraw from an Offering Period at any
time by completing and forwarding a written notice to the Company. Upon receipt
of such notice, payroll deductions on behalf of the employee shall be
discontinued commencing with the immediately following payroll period. Amounts
credited to the Payroll Deduction Account of any employee who withdraws shall be
refunded to the employee as soon as practicable after the withdrawal.
8. Offering Periods. The Plan shall be implemented by consecutive
six-month Offering Periods with a new Offering Period commencing on the first
trading day on or after the first day of each January and July during the term
of the Plan, or on such other date as the Committee shall determine, and
continuing thereafter to the end of such period, subject to termination in
accordance with paragraph 17 hereof. The first Offering Period hereunder shall
commence on July 1, 1996. "Trading day" shall mean a day on which the NASDAQ
National Market System is open for trading. The Committee shall have the power
to change the duration of Offering Periods (including the commencement dates
thereof) with respect to future offerings. The last trading day of each Offering
Period prior to the termination of the Plan (or such other trading date as the
Committee shall determine) shall constitute the purchase dates (the "Share
Purchase Dates") on which each employee for whom a Payroll Deduction Account has
been maintained shall purchase the number of Shares determined under paragraph
9(a). Notwithstanding the foregoing, the Company shall not permit the exercise
of any right to purchase Shares:
(a) to an employee who, immediately after the right is
granted, would own shares possessing 5% or more of
the total combined voting power or value of all
classes of stock of the Company or any subsidiary; or
2
<PAGE> 3
(b) which would permit an employee's rights to purchase
shares under this Plan, or under any other qualified
employee stock purchase plan maintained by the
Company or any subsidiary, to accrue at a rate in
excess of $25,000 in fair market value for each
calendar year.
For the purposes of subparagraph (a), the provisions of Section 424(d) of the
Internal Revenue Code shall apply in determining the stock ownership of an
employee, and the shares which an employee may purchase under outstanding rights
or options shall be treated as shares owned by the employee.
9. Purchase of Shares.
(a) Subject to the limitations set forth in paragraphs 7
and 8, each employee participating in an offering
shall purchase as many whole Shares (plus any
fractional interest in a Share) as may be purchased
with the amounts credited to his or her Payroll
Deduction Account seven days prior to the Share
Purchase Date (or such other date as the Committee
shall determine) (the "'Cutoff Date"). Employees may
purchase Shares only through payroll deductions, and
cash contributions shall not be permitted.
(b) The "Purchase Price" for Shares purchased under the
Plan shall be not less than the lesser of (i) an
amount equal to 85% of the closing price of shares of
the Common Stock on the first day of the Offering
Period or (ii) an amount equal to 85% of the closing
price of shares of the Common Stock on the Share
Purchase Date. For these purposes, the closing price
shall be as reported on the NASDAQ National Market
System in the Wall Street Journal. The Committee
shall have the authority to establish a different
Purchase Price as long as any such Purchase Price
complies with the provisions of Section 423 of the
Code.
(c) On each Share Purchase Date, the amount credited to
each participating employee's Payroll Deduction
Account as of the immediately preceding Cutoff Date
shall be applied to purchase as many whole Shares
(plus any fractional interest in a Share) as may be
purchased with such amount at the applicable Purchase
Price. Any amount remaining in an employee's Payroll
Deduction Account as of the relevant Cutoff Date in
excess of the amount that may properly be applied to
the purchase of Shares shall be refunded to the
employee as soon as practicable.
10. Brokerage Accounts or Plan Share Accounts. By enrolling in the
Plan, each participating employee shall be deemed to have authorized the
establishment of a brokerage account on his or her behalf at a securities
brokerage firm selected by the Committee. Alternatively, the Committee may
provide for Plan share accounts for each participating employee to be
established by the Company or by an outside entity selected by the Committee
which is not a brokerage firm. Shares purchased by an employee pursuant to the
Plan shall be held in the employee's brokerage or Plan share account ("Plan
Share Account") in his or her name, or if the employee so indicates on his or
her payroll deduction authorization form, in the employee's name jointly with a
member of the employee's family, with right of survivorship.
3
<PAGE> 4
11. Rights as Stockholder. An employee shall have no stockholder rights
with respect to Shares subject to any purchase rights granted under this Plan
until payment for such Shares has been completed at the close of business on the
relevant Share Purchase Date.
12. Certificates. Certificates for Shares purchased under the Plan will
not be issued automatically. However, certificates for whole Shares purchased
shall be issued as soon as practicable following an employee's written request.
The Company may make a reasonable charge for the issuance of such certificates.
Fractional interests in Shares shall be carried forward in an employee's Plan
Share Account until they equal one whole Share or until the termination of the
employee's participation in the Plan, in which event an amount in cash equal to
the value of such fractional interest shall be paid to the employee in cash.
13. Termination of Employment. If a participating employee's employment
is terminated for any reason, if an employee dies, if an employee becomes
disabled or if an employee otherwise ceases to be eligible to participate in the
Plan, payroll deductions on behalf of the employee shall be discontinued and any
amounts then credited to the employee's Payroll Deduction Account shall be
refunded as soon as practicable.
14. Rights Not Transferable. Rights granted under this Plan are not
transferable by a participating employee other than by will or the laws of
descent and distribution, and are exercisable during an employee's lifetime only
by the employee.
15. Employment Rights. Neither participation in the Plan, nor the
exercise of any right granted under the Plan, shall be made a condition of
employment, or of continued employment with the Company or any subsidiary.
Participation in the Plan does not limit the right of the Company or any
subsidiary to terminate a participating employee's employment at any time or
give to an employee any right to remain employed by the Company or any
subsidiary in any particular position or at any particular rate of remuneration.
16. Application of Funds. All funds received by the Company for Shares
sold by the Company on any Share Purchase Date pursuant to this Plan may be used
for any corporate purpose.
17. Amendments and Termination. The Board of Directors may amend the
Plan at any time, provided that no such amendment shall be effective unless
approved within 12 months after the date of the adoption of such amendment by
stockholder vote if stockholder approval is required for the Plan to continue to
comply with the requirements of Securities and Exchange Commission Regulation
ss. 240.16b 3 or Section 423 of the Internal Revenue Code. The Board of
Directors may suspend the Plan or discontinue the Plan at any time. Upon
termination of the Plan, all payroll deductions shall cease and all amounts then
credited to the participating employees' Payroll Deduction Accounts shall be
equitably applied to the purchase of whole Shares then available for sale, and
any remaining amounts shall be promptly refunded to the participating employees.
18. Applicable Laws. This Plan, and all rights granted hereunder, are
intended to meet the requirements of an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code, as from time to time amended, and the
Plan shall be construed and interpreted to accomplish this intent. Sales of
Shares under the Plan are subject to, and shall be accomplished only in
accordance with, the requirements of all applicable securities and other laws.
4
<PAGE> 5
19. Expenses. Except to the extent provided in paragraph 12, all
expenses of administering the Plan, including expenses incurred in connection
with the purchase of Shares in the open market for sale to participating
employees, shall be borne by the Company and its subsidiaries.
20. Stockholder Approval. The Plan was adopted by the Board of
Directors on April 1, 1996, subject to stockholder approval. The Plan and any
action taken hereunder shall be null and void if stockholder approval is not
obtained at the next annual meeting of stockholders.
5
<PAGE> 1
EXHIBIT 11.1
AMERICA SERVICE GROUP INC.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, QUARTER ENDED JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $2,460,000 $ 940,000 $ 998,000 $ 547,000
Decrease in redeemable common stock -- 57,000 -- --
---------- ---------- ---------- ----------
Numerator for basic and diluted earnings
per share - income available to common
stockholder $2,460,000 $ 997,000 $ 998,000 $ 547,000
========== ========== ========== ==========
Denominator for basic earnings per share -
weighted average shares 3,542,000 3,448,000 $3,556,000 3,486,000
Effect of dilutive securities 121,000 124,000 179,000 98,000
---------- ---------- ---------- ----------
Weighted average common shares
outstanding - diluted 3,663,000 3,572,000 3,735,000 3,584,000
========== ========== ========== ==========
Basic earnings per share $ 0.69 $ 0.29 $ 0.28 $ 0.16
========== ========== ========== ==========
Diluted earnings per share $ 0.67 $ 0.28 $ 0.27 $ 0.15
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICA SERVICE GROUP INC. FOR THE SIX MONTHS ENDED JUNE
30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,743,000
<SECURITIES> 240,000
<RECEIVABLES> 7,520,000
<ALLOWANCES> (130,000)
<INVENTORY> 231,000
<CURRENT-ASSETS> 18,945,000
<PP&E> 4,029,000
<DEPRECIATION> (2,327,000)
<TOTAL-ASSETS> 29,298,000
<CURRENT-LIABILITIES> 16,784,000
<BONDS> 0
0
0
<COMMON> 36,000
<OTHER-SE> 9,333,000
<TOTAL-LIABILITY-AND-EQUITY> 29,298,000
<SALES> 55,463,000
<TOTAL-REVENUES> 55,797,000
<CGS> 49,338,000
<TOTAL-COSTS> 53,992,000
<OTHER-EXPENSES> (660,000)<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,465,000
<INCOME-TAX> 5,000
<INCOME-CONTINUING> 2,460,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,460,000
<EPS-PRIMARY> 0.69<F2>
<EPS-DILUTED> 0.67<F2>
<FN>
<F1>Represents nonrecurring gain related to MedPartners' Settlement Agreement
<F2>Primary represents basic earnings per share and diluted represents dilutive
earnings per share
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICA SERVICE GROUP INC. FOR THE SIX MONTHS ENDED JUNE
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,514,000
<SECURITIES> 2,482,000
<RECEIVABLES> 14,047,000
<ALLOWANCES> (583,000)
<INVENTORY> 239,000
<CURRENT-ASSETS> 29,764,000
<PP&E> 6,280,000
<DEPRECIATION> (3,801,000)
<TOTAL-ASSETS> 39,400,000
<CURRENT-LIABILITIES> 29,343,000
<BONDS> 0
0
0
<COMMON> 35,000
<OTHER-SE> 5,794,000
<TOTAL-LIABILITY-AND-EQUITY> 39,400,000
<SALES> 78,687,000
<TOTAL-REVENUES> 79,072,000
<CGS> 73,488,000
<TOTAL-COSTS> 78,132,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 940,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 997,000<F1>
<EPS-PRIMARY> 0.29<F2>
<EPS-DILUTED> 0.28<F2>
<FN>
<F1>Net income includes $57,000 relating to the adjustment of redeemable common
stock to market as defined within the agreement.
<F2>Primary represents basic earnings per share and fully diluted represents
dilutive earnings per share.
</FN>
</TABLE>
<PAGE> 1
Exhibit 99.1
105 Westpark Drive, Suite 300, Brentwood, TN, 37027 615-373-3100
(Logo) AMERICA SERVICE GROUP INC.
NEWS RELEASE
FOR RELEASE: July 23, 1998
7:30am CDT
CONTACT: Scott L. Mercy Bruce A. Teal
President & CEO Sr. Vice President & CFO
(615) 376-1314 (615) 376-1361
AMERICA SERVICE GROUP CONTINUES
E.P.S. GROWTH
NASHVILLE, TN (July 23, 1998) - America Service Group Inc. (NASDAQ: ASGR) today
announced earnings of $0.27 per diluted share for the second quarter ended June
30, 1998, an 80% increase over the second quarter 1997. Net income attributable
to common shares was $998,000 for the second quarter 1998 versus $547,000 for
the same period in 1997. 1998 quarterly results include $74,000 in non-recurring
gains relating to the MedPartners Settlement Agreement. For comparability
purposes, 1997 financial results are adjusted to exclude the contract with the
Georgia Department of Corrections which expired June 1997.
Second quarter revenues increased 17% to $28.0 million, compared to the second
quarter 1997. Quarterly healthcare expenses as a percent of revenue were 88.4%,
unchanged from the first quarter 1998.
Selling, general, and administrative expenses for the quarter of $2.3 million
decreased 2% as compared to both the prior year and prior quarter results. The
improvement reflects primarily the closure and sale of the Company's owned
medical supply distributor. The minimal provision for income tax reflected in
the quarter's results is due to the Company's significant tax loss
carryforwards.
For the six months ended June 30, 1998, net income attributable to common shares
increased 147% to $2,460,000 (or $0.67 per diluted share), compared to income of
$997,000 (or $0.28) in the first six months of 1997. Excluding Georgia, revenues
increased 16% to $55.8 million from the comparable prior year period. Selling,
general and administrative expenses were $4.6 million for both six-month
periods.
[MORE]
<PAGE> 2
"We are pleased with the Company's continuing progress reflected in its second
quarter operating results," commented Scott L. Mercy, President and Chief
Executive Officer. "With our fully developed infrastructure and expansion of our
sales group to nine professionals, we can continue to grow in an expanding
industry."
America Service Group Inc. is a leading national provider of correctional
healthcare services in the United States. America Service Group contracts with
state, county and local government agencies to provide a wide range of on-site
healthcare programs as well as off-site hospitalization and specialty outpatient
care. The Company employs over 1,500 medical, professional and support staff
nationally.
This press release may contain forward-looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
As such, they involve risk and uncertainty that actual results may differ
materially from those projected in the forward-looking statements. A discussion
of the important factors and assumptions regarding the statements and risks
involved is contained in ASG's filings with the Securities and Exchange
Commission.
[MORE]
<PAGE> 3
AMERICA SERVICE GROUP INC.
CONSOLIDATED FINANCIAL INFORMATION
INCOME STATEMENT
<TABLE>
<CAPTION>
QUARTER ENDED
JUNE 30, JUNE 30,
JUNE 30, % OF 1997 % OF 1997 % OF
1998 REVENUE ADJUSTED(1) REVENUE AS REPORTED REVENUE
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HEALTHCARE REVENUE $27,831,000 $23,681,000 $40,027,000
INTEREST INCOME 202,000 202,000 202,000
------------ ----------- ------------
TOTAL REVENUE 28,033,000 23,883,000 40,229,000
HEALTHCARE EXPENSES 24,795,000 88.4% 20,982,000 87.9% 37,328,000 92.8%
--------------------------------------------------------------------
GROSS MARGIN 3,238,000 11.6% 2,901,000 12.1% 2,901,000 7.2%
SELLING, GENERAL AND 2,309,000 8.2% 2,354,000 9.9% 2,354,000 5.9%
ADMINISTRATIVE EXPENSES
NONRECURRING GAIN (74,000) -0.3% 0 0.0% 0 0.0%
--------------------------------------------------------------------
INCOME BEFORE TAXES 1,003,000 3.6% 547,000 2.3% 547,000 1.4%
PROVISION FOR INCOME TAXES 5,000 0.0% 0 0.0% 0 0.0%
--------------------------------------------------------------------
NET INCOME 998,000 3.6% 547,000 2.3% 547,000 1.4%
REDEEMABLE COMMON STOCK
EFFECT 0 0.0% 0 0.0% 0 0.0%
====================================================================
NET INCOME ATTRIBUTABLE TO
COMMON SHARES $998,000 3.6% $547,000 2.3% $547,000 1.4%
====================================================================
NET INCOME PER COMMON
SHARE :
BASIC $0.28 $0.16 $0.16
=========== =========== ===========
DILUTED $0.27 $0.15 $0.15
=========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING :
BASIC 3,556,000 3,486,000 3,486,000
=========== =========== ===========
DILUTED 3,735,000 3,584,000 3,584,000
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, JUNE 30,
JUNE 30, % OF 1997 % OF 1997 % OF
1998 REVENUE ADJUSTED(1) REVENUE AS REPORTED REVENUE
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HEALTHCARE REVENUE $55,463,000 $47,807,000 $78,687,000
INTEREST INCOME 334,000 385,000 385,000
------------ ------------ -----------
TOTAL REVENUE 55,797,000 48,192,000 79,072,000
HEALTHCARE EXPENSES 49,338,000 88.4% 42,608,000 88.4% 73,488,000 92.9%
--------------------------------------------------------------------
GROSS MARGIN 6,459,000 11.6% 5,584,000 11.6% 5,584,000 7.1%
SELLING, GENERAL AND 4,654,000 8.3% 4,644,000 9.6% 4,644,000 5.9%
ADMINISTRATIVE EXPENSES
NONRECURRING GAIN (660,000) -1.2% 0 0.0% 0 0.0%
--------------------------------------------------------------------
INCOME BEFORE TAXES 2,465,000 4.4% 940,000 2.0% 940,000 1.2%
PROVISION FOR INCOME TAXES 5,000 0.0% 0 0.0% 0 0.0%
--------------------------------------------------------------------
NET INCOME 2,460,000 4.4% 940,000 2.0% 940,000 1.2%
REDEEMABLE COMMON STOCK
EFFECT 0 0.0% 57,000 0.1% 57,000 0.1%
====================================================================
NET INCOME ATTRIBUTABLE TO
COMMON SHARES $2,460,000 4.4% $997,000 2.1% $997,000 1.3%
====================================================================
NET INCOME PER COMMON
SHARE :
BASIC $0.69 $0.29 $0.29
=========== =========== ===========
DILUTED $0.67 $0.28 $0.28
=========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING
BASIC 3,542,000 3,448,000 3,448,000
=========== =========== ===========
DILUTED 3,663,000 3,572,000 3,572,000
=========== =========== ===========
</TABLE>
(1) HEALTHCARE REVENUE AND EXPENSES HAVE BEEN ADJUSTED TO EXCLUDE THE OPERATING
RESULTS OF A CONTRACT WITH THE GEORGIA DEPARTMENT OF CORRECTIONS WHICH
EXPIRED ON JUNE 30, 1997 AND REPRESENTED 41% AND 39% OF THE COMPANY'S
CONSOLIDATED HEALTHCARE REVENUE FOR THE QUARTER AND SIX MONTHS JUNE 1997.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------------------------------
<S> <C> <C>
CASH & SHORT-TERM $ 7,983,000 $ 5,004,000
INVESTMENTS
OTHER CURRENT ASSETS 10,962,000 12,742,000
----------- -----------
CURRENT ASSETS 18,945,000 17,746,000
RESTRICTED INVESTMENTS 7,191,000 5,639,000
PROPERTY & EQUIPMENT, NET 1,702,000 2,468,000
OTHER ASSETS 1,424,000 1,901,000
----------- -----------
$29,298,000 $27,754,000
=========== ===========
CURRENT LIABILITIES $16,784,000 $17,489,000
OTHER LIABILITIES 3,145,000 3,624,000
STOCKHOLDERS' EQUITY (2) 9,369,000 6,641,000
----------- -----------
$29,298,000 $27,754,000
=========== ===========
</TABLE>
(2) STOCKHOLDERS' EQUITY INCLUDES $1.8 MILLION OF REDEEMABLE COMMON STOCK.
[END]
