<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 September 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
November 2, 1998.
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AMERICA SERVICE GROUP INC.
QUARTERLY REPORT ON FORM 10-Q
INDEX
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Page Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 1998
and December 31, 1997
3
Condensed Consolidated Income Statements for the quarters and nine
months ended September 30, 1998 and September 30, 1997
4
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and September 30, 1997
5
Notes to Condensed Consolidated Financial Statements
6-7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 7-11
PART II. OTHER INFORMATION
Item 5: Other Events 11
Item 6: Exhibits and Reports on Form 8-K 11-12
Signature page 13
</TABLE>
2
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PART I: FINANCIAL INFORMATION
AMERICA SERVICE GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 944,000 $ 3,445,000
Short-term investments 3,385,000 1,559,000
Accounts receivable: Healthcare and other,
less allowance for doubtful accounts 12,275,000 8,242,000
Prepaid expenses and other current assets 1,576,000 2,384,000
Current deferred taxes 2,116,000 2,116,000
----------- ------------
Total current assets 20,296,000 17,746,000
Restricted investments 6,965,000 5,639,000
Property and equipment, net 1,722,000 2,468,000
Deferred taxes 1,193,000 1,193,000
Cost in excess of net assets acquired, net -- 411,000
Other assets 303,000 297,000
----------- ------------
$30,479,000 $ 27,754,000
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,524,000 $ 3,243,000
Accrued expenses 13,770,000 12,836,000
Deferred revenue -- 1,410,000
----------- ------------
Total current liabilities 16,294,000 17,489,000
Noncurrent portion of accrued expenses 3,159,000 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 8,265,000 7,926,000
Retained earnings (deficit) 883,000 (3,162,000)
----------- ------------
Total liabilities and stockholders' equity $30,479,000 $ 27,754,000
=========== ============
</TABLE>
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AMERICA SERVICE GROUP INC.
CONDENSED CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues
Healthcare revenue $ 28,215,000 $24,313,000 $ 83,678,000 $103,000,000
Investment and interest income 169,000 162,000 503,000 547,000
------------ ----------- ------------ ------------
Total revenue 28,384,000 24,475,000 84,181,000 103,547,000
Healthcare expenses 24,884,000 21,407,000 74,222,000 94,895,000
------------ ----------- ------------ ------------
Gross margin 3,500,000 3,068,000 9,959,000 8,652,000
Selling, general and administrative expenses 2,402,000 2,387,000 7,056,000 7,031,000
Interest expense -- 3,000 -- 3,000
Nonrecurring gain (600,000) -- (1,260,000) --
------------ ----------- ------------ ------------
Income before taxes 1,698,000 678,000 4,163,000 1,618,000
Provision for income taxes 113,000 101,000 118,000 101,000
------------ ----------- ------------ ------------
Net income 1,585,000 577,000 4,045,000 1,517,000
Redeemable common stock decrease -- -- -- 57,000
------------ ----------- ------------ ------------
Net income attributable to common shares $ 1,585,000 $ 577,000 $ 4,045,000 $ 1,574,000
============ =========== ============ ============
Net income per common share:
Basic $ 0.44 $ 0.16 $ 1.14 $ 0.45
============ =========== ============ ============
Diluted $ 0.43 $ 0.16 $ 1.10 $ 0.44
============ =========== ============ ============
Weighted average common shares outstanding:
Basic 3,564,000 3,519,000 3,550,000 3,465,000
============ =========== ============ ============
Diluted 3,662,000 3,721,000 3,663,000 3,615,000
============ =========== ============ ============
</TABLE>
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AMERICA SERVICE GROUP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
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NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
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Operating Activities:
Net income $ 4,045,000 $ 1,517,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 594,000 956,000
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 (4,033,000) (1,955,000)
Assets held for sale -- 2,900,000
Prepaid expenses and other current assets 808,000 1,600,000
Other assets (6,000) (77,000)
Accounts payable (719,000) (1,265,000)
Accrued expenses 469,000 (6,746,000)
Deferred revenue (1,410,000) (4,654,000)
----------- ------------
Net cash provided by (used in) operating activities 145,000 (7,740,000)
Investing Activities:
Change in short-term investments (1,826,000) 1,894,000
Change in restricted investments (1,326,000) (133,000)
Capital expenditures (367,000) (866,000)
Sale of property and equipment, net 533,000 --
----------- ------------
Net cash provided by (used in) investing activities (2,986,000) 895,000
Financing Activities:
Exercise of stock options 340,000 522,000
----------- ------------
Net cash provided by financing activities 340,000 522,000
Net decrease in cash and cash equivalents (2,501,000) (6,323,000)
Cash and cash equivalents, beginning of period 3,445,000 12,550,000
----------- ------------
Cash and cash equivalents, end of period $ 944,000 $ 6,227,000
=========== ============
</TABLE>
5
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AMERICA SERVICE GROUP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION
The interim consolidated financial statements as of September 30, 1998 and for
the nine months and quarter then ended are unaudited, but in the opinion of
management, have been prepared in conformity with generally accepted accounting
principles applied on a basis consistent with those of the annual audited
consolidated 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 nine months and quarter presented. The results of operations
for the nine months presented are not necessarily indicative of the results to
be expected for the year ending December 31, 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
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"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 September 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 nine months ended September 1998 includes the reimbursement of
$0.4 million and $1.1 million in employee healthcare and lease costs by
MedPartners. An additional $0.6 million and $1.3 million of net payments from
MedPartners are reflected as a non-recurring gain for the quarter and nine
months ended September 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
7
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statements. Factors that may cause such differences include, but are not limited
to, those set 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 forward-looking
statements 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
THIRD QUARTER SEPTEMBER 1998 VERSUS THIRD QUARTER SEPTEMBER 1997
Revenues, exclusive of interest income for the third quarter 1998, increased to
$28.2 million from $24.3 million in the third quarter 1997. The Company had a
contract with the Georgia Department of Corrections which expired June 1997 and
accounted for $0.3 million of revenue for the three months ended September 1997.
Five contracts accounting for $0.9 million of revenue in the third quarter of
1997 expired prior to September 1998, in large part due to the Company's efforts
to re-bid contracts whereby minimum estimated margins would be obtained.
Revenues in 1998 include $5.1 million in growth under existing contracts through
contract renegotiations, automatic pricing adjustments, growth in inmate
population and being operational for the entire third quarter in 1998 versus
only a portion of the third quarter in 1997. Interest income of $.2 million
increased slightly due to the growth of cash and cash equivalent balances during
most of the third quarter.
Healthcare expenses during the third quarter 1998 were $24.9 million or 87.7% of
revenue versus $21.4 million or 87.5% of revenue for the same period in 1997.
Healthcare expenses exclusive of the Georgia contract were 87.3% for the quarter
ended September 1997. The September 1998 medical loss ratio was favorably
impacted by certain employee healthcare and lease costs being reimbursed by
MedPartners pursuant to the Settlement Agreement. These costs approximated $0.4
million or 1.4% of all healthcare expenses for the quarter ended September 1998.
The Company recorded a nonrecurring gain of $0.6 million in the third quarter of
1998, which is directly related to the receipt of the final installment under
the Settlement Agreement between the Company and MedPartners.
The Company's September 1998 financial statements reflect income taxes for
certain states and do not include federal income taxes, as the Company intends
to utilize $1.7 million of its $6.8 million income tax loss carryforward.
8
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NINE MONTHS ENDED SEPTEMBER 1998 VERSUS NINE MONTHS ENDED SEPTEMBER 1997
Revenues, exclusive of interest income for the nine months ended September 1998,
decreased to $83.7 million from $103.0 million for the nine months ended
September 1997. The Company had a contract with the Georgia Department of
Corrections which expired June 1997 and accounted for $31.2 million of revenue
for the nine months ended September 1997. Six additional contracts accounting
for $8.8 million of revenue for the nine months ended September 1997 expired
prior to September 1998, in large part due to the Company's efforts to re-bid
contracts whereby minimum estimated margins would be obtained. Revenues in 1998
include $20.7 million in growth under existing contracts through contract
renegotiations, automatic pricing adjustments, growth in inmate population and
being operational for a full nine months in 1998 versus a portion of 1997.
Interest income of $0.5 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 nine months ended September 1998 were $74.2 million
or 88.2% of revenue versus $94.9 million or 91.6% of revenue for the same period
in 1997. Healthcare expenses exclusive of the Georgia contract were 88.0% for
the nine months ended September 1997. The September 1998 medical loss ratio was
favorably impacted by certain employee healthcare and lease costs being
reimbursed by MedPartners pursuant to the Settlement Agreement. These costs
approximated $1.1 million or 1.4% of all healthcare expenses for the nine months
ended September 1998.
Selling, general and administrative expenses for the nine months ended September
1998 and 1997 were $7.1 and $7.0 million, respectively. The slight increase is
related to the growth of the Company's Marketing Department.
The Company recorded a nonrecurring gain of $1.3 million for the nine 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 $3.5 million through September 1998. Approximately $1.7
million of such payments reimbursed the Company for costs directly associated
with the terminated Merger. The Company, in anticipation of the MedPartners
transaction, notified all employees of UniSource, Inc., a wholly-owned
subsidiary of the Company, 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 $0.4 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 nonrecurring gain as they were incurred in
anticipation of the MedPartners transaction.
The Company's September 1998 financial statements reflect income taxes for
certain states and do not include federal income taxes, as the Company intends
to utilize $4.2 million of its $6.8 million income tax loss carryforward.
9
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LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and short-term investments at September 30,
1998, were $4.3 million compared with cash, cash equivalents and investments of
$5.0 million at December 31, 1997. Cash provided by operating activities during
the nine months ended September 30, 1998 was $0.1 million compared to cash used
in operations of $7.7 million for the comparable 1997 period.
The decrease in cash is attributable to two contracts' base fees totaling $4.2
million not being received as of September 30, 1998. The delays were due to one
contract's extension being finalized and one contract's payment arriving in the
first week of October. In addition, the Company increased its funding of its
wholly-owned captive insurance subsidiary, Harbour Insurance, Inc., by $1.4
million.
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.
YEAR 2000 UPDATE
The Year 2000 problem is the result of two potential malfunctions that could
have an impact on the Company's operations. The first is computer systems and
software being programmed to use two rather than four digits to define the
applicable year. The second is the use of embedded chips that have been designed
using two rather than four digits to define the applicable year. These chips are
often used in medical equipment used in certain Company sites.
The Company has completed the evaluation of all computer systems and software it
currently utilizes and has determined that 85% of all computer systems and
software will be in compliance without modification. The Company is currently in
the process of modifying or replacing the remaining 15% of its computer systems
and software. The general ledger, accounts payable and accounts receivable
systems are currently being tested. The testing phase for these systems is
expected to be completed by December 1, 1998. Timekeeping software is currently
being upgraded and is currently 87% complete. The timekeeping upgrades will be
completed by January 1, 1999. The Company's most significant outsourcing
contract is for medical claims processing and payment and that vendor has
certified that all Year 2000 modifications will be completed by December 31,
1999.
The Company has undertaken a program to inventory, assess and correct or replace
the equipment that contains embedded chips. The Company has a plan to inventory
its sites, contact vendors, analyze information provided and replace or modify
devices or equipment that will have a direct impact on patient safety and
health. The Company anticipates completion in all material respects of this
portion of its Year 2000 assessment program by July 1999.
The Company is relying on information that is being provided by equipment and
medical device manufacturers regarding the Year 2000 compliance status of their
products. While the Company
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is attempting to evaluate information provided by its present vendors, there
can be no assurances that in all instances accurate information is being
provided. The Company also cannot in all instances guarantee that the repair,
replacement or upgrade of all items of equipment and medical device systems will
occur on a timely basis. Contingency planning will be established and
implemented in an effort to minimize any impact from Year 2000-related failures
of such equipment. The Company anticipates its contingency planning for this
aspect of its Year 2000 assessment to be completed by July 31, 1999. Costs as a
result of these type of occurrences are in the process of being determined.
The Company has also initiated communications with suppliers and vendors whose
supplies are essential for day-to-day operations regarding their state of Year
2000 readiness. The Company is continuing its efforts to obtain such information
from all critical suppliers and vendors and feels that it will be able to
determine its vendors' status by January 31, 1999. Failure of certain suppliers
and vendors to remain in business without interruptions following December 31,
1999 could have a material impact on operations or the Company's ability to
provide healthcare services. Contingency plans may include stockpiling medical
supplies and materials, increasing inventory levels and securing alternate
sources of supply. The Company anticipates its contingency planning for this
aspect of its Year 2000 assessment to be completed by July 31, 1999. Costs as a
result of these type of occurrences are in the process of being determined.
Because the Company's physical sites are located within facilities owned and
operated by other entities whose Year 2000 readiness efforts it does not
control, there will be issues that arise which are dependent on these clients'
efforts. The Company plans to initiate communications with its clients on these
matters. The Company anticipates its contingency planning for this aspect of its
Year 2000 assessment to be completed by July 31, 1999 and feels costs related to
this phase will be immaterial.
The Company expects to expend approximately $110,000 in connection with
evaluating, modifying and replacing its computer systems and software and
expects to fund such expenditures through operating cash flows. However, there
can be no guarantees that these estimates will be achieved and actual results
could differ materially from those anticipated.
PART II: OTHER INFORMATION
ITEM 5. -- OTHER EVENTS
On October 22, 1998, the Company issued a press release discussing
its third 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
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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).
</TABLE>
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<TABLE>
<S> <C>
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 Amended and Restated Employment Agreement dated September 1,
1998 between Michael Catalano and America Service Group Inc.
10.27 Amended and Restated Employee Stock Purchase Plan of America
Service Group Inc.
11.1 Statement re-computation of per share earnings.
27.1 Financial Data Schedule for the quarter and nine months ended
September 30, 1998 (for SEC use only)
27.2 Financial Data Schedule for the quarter and nine months ended
September 30, 1997 (for SEC use only)
99.1 September 1998 Earnings Release
</TABLE>
(b) REPORTS ON FORM 8-K
1. The Company filed a Form 8-K on August 31, 1998 announcing the
realignment of executive management.
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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: November 12, 1998 /s/ MICHAEL CATALANO
------------------------------------
Michael Catalano
President & Chief Executive Officer
/s/ BRUCE A. TEAL
------------------------------------
Bruce A. Teal
Senior Vice President & Chief Financial
Officer
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INDEX TO EXHIBITS
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C> <C>
10.1 Amended and Restated Employment Agreement dated September 1, 1998 between
Michael Catalano and America Service Group Inc...........................................................
10.27 Amended and Restated Employee Stock Purchase Plan of America Service Group Inc...........................
11.1 Statement re-computation of per share earnings...........................................................
27.1 Financial Data Schedule for the quarter and nine months ended September 30, 1998 (for SEC use only)......
27.2 Financial Data Schedule for the quarter and nine months ended September, 1997 (for SEC use only).........
99.1 September 1998 Earnings Release..........................................................................
</TABLE>
<PAGE> 1
Exhibit 10.1
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
AGREEMENT originally dated the 12th day of July, 1996 (the "Original
Date"), amended and restated by these presents dated September 1, 1998, between
Michael Catalano (the "Employee") and America Service Group, Inc., a Delaware
corporation (the "Company").
WHEREAS, the Company has heretofore employed the Employee as Executive
Vice President of Development, General Counsel and Secretary of the Company;
WHEREAS, the Board of Directors (the "Board") of the Company desires
to foster the continued employment and services of the Employee as President
and Chief Executive Officer of the Company and a Director of 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 President and Chief Executive Officer of the Company to perform the
duties and services of such offices. The Board shall take all necessary steps
to ensure that Employee is slated as a management nominee to the Board during
his employment.
2. Performance. Employee agrees to actively devote 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 commenced as
of the Original Date and from the date hereof shall continue as an employment
as will unless terminated by written notice from either party to the other as
herein provided.
4. Compensation. For all services rendered by Employee, the
Company agrees to pay Employee from and after the date hereof: (i) a salary
(the "Base Salary") at an annual rate of not less than $190,000.00, 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
<PAGE> 2
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.
1. Termination.
(a) Termination for Cause. Employee may be terminated from
his employment without advance notice by the Company for "cause". For the
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, or (iii) Employee's conviction
of or a plea of guilty to any felony or crime involving moral turpitude.
(b) Disability; Death. If Employee shall fail to or be
unable to perform the duties required hereunder because of any physical or
mental infirmity, and such failure or inability shall continue for any six (6)
consecutive months 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
the 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 the Employee at any time without cause,
cause being determined under Section 7(a), upon ninety (90) days advance
written notice. If there is any change in the Employee's title, authority or
responsibilities which, in the Employee's reasonable judgment, represents an
adverse change from his status, title, positions or responsibilities in effect
immediately prior to such change, or the assignment to him of any duties or
work responsibilities which, in his reasonable judgment, are inconsistent with
such status, title, positions or work responsibilities; or any removal of the
Employee from, or failure to reappoint, nominate or reelect him to, any such
positions, or the Company violates or is in violation of material term of this
Agreement; then at the Employee's election (and in addition to other available
rights and remedies), any such event shall be deemed a termination without
cause pursuant to this Section 7(c).
(d) Change in Control. Employee may terminate his employment
hereunder in the event of a change in control of the Company within ninety (90)
days after such change in control. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934 ("Exchange
Act") provided however, that without limitation, such a change in control shall
be deemed to have occurred if (i) any "person" (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act) other than Employee or any
other person currently the beneficial owner of 10% or more of the outstanding
common stock of the Company, becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding securities; (ii) during
any period of two consecutive years, individuals who at the beginning of such
period constituted the Board of Directors of the Company cease for any reason
2
<PAGE> 3
to constitute at least a majority thereof (unless the election of each
director, who was not a director at the beginning of the period, was approved
by a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period); or (iii) approval by the
stockholders of the Company of (A) a complete liquidation of the Company; (B)
an agreement for the sale or other disposition of all or substantially all of
the assets of the Company to any "person", or (C) a merger, consolidation or
reorganization involving the Company, unless (1) the stockholders of the
Company immediately before such merger, consolidation or reorganization, own,
directly or indirectly, immediately following such merger, consolidation or
reorganization, at least two thirds of the 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, upon ninety (90) days advance written notice.
(f) Termination Compensation. If Employee's employment
hereunder is terminated pursuant to Section 7(a) or 7(e) of this Agreement, the
Company shall pay the Employee his full base salary through the Termination
Date, plus within five (5) business days of the termination date, any bonuses,
incentive compensation, or other payments due which pursuant to the terms of
any compensation or benefit plan have been earned or vested as of the
termination date, including those described in (ii) below. If Employee's
employment is terminated by the Company under Section 7(c) without cause, or if
there is a change in control of the Company as defined in Section 7(d), all
unexercised options granted to Employee under the Company's Amended Incentive
Stock Plan shall accelerate and shall immediately vest. If Employee's
employment is terminated pursuant to Sections 7(b), 7(c) or 7(d) of this
Agreement, the Company shall pay the Employee the following:
(i) within five (5) business days of the termination,
his full base salary through the termination date, plus any bonuses, incentive
compensation, or other payments due, which, pursuant to the terms of any
compensation or benefit plan, have been earned or vested as of the termination
date;
(ii) within five (5) business days of the termination,
to compensate for all accrued but unpaid leave such as holidays, vacation and
sick pay under the Company's paid leave plan, an amount equal to the Employee's
then current base salary multiplied by the product of (A) the total number of
leave days accrued, divided by (B) the total number of work days in the fiscal
year in which the Termination Date occurs;
3
<PAGE> 4
(iii) within five (5) business days of the termination,
a lump sum severance payment equal to two hundred percent (200%) of the
Employee's annual base salary as of the Termination Date;
(iv) within five (5) business days of the
termination, a lump sum severance payment in an amount equal to the incentive
compensation that the Employee could have earned under the Company's annual
incentive plan for the current fiscal year, said amount to be determined by
projecting the then current financial results of the Company on an annualized
basis throughout the remainder of the fiscal year, but in no event to be less
than 45% of the Employee's annual Base Salary as of 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
engage in any business similar to the Business of the Company, as described
below, anywhere in the United States of America, or have any interest directly
or indirectly in any Business; provided, however, that nothing herein shall
prohibit Employee from (i) owning in the aggregate not more than 5% of the
outstanding stock of any class of stock of a corporation so long as Employee
has no active participation in the business of such corporation, (ii)
affiliating with any company which may participate in the Business, so long as
that participation at the time of affiliation aggregates less than 10% of such
company's revenue, or (iii) directly or through an affiliate, acquiring,
merging or otherwise gaining control, or purchasing an interest in an
organization as long as the Business represents less than 10% of the acquiree's
revenue at the time of the transaction. For purposes hereof, the "Business"
shall consist of (A) delivery of contract health care to correctional
facilities, and (B) any other business in which the Company is significantly
engaged as of the date that employee ceases to perform duties hereunder.
Notwithstanding the foregoing, after the termination of this Agreement,
Employee shall not be restricted from the practice of law under any
circumstances which do not involve a professional conflict of interest.
4
<PAGE> 5
(b) If, at the time of enforcement of this Section 8 a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area.
(c) In the event of the breach by Employee of any of the
provisions of this Section 8, the Company, in addition and supplementary to
other rights and remedies existing in its favor, may apply to any court of law
or equity of competent jurisdiction for specific performance and/or injunctive
or other relief in order to enforce or prevent any violations of the provisions
hereof.
9. Notices. All notices hereunder, to be effective, shall be in
writing and shall be deemed delivered when delivered by and or when sent by
first-class, certified mail, postage and fees prepaid to the following
addresses or as otherwise indicated in writing by the parties:
(a) If to the Company:
America Service Group Inc.
105 Westpark Drive, Suite 300
Brentwood, TN 37027
Attn: Chairman
(b) If to Employee:
Mr. Michael Catalano
404 Belle Glen Lane
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, 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 provisions hereof and contains
the entire agreement of the parties and may be amended only in writing, signed
by the parties hereto.
12. Severability. The provisions of this Agreement are severable,
and the invalidity of any provision shall not affect the validity of any other
provision. In the event that any arbitrator (as
5
<PAGE> 6
the parties may agree) or court of competent jurisdiction shall determine that
any provision of this Agreement or the application thereof is unenforceable
because of the duration or scope thereof, the parties hereto agree that said
arbitrator or court in making such determination shall have the power to reduce
the duration and scope of each provision to the extent necessary to make it
enforceable, and that the Agreement in its reduced form shall be valid and
enforceable to the full extent permitted by law.
13. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Employee's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by the Company
(except for any severance or termination policies, plans, programs or
practices) and for which the Employee may qualify, nor shall anything herein
limit or reduce such rights as the Employee may have under any other Agreement
with the Company. Amounts which are vested benefits or which the Employee is
otherwise entitled to receive under any plan or program of the Company shall be
payable in accordance with such plan or program, except as explicitly modified
by this Agreement.
14. Governing Law. This Agreement shall be construed under and
governed by the internal laws of the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a binding contract as of the day and year first above written.
AMERICA SERVICE GROUP INC.
By:
-----------------------------------
Scott L. Mercy
Chairman of the Board of Directors
EMPLOYEE:
By:
-----------------------------------
Michael Catalano
6
<PAGE> 1
Exhibit 10.27
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
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.
<PAGE> 2
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. Each employee participating in an
Offering Period automatically shall be granted by operation of the Plan an
option as of the first day of such Offering Period to purchase the number of
Shares of Common Stock determined by dividing the total payroll deductions that
he or she has elected to make for such Offering Period by the Purchase Price for
such Shares as determined as of the first day of the Offering Period in
accordance with part (i) of paragraph 9(b). 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 of Common Stock
(plus any fractional interest in a Share) subject to
his or her option granted under paragraph 8 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 of
Common Stock (plus any fractional interest in a
Share) subject to his or her option granted under
paragraph 8 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>
NINE MONTHS ENDED QUARTER ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- --------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income $4,045,000 $1,517,000 $1,585,000 $ 577,000
Decrease in redeemable common stock -- 57,000 -- --
---------- ---------- ---------- ----------
Numerator for basic and diluted earnings
per share - income available to common
stock holders $4,045,000 $1,574,000 $1,585,000 $ 577,000
========== ========== ========== ==========
Denominator for basic earnings per share -
weighted average shares 3,550,000 3,465,000 3,564,000 3,519,000
Effect of dilutive securities 113,000 150,000 98,000 202,000
---------- ---------- ---------- ----------
Weighted average common shares outstanding
- diluted 3,663,000 3,615,000 3,662,000 3,721,000
========== ========== ========== ==========
Basic earnings per share $ 1.14 $ 0.45 $ 0.44 $ 0.16
========== ========== ========== ==========
Diluted earnings per share $ 1.10 $ 0.44 $ 0.43 $ 0.16
========== ========== ========== ==========
</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 NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 944,000
<SECURITIES> 3,385,000
<RECEIVABLES> 12,408,000
<ALLOWANCES> (133,000)
<INVENTORY> 260,000
<CURRENT-ASSETS> 20,296,000
<PP&E> 3,373,000
<DEPRECIATION> (1,651,000)
<TOTAL-ASSETS> 30,479,000
<CURRENT-LIABILITIES> 16,294,000
<BONDS> 0
0
0
<COMMON> 36,000
<OTHER-SE> 10,990,000
<TOTAL-LIABILITY-AND-EQUITY> 30,479,000
<SALES> 83,678,000
<TOTAL-REVENUES> 84,181,000
<CGS> 74,222,000
<TOTAL-COSTS> 81,278,000
<OTHER-EXPENSES> (1,260,000)<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,163,000
<INCOME-TAX> 118,000
<INCOME-CONTINUING> 4,045,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,045,000
<EPS-PRIMARY> 1.14<F2>
<EPS-DILUTED> 1.10<F2>
<FN>
<F1>Represents nonrecurring gain related to MedPartners' Settlement Agreement.
<F2>Primary represents basic earnings per share and diluted represents diluted
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 NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,227,000
<SECURITIES> 211,000
<RECEIVABLES> 15,247,000
<ALLOWANCES> (398,000)
<INVENTORY> 0
<CURRENT-ASSETS> 25,527,000
<PP&E> 6,685,000
<DEPRECIATION> (4,070,000)
<TOTAL-ASSETS> 35,453,000
<CURRENT-LIABILITIES> 25,668,000
<BONDS> 0
0
0
<COMMON> 35,000
<OTHER-SE> 6,401,000
<TOTAL-LIABILITY-AND-EQUITY> 35,453,000
<SALES> 103,000,000
<TOTAL-REVENUES> 103,547,000
<CGS> 94,895,000
<TOTAL-COSTS> 101,926,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,000
<INCOME-PRETAX> 1,618,000
<INCOME-TAX> 101,000
<INCOME-CONTINUING> 1,517,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,517,000
<EPS-PRIMARY> 0.45<F1>
<EPS-DILUTED> 0.44<F1>
<FN>
<F1>Earnings per share has been restated as required by FAS #128, Earnings per
Share.
</FN>
</TABLE>
<PAGE> 1
105 Westpark Drive, Suite 300, Brentwood, TN 37027 615-373-3100 FAX 615-376-9862
[LOGO] America Service Group Inc.
NEWS RELEASE
FOR RELEASE: October 22, 1998
7:30 am CDT
CONTACT: Michael Catalano Bruce A. Teal
President & CEO Sr. Vice President & CFO
(615) 376-1319 (615) 376-1361
AMERICA SERVICE GROUP REPORTS
RECORD E.P.S.
NASHVILLE, TN (October 22, 1998) - America Service Group Inc. (NASDAQ: ASGR)
today announced earnings of $0.43 per diluted share for the third quarter ended
September 30, 1998, a 270% increase over the third quarter 1997. Net income
attributable to common shares was $1.6 million for the third quarter 1998 versus
$.6 million for the same period in 1997. 1998 quarterly results include $600,000
in non-recurring gains relating to receipt of the final installment under 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 30, 1997.
Third quarter revenues increased 18% to $28.4 million, compared to the third
quarter 1997. Quarterly healthcare expenses as a percent of revenue were 87.7%
versus prior year and prior quarter's 87.3% and 88.4%.
Selling, general, and administrative expenses for the quarter were $2.4 million,
which represents a slight increase versus third quarter 1997 and the June 1998
quarter. The increase is specifically related to the enlargement of the
Company's Marketing Department. The minimal provision for income tax reflected
in the quarter's results is due to the Company's significant tax loss
carryforwards and relates to various states.
For the nine months ended September 30, 1998, net income attributable to common
shares increased 257% to $4 million (or $1.10 per diluted share), compared to
income of $1.6 million (or $0.44) in the first nine months of 1997. Excluding
the Georgia contract, revenues increased 16% to $84.2 million from the
comparable prior year period. Selling, general and administrative expenses were
$7.1 and 7.0 million for the nine months September 1998 and 1997.
[MORE]
<PAGE> 2
"We are pleased with the Company's third quarter operating results," commented
Michael Catalano, President and Chief Executive Officer. "Our focus on clinical
care and client service builds a solid foundation for growth in this 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 1,700 medical, professional and administrative
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
NINE MONTHS SEPTEMBER 1998
<TABLE>
<CAPTION>
QUARTER ENDED
9/30/98 % OF 9/30/97 % OF 9/30/97 % OF 9/30/98 % OF 9/30/97
REVENUE ADJUSTED REVENUE AS REVENUE REVENUE ADJUSTED
(1) REPORTED (1)
--------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
HEALTHCARE REVENUE $28,215,000 $23,984,000 $24,313,000 $83,678,000 $71,791,000
INTEREST INCOME 169,000 162,000 162,000 503,000 547,000
----------- ----------- ----------- ----------- -----------
TOTAL REVENUE 28,384,000 24,146,000 24,475,000 84,181,000 72,338,000
HEALTHCARE EXPENSES 24,884,000 87.7% 21,078,000 87.3% 21,407,000 87.5% 74,222,000 88.2% 63,686,000
------------------------------------------------------- ------------------------------
GROSS MARGIN 3,500,000 12.3% 3,068,000 12.7% 3,068,000 12.5% 9,959,000 11.8% 8,652,000
SELLING, GENERAL AND 2,402,000 8.5% 2,387,000 9.9% 2,387,000 9.8% 7,056,000 8.4% 7,031,000
ADMINISTRATIVE EXPENSES
INTEREST EXPENSE 0 0.0% 3,000 0.0% 3,000 0.0% 0 0.0% 3,000
------------------------------------------------------- -----------------------------
INCOME FROM OPERATIONS 1,098,000 3.9% 678,000 2.8% 678,000 2.8% 2,903,000 3.4% 1,618,000
NONRECURRING GAIN (600,000) -2.1% 0 0.0% 0 0.0% (1,260,000) -1.5% 0
------------------------------------------------------- -----------------------------
INCOME BEFORE TAXES 1,698,000 6.0% 678,000 2.8% 678,000 2.8% 4,163,000 4.9% 1,618,000
PROVISION FOR INCOME 113,000 0.4% 101,000 0.4% 101,000 0.4% 118,000 0.1% 101,000
TAXES
------------------------------------------------------- -----------------------------
NET INCOME 1,585,000 5.6% 577,000 2.4% 577,000 2.4% 4,045,000 4.8% 1,517,000
REDEEMABLE COMMON 0 0.0% 0 0.0% 0 0.0% 0 0.0% 57,000
STOCK EFFECT
======================================================= =============================
NET INCOME $1,585,000 5.6% $ 577,000 2.4% $577,000 2.4% $4,045,000 4.8% $1,574,000
ATTRIBUTABLE TO COMMON
SHARES
======================================================= =============================
NET INCOME PER COMMON SHARE:
BASIC $0.44 $0.16 $0.16 $1.14 $0.45
============ =========== =========== =========== ==========
DILUTED $0.43 $0.16 $0.16 $1.10 $0.44
============ =========== =========== =========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING :
BASIC 3,564,000 3,519,000 3,519,000 3,550,000 3,465,000
============ =========== =========== =========== ==========
DILUTED 3,662,000 3,721,000 3,721,000 3,663,000 3,615,000
============ =========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
% OF 9/30/97 % OF
REVENUE AS REVENUE
REPORTED
------------------------------
<S> <C> <C> <C>
HEALTHCARE REVENUE $103,000,000
INTEREST INCOME 547,000
------------
TOTAL REVENUE 103,547,000
HEALTHCARE EXPENSES 88.0% 94,895,000 91.6%
-----------------------------
GROSS MARGIN 12.0% 8,652,000 8.4%
SELLING, GENERAL AND 9.7% 7,031,000 6.8%
ADMINISTRATIVE EXPENSES
INTEREST EXPENSE 0.0% 3,000 0.0%
-----------------------------
INCOME FROM OPERATIONS 2.2% 1,618,000 1.6%
NONRECURRING GAIN 0.0% 0 0.0%
-----------------------------
INCOME BEFORE TAXES 2.2% 1,618,000 1.6%
PROVISION FOR INCOME 0.1% 101,000 0.1%
TAXES -----------------------------
2.1% 1,517,000 1.5%
NET INCOME 0.1% 57,000 0.1%
REDEEMABLE COMMON =============================
STOCK EFFECT 2.2% $ 1,574,000 1.5%
=============================
NET INCOME
ATTRIBUTABLE TO COMMON $ 0.45
SHARES ============
$ 0.44
============
NET INCOME PER COMMON SHARE:
BASIC
3,465,000
DILUTED ============
3,615,000
===========
WEIGHTED AVERAGE SHARES OUTSTANDING
BASIC
DILUTED
</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 1.4% AND
30.3% OF THE COMPANY'S CONSOLIDATED HEALTHCARE REVENUE FOR THE QUARTER
AND NINE MONTHS SEPTEMBER 1997.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
9/30/98 12/31/97
--------------------------------
<S> <C> <C>
CASH & SHORT-TERM $ 4,329,000 $ 5,004,000
INVESTMENTS
OTHER CURRENT ASSETS 16,002,000 12,742,000
----------- -----------
CURRENT ASSETS 20,331,000 17,746,000
RESTRICTED INVESTMENTS 6,965,000 5,639,000
PROPERTY & EQUIPMENT, 1,722,000 2,468,000
NET
OTHER ASSETS 1,460,000 1,901,000
=========== ===========
$30,478,000 $27,754,000
=========== ===========
CURRENT LIABILITIES $16,299,000 $17,489,000
OTHER LIABILITIES 3,159,000 3,624,000
STOCKHOLDERS' EQUITY 11,020,000 6,641,000
(2)
=========== ===========
$30,478,000 $27,754,000
=========== ===========
</TABLE>
(2) STOCKHOLDERS' EQUITY INCLUDES $1.8 MILLION OF REDEEMABLE COMMON STOCK.
