-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LJRGYbJKarhjVf3Va71apP9cDcmj3owGEkMZ0VrYufZTMH+FFEe37bPBpNxg3uht L0O6NfCJ4FAYStvSLCVQfA== 0000950144-01-509095.txt : 20020410 0000950144-01-509095.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950144-01-509095 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICA SERVICE GROUP INC /DE CENTRAL INDEX KEY: 0000877476 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISC HEALTH & ALLIED SERVICES, NEC [8090] IRS NUMBER: 510332317 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19673 FILM NUMBER: 1787910 BUSINESS ADDRESS: STREET 1: 105 WESTPARK DR STREET 2: STE 300 CITY: BRENTWOOD STATE: TN ZIP: 37027 BUSINESS PHONE: 6153733100 MAIL ADDRESS: STREET 1: 105 WESTPARK DR STREET 2: STE 300 CITY: BRENTWOOD STATE: TN ZIP: 37027 10-Q 1 g72745e10-q.txt AMERICA SERVICE GROUP INC. ================================================================================ FORM 10Q -- 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 --------------- (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2001 OR [ ] 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: 0-20135 --------------- 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 200 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 5,428,055 shares of Common Stock outstanding as of November 2, 2001. ================================================================================ AMERICA SERVICE GROUP INC. QUARTERLY REPORT ON FORM 10-Q INDEX
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000 ................... 3 Condensed Consolidated Statements of Operations for the quarter and nine months ended September 30, 2001 and September 30, 2000 .............................................................................. 4 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2001 and September 30, 2000 .............................................................................. 5 Notes to Condensed Consolidated Financial Statements ................................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .......... 8 PART II. OTHER INFORMATION Item 5: Other Information .............................................................................. 11 Item 6: Exhibits and Reports on Form 8-K ............................................................... 11 Signature page ......................................................................................... 13 Index to exhibits ...................................................................................... 14
2 PART I: FINANCIAL INFORMATION AMERICA SERVICE GROUP INC. CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31, 2001 2000 --------- --------- (AMOUNTS SHOWN IN 000'S) ASSETS Current assets: Cash and cash equivalents ............................... $ 1,598 $ 256 Accounts receivable, healthcare and other less allowances 80,722 64,053 Prepaid expenses and other current assets ............... 14,164 8,924 Current deferred taxes .................................. 2,303 1,143 ------------------------ Total current assets ............................ 98,787 74,376 Property and equipment, net ............................... 8,297 8,651 Deferred taxes ............................................ 5,502 -- Goodwill, net ............................................. 45,436 61,358 Contracts, net ............................................ 13,432 14,002 Other intangible assets, net .............................. 1,729 1,925 Other assets .............................................. 1,567 1,090 ------------------------ $ 174,750 $ 161,402 ======================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ........................................ $ 31,552 $ 21,664 Medical claims liability ................................ 18,588 11,285 Accrued expenses ........................................ 31,976 25,854 Current portion of long-term debt ....................... 63,000 -- ------------------------ Total current liabilities ....................... 145,116 58,803 Noncurrent portion of accrued expenses .................... 5,368 3,680 Deferred taxes ............................................ -- 757 Long-term debt ............................................ -- 56,800 Commitments and contingencies Mandatory redeemable preferred stock ...................... -- 12,397 Common stock .............................................. 54 41 Additional paid in capital ................................ 31,324 18,259 Stockholders' notes receivable ............................ (1,363) (1,384) Accumulated other comprehensive income .................... (598) -- Retained (deficit) earnings ............................... (5,151) 12,049 ------------------------ Total liabilities and stockholders' equity ...... $ 174,750 $ 161,402 ========================
See notes to condensed consolidated financial statements. 3 AMERICA SERVICE GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 2001 2000 2001 2000 ---- ---- ---- ---- (Amounts shown in 000's except share and per share amounts) Healthcare revenue ......................... $ 140,145 $ 102,842 $ 418,865 $ 268,460 Healthcare expenses ........................ 133,085 92,250 406,394 241,840 ---------------------------------------------------------- Gross margin ............................... 7,060 10,592 12,471 26,620 Selling, general and administrative expenses 4,303 3,896 14,429 10,307 Impairment of long-lived assets ............ -- -- 13,236 -- Strategic initiative and severance expenses 1,319 -- 2,586 -- Depreciation and amortization .............. 1,798 1,625 5,741 4,038 ---------------------------------------------------------- Income (loss) from operations .............. (360) 5,071 (23,521) 12,275 Interest, net .............................. 1,390 1,411 3,915 2,767 ---------------------------------------------------------- Income (loss) before taxes (benefit) ....... (1,750) 3,660 (27,436) 9,508 Provision for income taxes (benefit) ....... (754) 1,558 (10,399) 3,897 ---------------------------------------------------------- Net income (loss) .......................... (996) 2,102 (17,037) 5,611 Preferred stock dividends .................. -- (165) (163) (489) ---------------------------------------------------------- Net income (loss) attributable to common shares ............................ $ (996) $ 1,937 $ (17,200) $ 5,122 ========================================================== Net income (loss) per common share: Basic .................................... $ (0.18) $ 0.49 $ (3.28) $ 1.35 ========================================================== Diluted .................................. $ (0.18) $ 0.37 $ (3.28) $ 1.02 ========================================================== Weighted average shares outstanding: Basic .................................... 5,428,000 3,925,000 5,245,000 3,796,000 ========================================================== Diluted .................................. 5,428,000 5,650,000 5,245,000 5,502,000 ==========================================================
See notes to condensed consolidated financial statements. 4 AMERICA SERVICE GROUP INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001 2000 ------------------------ (AMOUNTS SHOWN IN 000'S) Operating activities: Net income (loss) ................................... $(17,037) $ 5,611 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization ..................... 5,741 4,038 Amortization of deferred financing costs .......... 349 137 Impairment of long-lived assets ................... 13,236 -- Deferred income taxes ............................. (7,028) -- Interest on stockholders' notes receivable ........ (60) (45) Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable ............................ (16,748) (5,828) Prepaid expenses and other current assets ...... (5,253) 518 Other assets ................................... (40) (412) Accounts payable ............................... 9,967 (1,725) Accrued expenses ............................... 13,861 9,318 ------------------------ Net cash provided by (used in) operating activities . (3,012) 11,612 Investing activities: Cash paid for acquisitions, net of cash acquired .... -- (38,669) Capital expenditures ................................ (1,658) (2,013) ------------------------ Net cash used in investing activities ............... (1,658) (40,682) Financing activities: Proceeds from long-term debt ........................ 31,280 39,007 Payments on long-term debt .......................... (25,080) (10,394) Payment of deferred financing costs ................. (786) (712) Proceeds from stockholders' notes receivable ........ 81 -- Payment of mandatory redeemable preferred stock dividends ......................................... (61) (324) Common stock issued under Employee Stock Purchase ... -- 275 Plan Exercise of stock options ........................... 578 2,536 ------------------------ Net cash provided by financing activities ........... 6,012 30,388 Net increase (decrease) in cash and cash equivalents 1,342 1,318 Cash and cash equivalents, beginning of period ...... 256 444 ------------------------ Cash and cash equivalents, end of period ............ $ 1,598 $ 1,762 ========================
See notes to condensed consolidated financial statements. 5 AMERICA SERVICE GROUP INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 1. BASIS OF PRESENTATION The interim condensed consolidated financial statements as of September 30, 2001 and for the quarter and nine months then ended are unaudited, but in the opinion of management, have been prepared in conformity with accounting principles generally accepted in the United States applied on a basis consistent with those of the annual audited consolidated financial statements. Such interim condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the financial position and the results of operations for the quarter and nine months presented. The results of operations for the quarter and nine months presented are not necessarily indicative of the results to be expected for the year ending December 31, 2001. The interim condensed consolidated financial statements should be read in connection with the audited consolidated financial statements for the year ended December 31, 2000. 2. ACQUISITIONS On September 20, 2000, the Company, through its wholly-owned subsidiary Secure Pharmacy Plus, Inc. ("SPP"), completed the purchase of the assets of the correctional pharmacy division of Bergen Brunswig Corporation. The cash purchase price of $7.9 million was financed under the Company's Senior Secured Credit Facility. SPP is the largest correctional pharmacy company in the United States, servicing over 300,000 inmates in forty-one states. SPP's sales to the Company are eliminated in consolidation. The Company accounted for the acquisition using the purchase method of accounting. On June 1, 2000, the Company acquired the stock of Correctional Health Services, Inc. ("CHS") for $16.7 million in cash, net of cash acquired. The purchase price was financed by advances pursuant to the Company's then existing Credit Facility, which was increased in connection with the acquisition. CHS, with headquarters in Verona, New Jersey, services nineteen contracts providing healthcare services to approximately 12,000 inmates. On March 29, 2000, the Company acquired the Pennsylvania and New York contracts from Correctional Physician Services, Inc. ("CPS") for $14 million in cash financed under the Company's then existing Credit Facility. CPS assigned its contracts for the Eastern Region of the Pennsylvania Department of Corrections and the Yonkers Region of the New York Department of Correctional Services to the Company. Combined, the acquired Pennsylvania and New York operations of CPS provide healthcare services to approximately 21,000 inmates. 3. IMPAIRMENT OF LONG-LIVED ASSETS During the second quarter of 2001, the Company was notified that another vendor had been selected to negotiate a contract to provide healthcare services for the Eastern Region of the Pennsylvania Department of Corrections upon the expiration of the Company's contract on December 31, 2002. The Company also anticipates that it will cease operations under the contract with the Yonkers Region of the New York Department of Correctional Services upon the expiration of the Company's contract on May 31, 2002 as the healthcare services are to be assumed by the client. Given these factors, in accordance with FAS 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, the Company recorded a non-cash impairment charge of $13.2 million during the second quarter of 2001 representing the excess net goodwill recorded in connection with the aforementioned acquisition of CPS over the fair value of the two contracts. The Company estimated the fair value of the contracts by calculating the net present value of estimated cash flows during the remaining term of the contracts adjusted for certain other factors. 4. STRATEGIC INITIATIVE AND SEVERANCE EXPENSES During 2001, the Company incurred certain strategic initiative expenses. This initiative has been discontinued. Additionally during the third quarter of 2001, the Company incurred severance expenses related to staffing reductions. 5. CHANGES IN ACCOUNTING ESTIMATES During the second quarter of 2001, the Company recorded changes in accounting estimate charges of approximately $6.0 million to strengthen medical claims reserves due to adverse development of prior years' medical claims and $1.3 million for legal and $0.4 6 million for other charges. The charge for medical claims reserve strengthening was primarily the result of updated information that showed actual utilization and cost data for inpatient and outpatient services were higher than historical levels upon which the original estimate was based. The charge for legal and malpractice insurance exposures primarily relates to liquidity issues of certain insurance carriers who provided coverage to the Company from 1992-1997. 6. BANKING ARRANGEMENTS As a result of the charges referred to in the preceding footnotes, on August 27, 2001, the Company obtained an amendment to its $65 million Senior Secured Credit Facility (the "Credit Facility"). Pursuant to the amendment to the Credit Facility, amounts available to the Company are based upon varying percentages of accounts receivable and inventory. Certain financial covenants were modified and other financial covenants were added through the quarter ending March 31, 2003 as a result of the amendment. Pursuant to the amendment, the Company agreed to make several scheduled reductions in availability under the Credit Facility. The first reduction occurred on November 1, when the Company repaid $1 million of the amount outstanding pursuant to the Credit Facility. Due to the financial results for the quarter ended September 2001, the Company has obtained a waiver of certain financial covenants for the period as part of a second amendment to the Credit Facility. A permanent reduction of $1.0 million to the Credit Facility was made by the Company in conjunction with the agreement. This reduction was in addition to the $1 million reduction made on November 1. Additionally, future tax refunds are to be applied as permanent reductions to the Credit Facility, interest rates have been increased and the maturity date of the Credit Facility has been shortened to April 1, 2003. Absent further amendment to the Credit Facility, the Company may be in default of its financial covenants within the Credit Facility at its next reporting date for the fourth quarter of 2001. Therefore, the Company has classified the debt under the Credit Facility to current. The Company expects to commence immediate negotiations with the Administrative Agent to complete an amendment that would revise the financial covenants long term. 7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), as amended in June 2000 by SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, which requires the Company to recognize all derivatives as assets or liabilities measured at fair value. Changes in fair value are recognized through either earnings or other comprehensive income dependent on the effectiveness of the hedge instrument. The Company currently maintains three interest collar agreements with three of its syndicate banks for a notional amount of $24 million. The collar agreements, which expire between October 2002 and May 2003, qualify as cash flow hedges under SFAS 133. On January 1, 2001, the Company adopted SFAS 133 and SFAS 138 resulting in a charge to other comprehensive income of approximately $212,000, net of tax, as the cumulative effect of a change in accounting principle representing the fair value of the collar agreements on the date of adoption. During the nine months ended September 30, 2001, the decrease in fair value of the collar agreements of approximately $377,900, net of tax, was recognized through other comprehensive income as the intrinsic change in fair market value during the period. At September 30, 2001, the fair value of the interest rate collar agreements was a liability of $988,650, which is included in accrued expenses in the accompanying condensed consolidated balance sheets. The Company's collar agreements are maintained for interest rate protection purposes only, pursuant to a provision of its Credit Facility. In June 2001, the FASB issued SFAS No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the non-amortization provisions of SFAS 142 is expected to result in an increase in net income of $1.5 million, net of tax per year. During 2002, the Company will perform the first of the required impairment tests of goodwill as of January 1, 2002 and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company. 7 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 forth in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (the "2000 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 2000 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. GENERAL The financial statements of the Company include the operations of SPP, CHS and the CPS contracts (collectively the "2000 Acquisitions") since the dates of the consummation of such acquisitions: September 20, 2000, June 1, 2000, and March 30, 2000, respectively. The CHS and CPS acquisitions increased the Company's number of contracts served by 21. The SPP acquisition enables the Company to better manage its pharmacy costs and provides the Company a vehicle through which to diversify its presence in the correctional health care industry. RESULTS OF OPERATIONS THIRD QUARTER 2001 COMPARED TO THIRD QUARTER 2000 Healthcare revenue for the quarter ended September 2001 increased to $140.1 million from $102.8 million in the third quarter 2000. The $37.3 million increase is attributable to the acquisition of SPP ($11.5 million), increases in existing contract revenues ($4.8 million), and net new business ($21.0 million). Healthcare expenses for the third quarter 2001 were $133.1 million or 95.0% of revenue versus $92.3 million or 89.7% of revenue for the prior year period. The $40.8 million increase is mainly attributable to the SPP acquisition, net new business and increased costs for pharmacy, nursing salaries and off-site utilization. The Company's contract with the New York City Health and Hospitals Corporation ("Rikers Island") generates a lower margin than its other corrections business, as it is a lower risk contract. During the third quarter 2001, five contracts with combined quarterly revenues of $30.2 million accounted for a negative gross margin of $2.0 million. Selling, general and administrative expenses of $4.3 million for the third quarter 2001 increased $0.4 million as compared to the prior year period. As a percent of revenue, selling, general and administrative expenses were 3.1% for the quarter ended September 2001 versus 3.8% for the prior year period. This decrease reflects the Company's ability to more effectively leverage its selling, general and administrative expenses as a result of the growth in healthcare revenue. During the quarter ended September 2001, the Company incurred $1.3 million of expenses related to the discontinued strategic initiatives and severance related to staffing reductions. Depreciation and amortization expense for the quarter ended September 2001 was $1.8 million versus $1.6 million for the same period in 2000. The increase of $.2 million is mainly due to the amortization of the intangible assets associated with the SPP acquisition. 8 Net interest expense of $1.4 million for the quarter ended September 2001 remained unchanged from the prior year period even though interest rates declined from the comparable period in 2000. The average outstanding principal amount under the Credit Facility increased by $7.8 million over the same period last year in order to meet incremental working capital needs. The income tax benefit for the quarter ended September 2001 was $0.8 million, which equates to a 43.1% effective tax rate. Preferred stock dividends of $.2 million for the quarter ended September 2000 relate to the 5% dividend rate on the $12.5 million of Series A Convertible Preferred Stock, which was converted to common stock on February 5, 2001. NINE MONTHS ENDED SEPTEMBER 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 2000 Healthcare revenue for the nine months ended September 2001 increased to $418.9 million from $268.5 million for the nine months ended September 30, 2000. The $150.4 million increase is attributable to the 2000 Acquisitions ($57.8 million), increases in existing contract revenues ($17.4 million) and net new business ($75.2 million). Healthcare expenses during the nine months ended September 2001 were $406.4 million or 97.0% of revenue versus $241.8 million or 90.1% of revenue for the same period in 2000. The $164.6 million increase is mainly attributable to the 2000 Acquisitions, net new business, strengthening of current year medical claims reserves and increased costs for pharmacy, nursing salaries and off-site utilization. Exclusive of the changes in accounting estimates of $6.0 million and other charges of $0.4 million recorded during the second quarter of 2001, healthcare expenses, as a percent of revenue for the nine months ended September 2001 were 95.5%. Additionally, the Company's contract with Rikers Island generates a lower margin than its other corrections business, as it is a lower risk contract. Selling, general and administrative expenses of $14.4 million for the nine months ended September 2001 increased $4.1 million as compared to the nine months ended September 2000. As a percent of revenue, selling, general and administrative expenses were 3.4% for the nine months ended September 2001 versus 3.8% for the same period in 2000. Exclusive of changes in accounting estimates for legal liabilities of $1.3 million, selling, general and administrative expenses as a percent of revenue were 3.1% for the nine months ended September 2001. This decrease from 3.8% to 3.1% reflects the Company's ability to more effectively leverage its selling, general and administrative expenses as a result of the growth in healthcare revenue. During the nine months ended September 2001, the Company incurred $2.6 million of expenses related to the terminated strategic initiative and severance. Additionally, the Company recorded a non-cash impairment charge of $13.2 million representing the excess net goodwill in connection with the acquisition of CPS over the fair value of the two expiring contracts. Depreciation and amortization expense for the nine months ended September 2001 was $5.7 million versus $4.0 million for the same period in 2000. The increase of $1.7 million is mainly due to the amortization of the intangible assets associated with the 2000 Acquisitions. Net interest expense of $3.9 million for the nine months ended September 2001 increased $1.1 million from the same period in 2000. The increase is related to the principal amounts incurred to finance the 2000 Acquisitions and to fund the incremental working capital needs during 2001. The income tax benefit for the nine months ended September 2001 was $10.4 million, which equates to a 37.9% effective tax rate. Preferred stock dividends of $.2 million for the nine months ended September 2001 relate to the 5% dividend rate on the $12.5 million of Series A Convertible Preferred Stock, which was converted to common stock on February 5, 2001. LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities during the quarter and nine months ended September 2001 was a net use of $1.6 million and $3.0 million, respectively compared to cash provided by operations of $4.5 million and $11.6 million for the comparable 2000 periods. This decrease is due primarily to the Company's increase in accounts receivable as well as operating losses during the second and third quarters of 2001. Subsequent to September 30, 2001, accounts receivable collections have improved decreasing days outstanding from approximately 53 days and reducing working capital needs. The Company's working capital was $(46.3) million as of September 30, 2001, due to the classification of its debt under the Credit Facility to current, as discussed in Note 6. As discussed in Note 6 to the Company's consolidated financial statements included in this Form 10-Q, the Company maintains a senior secured credit facility with Bank of America, N.A. as Administrative Agent ("Bank of America") for a syndicate of financial 9 institutions (the "Bank Group"). The Company uses borrowings pursuant to the Credit Facility for working capital purposes. The Company has borrowed the entire amount it is permitted to borrow pursuant to the Credit Facility. The borrowings are represented by cash advances and letters of credit issued to secure the Company's obligations to customers and vendors. The Credit Facility contains certain restrictive covenants that require that the Company maintain specific financial ratios. The Company and the Bank Group amended the Credit Facility on August 27, 2001, to adjust certain of the financial ratio covenants and to increase the interest rate. Pursuant to the amendment, the Company is obligated to make several scheduled reductions in availability under the Credit Facility. As of September 30, 2001, the Company had violated certain financial ratio covenants of the Credit Facility, as amended. The Company has obtained a waiver of the covenant violations from the Bank Group as part of a second amendment to the Credit Facility. The agreement (i) permanently reduced the amount the Company is permitted to borrow pursuant to the Credit Facility by requiring that the Company repay $1 million of borrowings on November 13, 2001; (ii) increased the interest rate on amounts outstanding pursuant to the Credit Facility; and (iii) truncated the expiration date of the Credit Facility from August 1, 2003, to April 1, 2003. The terms of the agreement increase the Company's interest costs, which increase has been offset, in part, by recent reductions in interest rates; reduce its borrowing availability; and decrease the amount of time before the Company is required to refinance its senior debt. Management believes that amounts available under the Credit Facility, following the reduction of borrowing availability, will be sufficient to meet the Company's foreseeable cash needs and anticipated contract renewal activity. As permitted under the Credit Facility, as amended, Bank of America has instituted a sweep arrangement whereby funds collected in the Company's lockbox account with Bank of America are applied on a daily basis against the outstanding loans under the Credit Facility. The Company's working capital requirements are funded with additional borrowings pursuant to the Credit Facility. As mentioned previously, accounts receivable collections have improved decreasing days outstanding from approximately 53 days and reducing working capital needs. The Company must request the additional borrowings; Bank of America is not obligated to advance additional funds, except to the extent outstanding borrowings have been paid down under the lockbox arrangement and the Company is otherwise in compliance with its financial covenants. There can be no assurance that Bank of America will agree to loan the Company additional funds beyond the limit of the Credit Facility. The waiver did not amend the financial covenants. If the Company is not in compliance with its current financial covenants at December 31, 2001, it will be required to seek another waiver. The Company expects to commence immediate negotiations with the Administrative Agent to complete an amendment that would revise the financial covenants long term. The Company does not know whether it will be able to negotiate an amendment with Bank of America or, if so, whether the other members of the Bank Group will approve the amendment. The Company does not know the terms on which the Bank Group will agree to any amendment. Among other things, the amendment could increase the rate of interest applicable to borrowings pursuant to the Credit Facility or could require that the Company reduce the amount available for borrowing pursuant to the Credit Agreement more rapidly than previously scheduled. As such, the Company has classified the debt under the Credit Facility to current. If the financial covenants are not amended, the Company could again be in default of its financial covenants as of December 31, 2001. Should such covenant violation occur and not be waived by Bank of America, the Company would be ineligible to borrow funds pursuant to the Credit Facility, which would have a material adverse effect on the Company's business, consolidated financial condition, results of operations, liquidity and ability to pay its debts as they become due. On February 5, 2001, the Company completed the conversion of 125,000 shares of Series A Convertible Preferred Stock, having an aggregate liquidation preference of $12.5 million into 1,322,751 shares of common stock. The Company registered the shares of common stock issued upon the conversion of the preferred stock. 10 PART II: OTHER INFORMATION ITEM 5. -- OTHER INFORMATION On August 27, 2001, the Company issued a press release announcing that the Company had completed an amendment to its credit facility and had filed a Form 8-K with reissued financial statements for the second quarter of 2001. A copy of such press release is attached hereto as Exhibit 99.1 and is incorporated by reference. On September 17, 2001, the Company issued a press release to adjust earnings guidance for the third and fourth quarters of 2001 and that activities related to certain strategic initiatives had been discontinued. A copy of such press release is attached hereto as Exhibit 99.2 and is incorporated by reference. On October 15, 2001, the Company issued a press release announcing Michael W. Taylor as Senior Vice President and Chief Financial Officer of the Company, replacing S. Walker Choppin effective November 1, 2001. A copy of such press release is attached hereto as Exhibit 99.3 and is incorporated by reference. On November 14, 2001, the Company issued a press release discussing its third quarter 2001 operating performance. A copy of such press release is attached hereto as Exhibit 99.4 and is incorporated by reference. ITEM 6. -- EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits 3.1 -- Amended and Restated Certificate of Incorporation of America Service Group Inc. (incorporated by reference to Exhibit 3.1 of the Registrant's Registration Statement on Form S-1, Registration No. 33-43306, as amended). 3.2 -- Amended and Restated By-Laws of America Service Group Inc. (incorporated by reference to Exhibit 3.2 of the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996). 4.1 -- Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant's Registration Statement on Form S-1, Registration No. 33-43306). 10.1 -- Waiver No. 1, dated July 25, 2001, to Amended and Restated Credit Agreement, dated as of August 1, 2000 (incorporated by reference to Exhibit 10.1 of the Registrant's Quarterly report on Form 10-Q for the six months ended June 30, 2001). 10.2 -- Amendment No. 1 To Amended And Restated Credit Agreement, dated August 27, 2001, by and among ASG, the subsidiaries of ASG who are parties to the Credit Agreement, the several lenders who are now or hereafter become parties to the Credit Agreement, and Bank of America, N.A., a national banking association, individually and as administrative agent for the lenders (incorporated by reference to Exhibit 10.2 of the Registrant's report on Form 8-K, Registration No _________) 10.3 -- Waiver and Second Amendment To Amended and Restated Credit Agreement dated November 13, 2001, by and among ASG, the subsidiaries of ASG who are parties to the Credit Agreement, the several lenders who are now or hereafter become parties to the Credit Agreement, and Bank of America, N.A., a national banking association, individually and as administrative agent of the lenders. 10.4 -- Contract between ASG and healthprojects, LLC dated September 17, 2001, to perform services as directed by ASG management. 10.5 -- Employment Agreement, dated October 15, 2001, with Michael W. Taylor as Senior Vice President and Chief Financial Officer of the Company. 11.1 -- Statement regarding computation of per share earnings. 11 99.1 -- Press Release dated August 27, 2001, announcing the completion of an amendment to the Credit Facility and reissued financial statements for the second quarter of 2001. 99.2 -- Press Release dated September 17, 2001, announcing earnings adjustment guidance for the third and fourth quarters of 2001 and the discontinued activities related to certain strategic initiatives. 99.3 -- Press Release dated October 15, 2001, announcing Michael W. Taylor as Senior Vice President and Chief Financial Officer of the Company, replacing S. Walker Choppin effective November 1, 2001. 99.4 -- Press Release dated November 14, 2001, announcing third quarter 2001 operating performance. (B) Reports on Form 8-K 1. On August 27, 2001, the Company filed a Form 8-K under Item 5 announcing the completion of an amendment to its credit facility and the re-issuance of its financial statements for the quarter and six months ended June 30, 2001. 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly authorized this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICA SERVICE GROUP INC. /s/ MICHAEL CATALANO ------------------------------------------- Michael Catalano Chairman, President & Chief Executive Officer /s/ MICHAEL W. TAYLOR ------------------------------------------- Michael W. Taylor Senior Vice President & Chief Financial Officer Dated: November 14, 2001 13 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------ ----------- 10.2 -- Amendment No. 1 to Amended and Restated Credit Agreement, dated August 27, 2001 10.3 -- Waiver and Second Amendment To Amended and Restated Credit Agreement dated November 13, 2001, by and among ASG, the subsidiaries of ASG who are parties to the Credit Agreement, the several lenders who are now or hereafter become parties to the Credit Agreement, and Bank of America, N.A., a national banking association, individually and as administrative agent of the lenders. 10.4 -- Contract between ASG and healthprojects, LLC dated September 17, 2001, to perform services as directed by ASG management. 10.5 -- Employment Agreement, dated October 15, 2001, with Michael W. Taylor as Senior Vice President and Chief Financial Officer of the Company. 11.1 -- Statement regarding computation of per share earnings. 99.1 -- Press Release for completion of an Amendment to the Company's Credit Facility 99.2 -- Press Release to adjust earnings guidance for the third and fourth quarters and discontinuance of certain strategic initiatives 99.3 -- Press Release announcing Executive Management changes 99.4 -- September 2001 Earnings Release
14 EX-10.2 3 g72745ex10-2.txt AMENDED AND RESTATED CREDIT AGREEMENT Exhibit 10.2 AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment"), dated August 27, 2001, is made and entered into on the terms and conditions hereinafter set forth, by and among AMERICA SERVICE GROUP INC., a Delaware corporation (the "Borrower"), the subsidiaries of the Borrower who are parties to the Credit Agreement, as hereinafter defined (the "Guarantors"), the several lenders who are now or hereafter become parties to the Credit Agreement (the "Lenders"), and BANK OF AMERICA, N.A., a national banking association ("Bank of America"), individually and as administrative agent for the Lenders and the Issuing Bank (in such capacity, the "Administrative Agent"), and as Issuing Bank. RECITALS: 1. Pursuant to an Amended and Restated Credit Agreement dated as of August 1, 2000, among the Borrower, the Guarantors, the Administrative Agent, the Lenders and the Issuing Bank (as the same heretofore may have been and/or hereafter may be amended, restated, supplemented, extended, renewed, replaced or otherwise modified from time to time, the "Credit Agreement"), the Lenders have agreed to make Loans and purchase participations in Letters of Credit issued for the account of the Borrower, and the Issuing Bank has agreed to issue such Letters of Credit, all as more specifically described in the Credit Agreement. Capitalized terms used but not otherwise defined in this Agreement have the same meanings as in the Credit Agreement. 2. The parties hereto desire to amend the Credit Agreement in certain respects, as more particularly hereinafter set forth. AGREEMENTS: NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. AMENDMENT OF SECTION 1.1. Section 1.1 of the Credit Agreement is hereby amended to insert the following new definitions in the appropriate locations according to alphabetical order, or to amend and restate existing definitions to read as indicated, as applicable: "Eligible Accounts" shall mean all accounts of the Borrower and the Guarantors in which the Administrative Agent, for the benefit of itself, the Lenders and the Issuing Bank, has been granted a first and prior perfected security interest, excluding all items that the Administrative Agent reasonably determines to be ineligible, and with such adjustments thereto as the Administrative Agent reasonably determines to be appropriate. Without limiting the foregoing, within two (2) weeks after receipt of the Field Examination Report, the Administrative Agent, with the concurrence of Requisite Lenders, may impose such eligibility limitations as it deems appropriate, in the exercise of its discretion, on the basis of its review of the Field Examination Report. "Eligible Inventory" shall mean all inventory of the Borrower and the Guarantors in which the Administrative Agent, for the benefit of itself, the Lenders and the Issuing Bank, has been granted a first and prior perfected security interest, valued at the lesser of cost or market, excluding items that are out-of-date, obsolete or otherwise unmarketable, with such adjustments thereto as the Administrative Agent reasonably determines to be appropriate. Without limiting the foregoing, within two (2) weeks after receipt of the Field Examination Report, the Administrative Agent, with the concurrence of Requisite Lenders, may impose such eligibility limitations as it deems appropriate, in the exercise of its discretion, on the basis of its review of the Field Examination Report. "Facilities Credit Base" shall mean, as of any date of determination occurring during each of the periods indicated below, an aggregate amount equal to the sum of the respective percentages of Eligible Accounts and Eligible Inventory specified as being applicable during such Fiscal Quarter:
Period Eligible Accounts Eligible Inventory ---------------------------------- ----------------- ------------------ Through December 31, 2001 100% 75% January 1, 2002 - January 31, 2002 100% 50% February 1, 2002 - March 31, 2002 95% 50% April 1, 2002 - June 30, 2002 90% 50% July 1, 2002 and thereafter 80% 50%
Notwithstanding the foregoing, after receipt of the Field Examination Report, the Administrative Agent, with the concurrence of Requisite Lenders, in its discretion may reduce the specified percentages of Eligible Accounts to a percentage not less than 80%. "Field Examination Report" shall have the meaning assigned to such term in Section 8.22. "IBNR Report" shall mean a report of the "incurred but not reported" expense reserves of the Borrower and the Guarantors, setting forth in reasonable detail the manner of calculation. "Permitted Acquisition" - Not applicable. Any and all provisions of this Agreement involving the application of such term shall be disregarded as to such term and shall be construed as if such term and language relating specifically thereto had not been included. "Strategic Transaction Expenses" shall mean expenses in an aggregate amount not to exceed $500,000 reasonably incurred by the Borrower during the Fiscal Quarter -2- ending September 30, 2001 in connection with strategic corporate initiatives under consideration by the Borrower. 2. AMENDMENT OF SECTION 2.1.1. Section 2.1.1 of the Credit Agreement is hereby amended by adding the following new subsection (d): (d) Notwithstanding the foregoing or any other provision of this Agreement that may be to the contrary, in no event shall the aggregate amount of the Loans and Letter of Credit Liabilities outstanding on any date exceed an amount equal to the amount of the Facilities Credit Base on such date. The Borrower shall prepay Loans to the extent necessary so that the aggregate amount of the Loans and Letter of Credit Liabilities outstanding on any date will not exceed an amount equal to the amount of the Facilities Credit Base on such date, and any prepayment pursuant to this sentence shall be applied first to Swing Line Loans until the same have been fully repaid, then to Base Rate Loans until the same have been fully repaid, and then to LIBOR Loans. 3. ADDITION OF NEW SECTION 2.1.3. Article 2 of the Credit Agreement is hereby amended by adding the following new Section 2.1.3: 2.1.3. Mandatory Reductions of Commitments. (a) On the forty-fifth (45th) day following the end of each Fiscal Quarter ending on each of the dates specified below, the Commitments shall be permanently reduced by an amount equal to seventy-five percent (75%) of the amount by which EBITDA for such Fiscal Quarter exceeds the EBITDA amount specified below for such Fiscal Quarter:
Fiscal Quarter EBITDA ------------------ ----------- June 30, 2002 $ 3,700,000 September 30, 2002 4,300,000 December 31, 2002 4,200,000 March 31, 2003 3,600,000
-3- (b) The Commitments also shall be permanently reduced on each date set forth below by the corresponding amount specified for such date:
Reduction Reduction Date Amount ------------------ ------------ November 1, 2001 $ 1,000,000 December 1, 2001 1,500,000 January 1, 2002 2,500,000 February 1, 2002 1,000,000 March 1, 2002 1,500,000 April 1, 2002 2,500,000 July 1, 2002 5,000,000 January 1, 2003 5,000,000 Commitment Period Expiration Date Remaining Commitments
provided, however, that on the effective date of any voluntary reduction in the Commitments pursuant to Section 2.1.2, the amount of the scheduled reduction on the first scheduled reduction date following the date of such voluntary reduction shall be reduced by the amount of such voluntary reduction and to the extent that the amount of such voluntary reduction exceeds the amount of such scheduled reduction, the excess shall be applied to reduce the amount of the scheduled reduction on the next succeeding scheduled reduction date and each scheduled reduction date thereafter until applied in full. Except as set forth in the proviso of the preceding sentence, the reduction dates set forth above shall not be extended, nor shall the scheduled amount of any reduction set forth above be reduced, without the written consent of the Administrative Agent and all of the Lenders. -4- 4. AMENDMENT OF SECTION 2.13. Section 2.13 of the Credit Agreement is hereby amended to read as follows: 2.13 Interest and Fees Margins. For purposes of interest and fee computations hereunder involving the Applicable Base Rate Margin, the Applicable LIBOR Margin, the Applicable Letter of Credit Fee Percentage and the Applicable Commitment Fee Percentage, such margins and percentages shall be determined as follows:
Applicable Applicable Applicable Applicable Letter of Commitment LIBOR Base Rate Credit Fee Fee Tier Margin Margin Percentage Percentage ---- ---------- ---------- ---------- ---------- 1 1.50% 0.00% 1.50% 0.300% 2 1.75% 0.25% 1.75% 0.375% 3 2.00% 0.50% 2.00% 0.375% 4 2.25% 0.75% 2.25% 0.500% 5 2.75% 1.25% 2.75% 0.500% 6 3.25% 1.75% 3.25% 0.500% 7 3.75% 2.25% 3.75% 0.625%
Except as expressly hereinafter provided, the applicable tier at any time shall be determined with reference to the Borrower's Leverage Ratio at such time, as follows:
Tier Leverage Ratio ---- ----------------------------------------------------------------- 1 Less than 1.00 to 1.00 2 Equal to or greater than 1.00 to 1.00 but less than 1.50 to 1.00 3 Equal to or greater than 1.50 to 1.00 but less than 2.00 to 1.00 4 Equal to or greater than 2.00 to 1.00 but less than 2.50 to 1.00 5 Equal to or greater than 2.50 to 1.00 but less than 2.75 to 1.00 6 Equal to or greater than 2.75 to 1.00 but less than 3.00 to 1.00 7 Equal to or greater than 3.00 to 1.00
Any adjustment in the margins set forth above shall take effect on the first Pricing Tier Determination Date following the Fiscal Quarter as to which such ratio was calculated. -5- Notwithstanding the foregoing, from the date hereof to but not including the first Pricing Tier Determination Date after December 31, 2001, the following margins shall be applicable:
Applicable Applicable Applicable Applicable Letter of Commitment LIBOR Base Rate Credit Fee Fee Margin Margin Percentage Percentage ---------- ---------- ---------- ---------- 3.50% 2.00% 3.50% 0.500%
5. AMENDMENT OF SECTION 8.1.3. Section 8.1.3 of the Credit Agreement is hereby amended to read as follows: 8.1.3 Monthly Financial Statements and Reports. Furnish to the Administrative Agent and each Lender (a) as soon as available and in any event within thirty (30) days after the end of each month (other than the last month in a Fiscal Quarter, in which case the period shall be forty-five (45) days), an unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such month, the related consolidated statement of income of the Borrower and its Subsidiaries for such month and a schedule of Service Contract operating margins for such month, certified by a Responsible Officer of the Borrower, together with a certificate of a Responsible Officer of the Borrower stating that no Default has occurred and is continuing or, if in the opinion of such officer, a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Borrower proposes to take with respect thereto, and (b) within thirty (30) days after the end of each month, a certificate of a Responsible Officer of the Borrower calculating the Facilities Credit Base as of the end of such month. 6. ADDITION OF NEW SECTION 8.1.4. Section 8.1 of the Credit Agreement is hereby amended by adding the following new Section 8.1.4 and renumbering existing Section 8.1.4 as 8.1.5: 8.1.4. IBNR Reports. Furnish to the Administrative Agent and each Lender (a) as soon as available and in any event within thirty (30) days after the end of each month, an IBNR Report as of the end of such month, certified by a Responsible Officer of the Borrower, and (b) as soon as practicable and in any event within forty-five (45) days after the end of each Fiscal Quarter of the Borrower ending on or before September 30, 2002, an IBNR Report as of the end of such Fiscal Quarter, prepared by independent public accountants or another third-party consulting professional acceptable to the Administrative Agent, certified by a Responsible Officer of the Borrower. 7. ADDITION OF NEW SECTIONS 8.22, 8.23 AND 8.24. Article 8 of the Credit Agreement is hereby amended by adding the following new Sections 8.22, 8.23 and 8.24: 8.22. Field Examination and Report. Permit a field examination of the accounts of the Borrower and the Guarantors to be made by the Administrative Agent or its designee, at the expense of the Borrower and the Guarantors, such that a report with -6- respect to such accounts (the "Field Examination Report") can be prepared and delivered to the Lenders on or before September 28, 2001. 8.23 IBNR Reserves. Until the end of the Fiscal Year of the Borrower and the Guarantors ending December 31, 2002, maintain their "incurred but not reported" expense reserves within the ranges recommended by the third-party IBNR Reports described in clause (b) of Section 8.1.4. 8.24. Deposits and Collections. Maintain, and cause their respective Subsidiaries to maintain, all of their deposit accounts with the Administrative Agent, and in connection therewith the Borrower and the Guarantors agree as follows: (a) The Borrower and the Guarantors will instruct all of their respective account debtors to remit all sums owing to the Borrower or a Guarantor to a specific "lockbox" account maintained with the Administrative Agent, and will take all actions necessary to assure that not less than ninety percent (90%) of the aggregate dollar amount of all remittances to the Borrower and the Guarantors from their account debtors are remitted directly to the lockbox account. (b) The Borrower and the Guarantors hereby grant to the Administrative Agent, for the benefit of itself, the Lenders and the Issuing Bank, a security interest in all deposit accounts now or hereafter maintained with the Administrative Agent, all funds now or hereafter on deposit therein and all proceeds thereof, as security for their respective Obligations. Upon the occurrence of an Event of Default, the Administrative Agent may prevent further withdrawals from such deposit accounts by the Borrower and the Guarantors and shall have all rights and remedies of a secured party with respect thereto. 8. AMENDMENT OF SECTION 10.1.1. Section 10.1.1 of the Credit Agreement is hereby amended to read as follows: 10.1.1. Minimum Net Worth. Permit Net Worth as of the end of any Fiscal Quarter ending on or after September 30, 2001 to be less than the sum of (a) ninety percent (90%) of Net Worth as of the end of the Fiscal Quarter ended June 30, 2001, plus (b) ninety percent (90%) of cumulative Consolidated Net Income for each Fiscal Quarter beginning with the Fiscal Quarter ending September 30, 2001, with no decrease for any negative Consolidated Net Income during any Fiscal Quarter. It is understood and agreed that solely for purposes of calculating compliance with this covenant as of any date subsequent to September 30, 2001, Strategic Transaction Expenses shall be added to Net Worth to the extent that such expenses were deducted in calculating Consolidated Net Income for the Fiscal Quarter ending September 30, 2001. -7- 9. AMENDMENT OF SECTION 10.1.2. Section 10.1.2 of the Credit Agreement is hereby amended to read as follows: 10.1.2. Fixed Charge Coverage Ratio. Permit the Fixed Charge Coverage Ratio for each of the Fiscal Quarters ending on the dates indicated below to exceed the Fixed Charge Coverage Ratio specified for such Fiscal Quarter:
Fiscal Quarter Fixed Charge Coverage Ratio -------------------------- --------------------------- September 30, 2001 1.00 to 1.00 December 31, 2001 1.05 to 1.00 March 31, 2002 1.05 to 1.00 June 30, 2002 1.05 to 1.00 September 30, 2002 1.05 to 1.00 December 31, 2002 and thereafter 1.25 to 1.00
It is understood and agreed that (a) solely for purposes of calculating the Fixed Charge Coverage Ratio for the Fiscal Quarter ending September 30, 2001, the imputed principal amortization component shall be five percent (5%) of the aggregate principal balance of the Loans and Letter of Credit Liabilities outstanding on September 30, 2001 instead of ten percent (10%) of such aggregate principal balance as currently specified in the definition of "Fixed Charge Coverage Ratio", and (b) solely for purposes of calculating the Fixed Charge Coverage Ratio for the Fiscal Quarters ending September 30, 2001 and December 31, 2001, Strategic Transaction Expenses shall be added to EBITDA to the extent that such expenses were deducted in calculating Consolidated Net Income for the Fiscal Quarter ending September 30, 2001. 10. AMENDMENT OF SECTION 10.1.3. Section 10.1.3 of the Credit Agreement is hereby amended to read as follows: 10.1.3. Leverage Ratio. Permit the Leverage Ratio for each of the Fiscal Quarters ending on the dates set forth below to exceed the Leverage Ratio specified for such Fiscal Quarter:
Fiscal Quarter Leverage Ratio -------------------------- --------------------------- September 30, 2001 3.25 to 1.00 December 31, 2001 3.15 to 1.00 March 31, 2002 3.15 to 1.00 June 30, 2002 3.15 to 1.00 September 30, 2002 3.00 to 1.00 December 31, 2002 and thereafter 2.75 to 1.00
It is understood and agreed that (a) solely for purposes of calculating the Leverage Ratio for the Fiscal Quarter ending September 30, 2001, EBITDA shall be calculated by multiplying EBITDA for such Fiscal Quarter by four (4) instead of multiplying EBITDA -8- for the six (6) month period ending on the last day of such Fiscal Quarter by two (2), and (b) solely for purposes of calculating the Leverage Ratio for the Fiscal Quarters ending September 30, 2001 and December 31, 2001, Strategic Transaction Expenses shall be added to EBITDA to the extent that such expenses were deducted in calculating Consolidated Net Income for the Fiscal Quarter ending September 30, 2001. 11. AMENDMENT OF SECTION 10.1.4. Section 10.1.4 of the Credit Agreement is hereby amended to read as follows: 10.1.4. Capital Expenditures. Make Ordinary Capital Expenditures in an aggregate amount in excess of $2,000,000 in any one Fiscal Year, or make any Reimbursable Capital Expenditure at any time if the aggregate unreimbursed amount outstanding in respect of Reimbursable Capital Expenditures would exceed the Reimbursable Capital Expenditure Limit. 12. ADDITION OF NEW SECTION 10.1.5. Article 10 of the Credit Agreement is hereby amended by adding the following new Section 10.1.5: 10.1.5. EBITDA. Permit EBITDA for each of the Fiscal Quarters ending on each of the dates set forth below to be less than the EBITDA specified for such Fiscal Quarter:
Fiscal Quarter EBITDA ------------------ ----------- September 30, 2001 $ 3,800,000 December 31, 2001 3,700,000 March 31, 2002 3,300,000 June 30, 2002 3,100,000 September 30, 2002 3,600,000
It is understood and agreed that solely for purposes of calculating compliance with this covenant for the Fiscal Quarter ending September 30, 2001, Strategic Transaction Expenses shall be added to EBITDA to the extent that such expenses were deducted in calculating Consolidated Net Income for such Fiscal Quarter. 13. FEES. In consideration of the agreements of the Lenders set forth herein, the Borrower agrees to pay to each Lender a fee in an amount equal to 0.25% of such Lender's Commitment. Such fees shall be due and payable immediately upon the effectiveness of this Amendment as set forth in Section 14 of this Amendment. 14. EFFECTIVENESS. This Amendment shall be effective only upon execution and delivery by the Borrower, the Guarantors, the Administrative Agent, the Issuing Bank and Requisite Lenders. 15. REPRESENTATIONS AND WARRANTIES OF THE BORROWER AND THE GUARANTORS. As an inducement to the Administrative Agent, the Issuing Bank and the Lenders to enter into this -9- Amendment, the Borrower and the Guarantors hereby represent and warrant to the Administrative Agent, the Issuing Bank and the Lenders that, on and as of the date hereof: (a) the representations and warranties contained in the Credit Agreement and the other Loan Documents are true and correct, except for (1) representations and warranties that expressly relate to an earlier date, which remain true and correct as of said earlier date, and (2) representations and warranties that have become untrue or incorrect solely because of changes permitted by the terms of the Credit Agreement and the other Loan Documents, and (b) no Default or Event of Default other than the Specified Defaults has occurred and is continuing. 16. EFFECT OF AMENDMENT; CONTINUING EFFECTIVENESS OF CREDIT AGREEMENT AND LOAN DOCUMENTS. (a) Neither this Amendment nor any other indulgences that may have been granted to the Borrower or any of the Guarantors by the Administrative Agent, the Issuing Bank or any Lender shall constitute a course of dealing or otherwise obligate the Administrative Agent, the Issuing Bank or any Lender to modify, expand or extend the agreements contained herein, to agree to any other amendments to the Credit Agreement or to grant any consent to, waiver of or indulgence with respect to any other noncompliance with any provision of the Loan Documents. (b) This Amendment shall constitute a Loan Document for all purposes of the Credit Agreement and the other Loan Documents. Any noncompliance by the Borrower or any Guarantor with any of the covenants, terms, conditions or provisions of this Agreement shall constitute an Event of Default. Except to the extent amended hereby, the Credit Agreement, the other Loan Documents and all terms, conditions and provisions thereof shall continue in full force and effect in all respects. 17. RELEASE AND WAIVER. The Borrower and the Guarantors hereby stipulate, acknowledge and agree that they have no claims or causes of action of any kind whatsoever against the Lenders, the Administrative Agent or the Issuing Bank. The Borrower and the Guarantors hereby release the Lenders, the Administrative Agent or the Issuing Bank from any and all claims, causes of action, demands and liabilities of any kind whatsoever, whether direct or indirect, fixed or contingent, liquidated or unliquidated, disputed or undisputed, known or unknown, that the Borrower or the Guarantors may now or hereafter have relating in any way to any event, circumstance, action or failure to act on or before the date of this Amendment. The release by the Borrower and the Guarantors herein, together with the other terms and provisions of this Amendment, are entered into by Borrower and Guarantors advisedly and without compulsion, coercion or duress, the Borrower and Guarantors having determined that this Amendment and all of its terms, conditions and provisions are in the economic best interests of the Borrower and the Guarantors. The Borrower and the Guarantors represent that they are entering into this Amendment freely and with the advice of counsel as to their legal alternatives. -10- 18. COUNTERPARTS. This Amendment may be executed in multiple counterparts or copies, each of which shall be deemed an original hereof for all purposes. One or more counterparts or copies of this Agreement may be executed by one or more of the parties hereto, and some different counterparts or copies executed by one or more of the other parties. Each counterpart or copy hereof executed by any party hereto shall be binding upon the party executing same even though other parties may execute one or more different counterparts or copies, and all counterparts or copies hereof so executed shall constitute but one and the same agreement. Each party hereto, by execution of one or more counterparts or copies hereof, expressly authorizes and directs any other party hereto to detach the signature pages and any corresponding acknowledgment, attestation, witness or similar pages relating thereto from any such counterpart or copy hereof executed by the authorizing party and affix same to one or more other identical counterparts or copies hereof so that upon execution of multiple counterparts or copies hereof by all parties hereto, there shall be one or more counterparts or copies hereof to which is(are) attached signature pages containing signatures of all parties hereto and any corresponding acknowledgment, attestation, witness or similar pages relating thereto. 19. MISCELLANEOUS. (a) This Amendment shall be governed by, construed and enforced in accordance with the laws of the State of Tennessee, without reference to the conflicts or choice of law principles thereof. (b) The headings in this Amendment and the usage herein of defined terms are for convenience of reference only, and shall not be construed as amplifying, limiting or otherwise affecting the substantive provisions hereof. (c) Any reference herein to any instrument, document or agreement, by whatever terminology used, shall be deemed to include any and all amendments, modifications, supplements, extensions, renewals, substitutions and/or replacements thereof as the context may require. (d) When used herein, (1) the singular shall include the plural, and vice versa, and the use of the masculine, feminine or neuter gender shall include all other genders, as appropriate, (2) "include", "includes" and "including" shall be deemed to be followed by "without limitation" regardless of whether such words or words of like import in fact follow same, and (3) unless the context clearly indicates otherwise, the disjunctive "or" shall include the conjunctive "and". [SIGNATURES BEGIN NEXT PAGE] -11- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above. BORROWER: AMERICA SERVICE GROUP INC. a Delaware corporation By: ____________________________________________ S. Walker Choppin, Senior Vice President and Chief Financial Officer GUARANTORS: PRISON HEALTH SERVICES, INC. a Delaware corporation By: ____________________________________________ S. Walker Choppin, Senior Vice President and Chief Financial Officer PRISON HEALTH SERVICES OF INDIANA, L.L.C. an Indiana limited liability company BY: PRISON HEALTH SERVICES, INC. a Delaware corporation By: ______________________________________ S. Walker Choppin, Senior Vice President and Chief Financial Officer Being the duly authorized General Manager thereof. -12- EMSA GOVERNMENT SERVICES, INC. a Florida corporation By: ____________________________________________ S. Walker Choppin, Senior Vice President and Chief Financial Officer EMSA CORRECTIONAL CARE, INC. a Florida corporation By: ____________________________________________ S. Walker Choppin, Senior Vice President and Chief Financial Officer EMSA MILITARY SERVICES, INC. a Florida corporation By: ____________________________________________ S. Walker Choppin, Senior Vice President and Chief Financial Officer EMSA LIMITED PARTNERSHIP a Florida limited partnership BY: EMSA CORRECTIONAL CARE, INC. a Florida corporation By: ______________________________________ S. Walker Choppin, Senior Vice President and Chief Financial Officer Being the duly authorized General Partner thereof. -13- CORRECTIONAL HEALTH SERVICES, INC. a New Jersey corporation By: ____________________________________________ Jean L. Byassee, Senior Vice President SECURE PHARMACY PLUS, INC. By: ____________________________________________ S. Walker Choppin, Senior Vice President and Chief Financial Officer [SIGNATURES CONTINUED NEXT PAGE] -14- ADMINISTRATIVE AGENT, LENDER AND ISSUING BANK: BANK OF AMERICA, N.A. By: ____________________________________________ Title: _____________________________________ LENDERS: AMSOUTH BANK, as a Lender and as a Co-Agent By: ____________________________________________ Title: _____________________________________ HARRIS TRUST AND SAVINGS BANK as a Lender and as a Co-Agent By: ____________________________________________ Title: _____________________________________ COMERICA BANK as a Lender By: ____________________________________________ Title: _____________________________________ -15- EX-10.3 4 g72745ex10-3.txt WAIVER AND AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.3 WAIVER AND SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT This WAIVER AND SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement") dated as of November 13, 2001 by and among AMERICA SERVICE GROUP INC., a Delaware corporation (the "Borrower"), the subsidiaries of the Borrower who are parties to the Credit Agreement ("Guarantors"), and BANK OF AMERICA, N.A., a national banking association as administrative agent and issuing bank ("Agent") for itself, AMSOUTH BANK, HARRIS TRUST AND SAVINGS BANK, AND COMERICA BANK (collectively the "Lenders") (as defined in the Credit Agreement described below). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Borrower, the Lenders, and the Agent are parties to a certain Amended and Restated Credit Agreement dated as of August 1, 2000 as amended by that Amendment No. 1 dated August 28, 2001 (as amended, supplemented or otherwise modified from time to time, the "Credit Agreement"; capitalized terms used herein without definition shall have the meaning ascribed to such terms in the Credit Agreement); WHEREAS, the Borrower is in default under the terms of the Credit Agreement; and WHEREAS, pursuant to the terms and conditions contained herein the Agent, on behalf of the Lenders, is willing to waive that default; NOW THEREFORE, for and in consideration of the mutual covenants contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows: SECTION 1. Waiver. The Borrower acknowledges that it failed to comply with (i) the Fixed Charge Coverage Ratio, (ii) the Leverage Ratio, and (iii) EBITDA covenant for the Fiscal Quarter ending September 30, 2001 ("Third Fiscal Quarter"), all of which are required by Article 10.1 of the Credit Agreement. As requested by the Borrower, the Lenders hereby waive any Default or Event of Default caused by such failure of the Borrower to comply with Section 10.1.2, 10.1.3 and 10.1.5 for the Third Fiscal Quarter. The waivers provided herein shall extend to and cover only the matters expressly described herein, and shall be effective and limited to the time period specifically provided herein, and shall not act as or constitute waivers of or consents to any other Defaults or Events of Default or to any other transaction, act or omission, whether related or unrelated to the foregoing. Further, said waivers shall not extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly waived hereby. SECTION 2. Amendments to Credit Agreement. Effective as of the Effective Date (as herein defined), the Credit Agreement is hereby amended as follows: (a) Section 2.1.3(b) is hereby amended to provide for an additional payment reduction of $1,000,000.00, payable on the Effective Date. Such payment shall be a permanent reduction of the Commitments. (b) The definition of "Maturity Date" is amended to provide that Maturity Date shall mean April 1, 2003, or such earlier date to which the maturity of the Obligations may be accelerated pursuant to the terms of the Agreement. (c) Notwithstanding any provision to the contrary in the Credit Agreement as of the Effective Date, the Applicable Base Rate Margin shall be 3.00% and the Applicable Letter of Credit Fee Percentage shall be 4.50%. (d) Section 9.5 - Restricted Payments shall be amended to delete all exceptions except subsection 9.5(a) to the restrictions on payments. Borrower and Guarantors shall not declare, pay or make, or permit any of their respective Subsidiaries to declare, pay or make any Restricted Payments. (e) LIBOR pricing and borrowing shall not be available to Borrower after Effective Date. All Loans shall accrue interest prior to an Event of Default at the Base Rate plus the applicable Base Rate Margin. SECTION 3. Additional Permanent Reduction. In addition to the mandatory reductions of commitments required in Section 2.1.3, the Borrower additionally agrees to pay 100% of any proceeds received on account of any tax refund to Agent immediately upon receipt. The tax refund proceeds shall be applied as a permanent reduction to the Commitments. Borrower expects to receive a tax refund during the First Fiscal Quarter of 2002. SECTION 4. Full Dominion. The following provision shall be added as a new provision 3.7 - Full Dominion: (a) Borrower and Guarantors will, at the Agent's direction, take such action as the Agent, in its exclusive, reasonable judgment may deem necessary to enforce collection or performance of the accounts which are Collateral (the "Accounts"), and Borrower shall by November 30, 2001 direct and arrange (and cause each of their respective Subsidiaries to direct and arrange), at the sole cost and expense of the Borrower, for remittances on all Accounts to be made (i) directly to one or more lockboxes designated by the Agent under the terms of a lockbox agreement or (ii) in such other manner as the Agent may direct. (b) All remittances on all Accounts processed in accordance with this section and received by the Agent shall be promptly deposited in one or more Controlled Disbursement Accounts as defined below designated by the Agent, subject to withdrawal by the Agent only, as provided below. In connection therewith, the Agent is irrevocably authorized to cause all remittances on all Accounts and any net proceeds or other collections on any other Collateral received by the Agent from whatever means, whether pursuant to a lockbox agreement or 2 otherwise, to be promptly deposited in such Controlled Disbursement Account(s) designated by the Agent. All amounts and proceeds (including instruments) received by any Borrower or any Guarantor in respect of the Accounts shall be received in trust for the benefit of the Agent for itself and the benefit of the Lenders, shall be segregated from other funds of Borrower (or such Guarantor, if applicable) and shall be forthwith paid over to the Agent for itself and the benefit of the Lenders in the same form as so received (with any necessary endorsement) to be deposited in the lockbox account, held as cash collateral and applied as specified in the Credit Agreement. (c) All collections or proceeds of Accounts and other Collateral received by the Agent from the lockbox agreement shall be applied automatically by the Agent to reduce the outstanding balances of the Loans (first to cost and expenses, then to interest accrued and due, with the balance to principal), subject to the continued accrual of interest on the Loans to which such remittances and payments are applied for one (1) Business Day (or for two (2) Business Days in the case of remittances and payments received after _________ p.m., Charlotte, North Carolina time) and in any event subject to final collection in cash of the item deposited. (d) For purposes of this section, Controlled Disbursement Account shall mean any controlled disbursement account or any other accounts designated by Agent, subject to withdrawal by Agent only, maintained by Borrower or Guarantors with the Agent or another bank in connection with, and linked to, a lockbox account. (e) Borrower and Guarantors shall disclose to Agent on or before November 16, 2001, the name, the location and account number of all depository accounts which are not with Agent. Borrower and Guarantors agree to execute such further documentation as Agent may reasonably require to implement the provisions of this section. SECTION 5. Effective Date. This Agreement shall be deemed effective (the "Effective Date") when this Amendment shall have been executed by Borrower and the Lenders and delivered to the Agent. SECTION 6. Additional Financial Reporting. Borrowers and Guarantors agree to cooperate with the Agent and its professionals to provide such additional information and report as Agent may request regarding their financial condition and the status of the Collateral. SECTION 7. Representations and Warranties of Borrower. Borrower, without limiting the representations and warranties provided in the Credit Agreement, represents and warrants to the Lenders and the Agent as follows: (a) The execution, delivery and performance by Borrower of this Agreement is within Borrower's corporate powers, have been duly authorized by all necessary corporate action (including any necessary shareholder action) and do not and will not (i) violate any provision of any law, rule or regulation, any judgment, order or ruling of any court or governmental agency, the articles of incorporation or by-laws of Borrower or any indenture, agreement or other instrument to which Borrower is a party or by which Borrower or any of its properties is bound 3 or (ii) be in conflict with, result in a breach of, or constitute with notice or lapse of time or both a default under any such indenture, agreement or other instrument. (b) This Agreement constitutes the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms. (c) No Default or Event of Default, which has not been waived by this Agreement, has occurred and is continuing as of the Effective Date. SECTION 8. Survival. Each of the foregoing representations and warranties and each of the representations and warranties made in the Credit Agreement shall be made at and as of the Effective Date. Each of the foregoing representations and warranties shall constitute a representation and warranty of Borrower under the Credit Agreement, and it shall be an Event of Default if any such representation and warranty shall prove to have been incorrect or false in any material respect at the time when made. Each of the representations and warranties made under the Credit Agreement (including those made herein) shall survive and not be waived by the execution and delivery of this Amendment or any investigation by the Lenders or the Agent. SECTION 9. No Waiver, Etc. Except as otherwise provided herein, Borrower hereby agrees that nothing herein shall constitute a waiver by the Lenders of any Default or Event of Default, whether known or unknown, which may exist under the Credit Agreement. Borrower hereby further agrees that no action, inaction or agreement by the Lenders, including without limitation, any indulgence, waiver, consent or agreement altering the provisions of the Credit Agreement which may have occurred with respect to the non-payment of any obligation during the terms of the Credit Agreement or any portion thereof, or any other matter relating to the Credit Agreement, shall require or imply any future indulgence, waiver, or agreement by the Lenders. SECTION 10. Release and Waiver. The Borrower and the Guarantors hereby stipulate, acknowledge and agree that they have no claims or causes of action of any kind whatsoever against the Lenders, the Administrative Agent or the Issuing Bank. The Borrower and the Guarantors hereby release the Lenders, the Administrative Agent and the Issuing Bank from any and all claims, causes of action, demands and liabilities of any kind whatsoever, whether direct or indirect, fixed or contingent, liquidated or unliquidated, disputed or undisputed, known or unknown, that the Borrower or the Guarantors may now or hereafter have relating in any way to any event, circumstance, action or failure to act on or before the date of this Amendment. The release by the Borrower and the Guarantors herein, together with the other terms and provisions of this Amendment, are entered into by Borrower and Guarantors advisedly and without compulsion, coercion or duress, the Borrower and Guarantors having determined that this Amendment and all its terms, conditions and provisions are in the economic best interests of the Borrower and Guarantors. The Borrower and Guarantors represent that they are entering into this Amendment freely and with the advice of counsel as to their legal alternatives. 4 SECTION 11. Affirmation of Covenants. Borrower hereby affirms and restates as of the date hereof all covenants set forth in the Credit Agreement and the other Loan Documents shall remain in full force and effect, and the parties hereto do expressly ratify and confirm the Credit Agreement as amended herein. All future references to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby. SECTION 12. Ratification of Credit Agreement. Except as expressly amended herein, all terms, covenants and conditions of the Credit Agreement and the other Loan Documents shall remain in full force and effect, and the parties hereto do expressly ratify and confirm the Credit Agreement as amended herein. All future references to the Credit Agreement shall be deemed to refer to the Credit Agreement as amended hereby. SECTION 13. Binding Nature. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, successors, successors-in-titles, and assigns. SECTION 14. Waiver Fee. Borrower agrees to pay to Agent on behalf of Lenders a fee of $65,000 simultaneously with the execution of this Agreement. SECTION 15. Costs, Expenses and Taxes. Borrower agrees to pay within five (5) Business Days of the date of the Agent's demand all reasonable costs and expenses of the Agent in connection with the preparation, execution and delivery of this Agreement and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of professionals for the Agent with respect thereto and with respect to advising the Agent as to its rights and responsibilities hereunder and thereunder. In addition, Borrower shall pay any and all stamp and other taxes payable or determined to be payable in connection with the execution and delivery of this Agreement and the other instruments and documents to be delivered hereunder, and agrees to save the Agent and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes. SECTION 16. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Tennessee. SECTION 17. Entire Understanding. This Agreement sets forth the entire understanding of the parties with respect to the matters set forth herein, and shall supercede any prior negotiations or agreements, whether written or oral, with respect thereto. SECTION 18. Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts and may be delivered by telecopier. Each counterpart so executed and delivered shall be deemed an original and all of which taken together shall constitute but one and the same instrument. 5 IN WITNESS WHEREOF, the parties have executed this Waiver and Second Amendment to the Amended and Restated Credit Agreement through their authorized officers as of the date first written above. BORROWER: AMERICA SERVICE GROUP INC. By:________________________________ Name: Title: GUARANTORS: PRISON HEALTH SERVICES INC., A DELAWARE CORPORATION By:________________________________ Name: Title: PRISON HEALTH SERVICES OF INDIANA, LLC, AN INDIANA LIMITED LIABILITY COMPANY By:________________________________ Prison Health Services Inc., a Delaware Corporation being the duly authorized General Manager thereof EMSA GOVERNMENT SERVICES INC., A FLORIDA CORPORATION By:________________________________ Name: Title: 6 EMSA CORRECTIONAL CARE, INC., A FLORIDA CORPORATION By:________________________________ Name: Title: EMSA MILITARY SERVICES, INC., A FLORIDA CORPORATION By:________________________________ Name: Title: EMSA LIMITED PARTNERSHIP, A FLORIDA CORPORATION By:________________________________ EMSA Correctional Care, Inc., a Florida Corporation being the duly authorized General Partner thereof CORRECTIONAL HEALTH SERVICES, INC., A NEW JERSEY CORPORATION By:________________________________ Name: Title: [SIGNATURE PAGE TO WAIVER AND SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT] 7 BANK OF AMERICA, N.A., AS A LENDER AND AS AGENT By:________________________________ Name: Title: [SIGNATURE PAGE TO WAIVER AND SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT] 8 HARRIS BANK AND TRUST COMPANY, AS A LENDER AND CO-AGENT By:________________________________ Name: Title: [SIGNATURE PAGE TO WAIVER AND SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT] 9 COMERICA BANK, AS A LENDER By:________________________________ Name: Title: [SIGNATURE PAGE TO WAIVER AND SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT] 10 AMSOUTH BANK, AS LENDER AND CO-AGENT By:________________________________ Name: Title: [SIGNATURE PAGE TO WAIVER AND SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT] 11 EX-10.4 5 g72745ex10-4.txt CONTRACT BETWEEN ASG AND HEALTHPROJECTS, LLC Exhibit 10.4 HEALTHPROJECTS, LLC AMERICA SERVICE GROUP, INC. SERVICES AGREEMENT This Agreement is entered into by and between America Service Group, Inc. ("ASG"), and healthprojects, LLC ("healthprojects"), this 17th day of September, 2001 ("Effective Date"). In consideration of the mutual promises contained herein, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1: SERVICES; PAYMENT 1.1 Services a) ASG agrees to retain healthprojects to perform the tasks, projects and activities (the "Services") as directed by ASG management and until such time as ASG management and healthprojects agree is necessary. b) A standard list of healthprojects services is included and entitled Attachment A ("Description of Services and General Terms"). The specific terms and conditions associated with the engagement will be delineated in the applicable Attachment A. c) In no event shall healthprojects be required under this Agreement or any Attachment A to provide ASG with any proprietary or third-party software products, information products, or equipment. Any agreement regarding these items will be separate and independent of the terms and conditions herein. 1.2 Services for Others healthprojects and its members shall be free to represent or perform services for other persons and companies during and after the term of this Agreement, including consulting or other services for companies whose businesses or proposed businesses are or might become competitive with the business of ASG and/or companies or persons with existing or potential business relationships with ASG. 1.3 Payment a) ASG shall pay healthprojects for the Services rendered under this Agreement and related expenses in accordance with the applicable Attachment A. In addition, ASG shall pay for additional services as mutually agreed in writing by the parties. Such related expenses shall include all travel, food, and lodging expenses incurred by healthprojects while performing the Services. Such expenses shall be presented to ASG monthly along with healthprojects' other charges and shall be paid as provided below. b) All payments are net 15 days, unless otherwise specified in the applicable Attachment A, with penalties for late payment assessed after 30 days as follows: 1.5% per month. In addition, ASG agrees to reimburse healthprojects for all reasonable costs of collections, including attorneys' fees. c) ASG shall be responsible for any and all applicable taxes. however designated, incurred as a result of or otherwise in connection with this Agreement or the Services. including but not limited to state and local privilege, excise, sales, and use taxes and any taxes or Page 1 HEALTHPROJECTS [LETTERHEAD] HEALTHPROJECTS, LLC AMERICA SERVICE GROUP, INC. SERVICES AGREEMENT amounts in lieu thereof paid or payable by healthprojects, but excluding taxes based upon the net income of healthprojects. 1.4 Independent Contractor In making and performing this Agreement, the parties act and shall act at all times as independent contractors, and at no time shall either party make any commitments or incur any charges or expenses in the name of the other party. healthprojects shall be responsible for all compensation, fees and taxes applicable to its employees and subcontractors. Nothing herein shall be deemed or construed to create a joint venture, partnership or agency relationship between the parties for any purpose. This Agreement does not create an employer-employee relationship between ASG and any of healthprojects' employees. healthprojects will retain sole and absolute discretion and judgment in the manner and means of carrying out healthprojects' activities and responsibilities hereunder. 1.5 No Assignment by healthprojects This Agreement may not be assigned by healthprojects without the prior written consent of ASG, except in connection with the sale of all or substantially all of the assets of healthprojects or in connection with a corporate reorganization. healthprojects, however, shall have the right to use subcontractors to perform Services under this Agreement. 1.6 ASG Responsibilities a) ASG shall supply healthprojects personnel with suitable office space, desks, storage, and other normal office equipment support, including adequate computer resources, telephone service, postage, copying, typing, and general office supplies that may be necessary in connection with healthprojects' performance of the Services at ASG's site. SECTION 2: CONFIDENTIALITY; INTELLECTUAL PROPERTY 2.1 Confidentiality a) The parties acknowledge that they may have previously executed a Confidentiality or Nondisclosure Agreement (the "Confidentiality Agreement") The provisions of any Confidentiality Agreement shall remain in force; provided, however that ASG acknowledges that it may be necessary for healthprojects to disclose certain information in contravention of any Confidentiality Agreement relating to ASG in order to satisfactorily perform its consulting services hereunder and more specifically to further the development of business relationships, strategic alliances and partnership arrangements with third parties for the benefit of ASG. Accordingly and notwithstanding any contrary term in any Confidentiality Agreement, healthprojects is hereby authorized to disclose all such information, which is reasonable and necessary in order to perform the Services. The foregoing authorization shall not, however, apply to information that ASG shall have identified as "Strictly Confidential - Not to be Disseminated to Third Parties," provided, however that advance written notice of such information shall be provided to healthprojects. b) ASG agrees that healthprojects may identify ASG as a client of healthprojects and use ASG's logo in connection therewith in healthprojects' marketing, public relations and Page 2 HEALTHPROJECTS [LETTERHEAD] HEALTHPROJECTS, LLC AMERICA SERVICE GROUP, INC. SERVICES AGREEMENT promotional materials, including but not limited to press releases, press commentary, electronic and on-line materials. healthprojects agrees not to describe the services it provides for ASG in any such materials that identify ASG or use ASG's logo without first obtaining ASG's consent. 2.2 Intellectual Property a) Except with respect to materials and information provided to healthprojects by Customer that is confidential and/or proprietary to ASG under the terms of the Confidentiality Agreement, healthprojects shall own all intellectual property rights in all deliverable items developed by healthprojects in the course of the Services, including, but not limited to, any reports, analyses, letters, memoranda, documentation, and lists, information and materials regarding potential customers, prospects, alliance partners, and providers of financing and other services (the "Work Product"). In addition, healthprojects shall retain all intellectual property rights in all pre-existing reports, analyses, letter, and memoranda. documentation, know-how, techniques, lists, information and materials regarding potential customers, prospects, alliance partners, and providers of financing and other services, as well as all other materials, which have been previously developed or acquired, by healthprojects and that are used in connection with the Services. The parties will cooperate with each other and execute such other documents as may be appropriate to achieve the objective of this section. b) Upon receipt in full of payment under the applicable Attachment A, healthprojects hereby grants ASG a non-exclusive, perpetual, royalty-free license to use, copy or modify the Work Product for its own benefit or for the benefit of its customers. ASG agrees not to sell, distribute or otherwise disclose the Work Product to any third party, without healthprojects' prior written consent. SECTION 3: WARRANTY healthprojects warrants that its Services will be performed in accordance with applicable industry standards and the applicable Attachment A. THE PRECEDING WARRANTY IS HEALTHPROJECTS' SOLE AND EXCLUSIVE WARRANTY CONCERNING THE SERVICES AND ANY WORK PRODUCT, AND HEALTHPROJECTS DISCLAIMS ALL OTHER WARRANTIES AND REPRESENTATIONS, EXPRESS OR IMPLIED. SECTION 4 - LIMITATION OF LIABILITY 4.1 Reliance on Information and Deliverables. Pursuant to this Agreement, healthprojects may obtain and deliver to ASG information that has been obtained from a variety of sources, including but not limited to proprietary data services, government information, industry publications, ASG press releases, web sites, marketing materials and other generally available public sources. All information, statements, facts, analyses, interpretations and opinions contained in healthprojects' deliverables are provided "AS- IS," without representation or warranty by healthprojects, its affiliates, officers, employees, contractors or business partners as to accuracy, completeness, usefulness or otherwise. ASG agrees not to utilize information provided in order to support the sale of securities and acknowledges and agrees that healthprojects shall not be deemed to give investment advice or advocate the purchase or sale of any security or investment. Page 3 HEALTHPROJECTS [LETTERHEAD] HEALTHPROJECTS, LLC AMERICA SERVICE GROUP, INC. SERVICES AGREEMENT 4.2 Limitation of Liability The limit of healthprojects' liability (whether in contract, tort, negligence, strict liability in tort, or by statute or otherwise) to ASG or to any third party concerning performance or non-performance by healthprojects, or in any manner related to this Agreement, for any and all claims shall not exceed in the aggregate the fees paid by ASG to healthprojects hereunder with respect to the work involved. ASG's exclusive remedy for any claim arising out of these arrangements shall be for healthprojects, upon receipt of written notice, to use its best efforts to cure the breach at its expense, and, failing that, the return of fees paid to healthprojects for the work related to the breach. 4.3 Indemnification a) healthprojects covenants and agrees to defend, indemnify and hold ASG harmless from and against any and all actions, claims, damages, expenses, costs, judgments, legal and other fees, filed or assessed against or incurred by ASG as a result of (i) any acts or omissions of healthprojects, including, without limitations, any injuries to or deaths to persons, or any damage to property or equipment, or (ii) the breach by healthprojects of any obligation to ASG as set forth in this Agreement. b) ASG covenants and agrees to defend, indemnify and hold healthprojects harmless from and against any and all actions, claims, damages, expenses, costs, judgments, legal and other fees, filed or assessed against or incurred by healthprojects or its employees as a result of (i) any acts or omissions of ASG or its employees, including, without limitations, any injuries to or deaths to persons, or any damage to property or equipment, or (ii) the breach by ASG of any obligation to healthprojects as set forth in this Agreement. To the extent any individual member of healthprojects is appointed as a director of ASG during the term of this Agreement, ASG shall indemnify such individual to the same extent ASG is required to indemnify its other directors. Furthermore, ASG shall provide such individual the same directors liability coverage as provided to other directors of ASG. 4.4 Consequential Damages In no event shall either party be liable for consequential, incidental or punitive loss, damage or expenses (including but not limited to lost profits, savings, data, or the cost of recreating lost data), even if it has been advised of their possible existence. Any action by either party must be brought within two (2) years after the cause of action arose. SECTION 5: MISCELLANEOUS 5.1 Actions: Expenses In the event of any action at law or in equity to enforce the provisions of this Agreement, the unsuccessful party shall pay to the other all costs and expenses so incurred, including but not limited to attorneys' fees. 5.2 Governing Law This Agreement shall be construed in accordance with and governed by the laws of the State of Tennessee, without regard to its conflicts of law provisions. Page 4 HEALTHPROJECTS [LETTERHEAD] HEALTHPROJECTS, LLC AMERICA SERVICE GROUP, INC. SERVICES AGREEMENT 5.3 Entire Agreement; Amendment; Waiver This Agreement expresses the entire understanding with respect to the subject matter hereof and supersedes and terminates any prior oral or written agreements with respect to the subject matter hereof. Any term of this Agreement may be amended and observance of any term of this Agreement may be waived only with the written consent of the parties hereto. Waiver of any term or condition of this Agreement by any party shall not be construed as a waiver of any subsequent breach or failure of the same term or condition or a waiver of any other term or condition of this Agreement. The failure of any party at any time to require performance by any other party of any provision of this Agreement shall not affect the right of any such party to require future performance of such provision or any other provision of this Agreement. 5.4 Force Majeure Neither party shall be liable for any failure to perform its obligations under this Agreement if prevented from doing so by a cause or causes beyond its reasonable control, including but not limited to, personnel unavailability or shortage that is beyond the reasonable control of a party, Acts of God or the public enemy, fires, floods, storms, riots, war or restraints of government. 5.5 Term The term of this Agreement shall commence on the execution hereof and shall continue until terminated by either of the parties upon 30 days advance written notice to the other party. healthprojects and ASG hereby accept and agree to the above terms and execute this Agreement as of the date first set forth above. healthprojects America Service Group, Inc. By: ___________________________ By: ____________________________ Name: _________________________ Name: __________________________ Title: ________________________ Title: _________________________ Date: _________________________ Date: __________________________ Page 5 HEALTHPROJECTS [LETTERHEAD] HEALTHPROJECTS, LLC AMERICA SERVICE GROUP, INC. SERVICES AGREEMENT ATTACHMENT A (Cont.) A.2 Payment Services performed by healthprojects shall be reimbursed based on the following hourly rates: Richard D. Wright $200/hr. Eric W. Thrailkill $150/hr. Christopher D. Wright $150/hr.
EX-10.5 6 g72745ex10-5.txt EMPLOYMENT AGREEMENT Exhibit 10.5 EMPLOYMENT AGREEMENT AGREEMENT dated the 15th day of October, 2001, between Michael W. Taylor (Employee) and America Service Group Inc., a Delaware Corporation (the Company). WHEREAS, the Company seeks to employ the Employee; and 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 and Chief Financial Officer of the Company and/or such other offices and duties as the Company 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. From the date hereof, Employee agrees to actively devote all of his time and effort during normal business hours as agreed with the Company, to the performance of his duties hereunder and to use his reasonable best efforts and endeavors to promote the interests and welfare of the Company. 3. Term. The term of Employee's employment hereunder shall commence as of the date hereof and shall continue 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 Two Hundred thousand and No/100, 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. -1- 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. 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 Employees 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. For purposes of this Agreement, a change in control of the Company shall mean (a) 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 50% or more of the combined voting power of the Company's then outstanding securities and (b) as a result of such change in control Employee will not be offered a continuation of his job after such change in control. (e) Voluntary Termination. Employee may voluntarily terminate his employment -2- 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), 7(b) 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 at 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(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 and vacation 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; (g) as of the termination pursuant to Section 7(b), 7(c) or 7(d), a continuation, on at least a monthly basis, of Employee's annual base salary for one year following the Termination Date. 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 (A) 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 (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 -3- otherwise gaining control, or purchasing an interest in an organization as long as the Business represents less than 10% of the acquiree's revenue at the time of the transaction, (B) employ or retain as an independent contractor any employee of the Company, or (C) recruit, solicit or otherwise induce any employee of the Company to discontinue such employment relationship. For purposes hereof, the Business shall consist of (A) delivery of pharmaceuticals and supplies 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. (b) If, at the time of enforcement of this Section 8 a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area. (c) In the event of the breach by Employee of any of the provisions of this Section 8, the Company, in addition and supplementary to other rights and remedies existing in its favor, may apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof. 9. Notices. All notices hereunder, to be effective, shall be in writing and shall be deemed delivered when delivered by and or when sent by first-class, certified mail, postage and fees prepaid, to the following addresses or as otherwise indicated in writing by the parties: (i) If to the Company: America Service Group Inc. 105 Westpark Drive Nashville, TN 37027 Attn: General Counsel (ii) If to Employee: Michael W. Taylor 105 Westpark 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 entitled to any payments hereunder, any amounts would still be payable to his estate hereunder as 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. -4- 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 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 the 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. AMERICA SERVICE GROUP INC. By: ----------------------------------- -5- EMPLOYEE: By: ----------------------------------- -6- EX-11.1 7 g72745ex11-1.txt STATEMENT REGARDING PER SHARE EARNINGS EXHIBIT 11.1 AMERICA SERVICE GROUP INC. (IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------- ------------- 2001 2000 2001 2000 ---- ---- ---- ---- Net income (loss) $ (996) $ 2,102 $(17,037) $ 5,611 Preferred stock dividends -- (165) (163) (489) ------------------------------------------------- Numerator for basic earnings (loss) per share - income (loss) attributable to common stockholders $ (996) $ 1,937 $(17,200) $ 5,122 ================================================= Denominator for basic earnings (loss) per share - weighted average shares 5,428 3,925 5,245 3,796 Effect of dilutive securities -- 1,725 -- 1,706 ------------------------------------------------- Weighted average common shares outstanding - diluted 5,428 5,650 5,245 5,502 ================================================= Basic earnings (loss) per share $ (0.18) $ 0.49 $ (3.28) $ 1.35 ================================================= Diluted earnings (loss) per share $ (0.18) $ 0.37 $ (3.28) $ 1.02 =================================================
EX-99.1 8 g72745ex99-1.txt PRESS RELEASE Exhibit 99.1 [AMERICA SERVICE GROUP INC. LETTERHEAD] CONTACT: MICHAEL CATALANO S. WALKER CHOPPIN CHAIRMAN, PRESIDENT AND SENIOR VICE PRESIDENT AND CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER (615) 376-1319 (615) 376-1346 AMERICA SERVICE GROUP ANNOUNCES AMENDMENT TO ITS CREDIT AGREEMENT NASHVILLE, Tennessee (August 27, 2001) - America Service Group Inc. (NASDAQ:ASGR) announced today that it has completed an amendment to its senior credit agreement. As a result of special charges discussed in its second quarter press release, the Company had obtained a waiver of certain financial covenants contained in the senior credit agreement. As anticipated in its recent Form 10-Q filing, the Company today has filed a Form 8-K and reissued its second quarter financial statements to reflect the permanent nature of the amendment and the classification of $55 million of its bank debt as long-term debt. America Service Group Inc., based in Brentwood, Tennessee, is the leading provider of correctional healthcare services in the United States. America Service Group Inc., through its subsidiaries, provides a wide range of healthcare and pharmacy programs for approximately 340,000 inmates. The Company employs over 7,000 medical, professional and administrative staff nationwide. 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 the Company's filings with the Securities and Exchange Commission. -END- EX-99.2 9 g72745ex99-2.txt PRESS RELEASE Exhibit 99.2 [AMERICA SERVICE GROUP INC. LETTERHEAD] CONTACT: MICHAEL CATALANO S. WALKER CHOPPIN CHAIRMAN, PRESIDENT AND SENIOR VICE PRESIDENT AND CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER (615) 376-1319 (615) 376-1346 AMERICA SERVICE GROUP ADJUSTS GUIDANCE FOR THE THIRD AND FOURTH QUARTERS NASHVILLE, Tennessee (September 17, 2001) - America Service Group Inc. (NASDAQ:ASGR) announced today that financial results for both the third and fourth quarters of this year will likely be less than the EBITDA range of $4.0 million estimated in the Company's second quarter earnings release. The Company further announced that activities related to certain strategic initiatives, also referenced in the second quarter release, have been discontinued. Mr. Catalano, president and chief executive officer of America Service Group, said, "The likely shortfall is due to the unanticipated acceleration in the cost of providing healthcare services under certain contracts. However, it is important to understand that only five of our one hundred fifty-two contracts account for the principal variance from plan." Mr. Catalano continued, "Despite these challenges, we have every confidence in the value of our business model. We are executing a comprehensive action plan, as previously announced. While some improvements have been recognized in the early stages, these are not yet of sufficient magnitude to offset the increased cost being incurred under a limited number of contracts. We are focused on these contract situations and believe that our performance in 2002 will reflect the success of the operational initiatives we have in place." The Company expects to issue its third quarter earnings release during the last week of October. America Service Group Inc., based in Brentwood, Tennessee, is the leading provider of correctional healthcare services in the United States. America Service Group Inc., through its subsidiaries, provides a wide range of healthcare and pharmacy programs for approximately 340,000 inmates. The Company employs over 7,000 medical, professional and administrative staff nationwide. 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 the Company's filings with the Securities and Exchange Commission. -END- EX-99.3 10 g72745ex99-3.txt PRESS RELEASE Exhibit 99.3 [AMERICA SERVICE GROUP INC. LETTERHEAD] CONTACT: MICHAEL CATALANO CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER (615) 376-1319 AMERICA SERVICE GROUP APPOINTS MICHAEL W. TAYLOR SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER NASHVILLE, Tennessee (October 17, 2001) - America Service Group Inc. (NASDAQ:ASGR) announced today that Michael W. Taylor, CPA, will join the Company as Senior Vice President and Chief Financial Officer effective November 1, replacing S. Walker Choppin, who is resigning to pursue other interests. Prior to joining America Service Group, Mr. Taylor was employed for almost 12 years with Mid-State Automotive Distributors, Inc, the operating subsidiary of Mid-States PLC, a United Kingdom publicly traded holding corporation. Since 1998, Mr. Taylor served as Vice President, Chief Financial Officer and Treasurer for Mid-State, a corporation engaged in wholesale and retail distribution of automotive replacement parts in the Southeast United States. During his tenure with Mid-State, revenues increased from $60 million to $120 million, and Mr. Taylor was involved in all financial aspects of the Company including public company reporting, initial public offerings, banking, significant mergers and acquisition activity, and served as shareholder and investment community liaison. Mr. Taylor is a certified public accountant and began his career with Arthur Andersen LLP in Nashville, Tennessee. He graduated with a Bachelor of Science in Accounting from the University of Kentucky. Mr. Catalano, President and Chief Executive Officer of America Service Group, said, "We are pleased to have Michael Taylor as a member of senior management. His background as a CPA and his multi-facility experience will be invaluable in our business. We expect Michael to play a pivotal role in helping us restore confidence and regain credibility with the investment community." Mr. Catalano continued, "Walker Choppin has been a real asset to America Service Group. We owe him a debt of gratitude and wish him well in his new endeavor. On a personal level, I will miss his counsel and the close working relationship we enjoyed." America Service Group Inc., based in Brentwood, Tennessee, is the leading provider of correctional healthcare services in the United States. America Service Group Inc., through its subsidiaries, provides a wide range of healthcare and pharmacy programs to government agencies for the medical care of inmates. 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 the Company's filings with the Securities and Exchange Commission. -END- EX-99.4 11 g72745ex99-4.txt EARNINGS RELEASE Exhibit 99.4 [AMERICA SERVICE GROUP LETTERHEAD] CONTACT: MICHAEL CATALANO MICHAEL W. TAYLOR CHAIRMAN, PRESIDENT AND SENIOR VICE PRESIDENT AND CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER (615) 376-1319 (615) 376-1376 AMERICA SERVICE GROUP ANNOUNCES THIRD QUARTER RESULTS NASHVILLE, Tennessee (November 14, 2001) - America Service Group Inc. (NASDAQ:ASGR) announced today results for the third quarter and nine months ended September 30, 2001. Commenting on third quarter results, Michael Catalano, chairman, president and chief executive officer of America Service Group, said, "As previously announced, we expected earnings to be negatively impacted by certain under-performing contracts in the third quarter. We are intensely focused on addressing those situations. In addition, we are working to strengthen all existing client relationships and emphasizing risk-sharing models in marketing activities. The actions we are taking now should drive improved financial performance in 2002." Healthcare revenues for the third quarter of 2001 were $140.1 million, a 36.3% increase over revenues of $102.8 million in the prior year quarter, and $418.9 million for the nine months ended September 30, 2001, a 56.0% increase from $268.5 million in the same period in the prior year. Healthcare expenses, as a percent of revenue, were 95.0% for the third quarter compared with 89.7% for the prior year quarter and 97.0% for the nine months ended September 30, 2001, compared with 90.1% for the same period in the prior year. During the third quarter, five contracts, with combined quarterly revenues of $30.2 million, accounted for a negative gross margin of approximately $2.0 million. Selling, general and administrative expenses, as a percentage of revenue, were 3.1% for the third quarter compared with 3.8% for the prior year quarter and 3.4% for the nine months ended September 30, 2001, compared with 3.8% for the same period in the prior year. During the quarter, the Company incurred $1.3 million of expenses related to discontinued strategic initiatives and employee severance costs. Earnings before interest, taxes, depreciation and amortization (EBITDA) was $2.8 million for the third quarter (excluding expenses related to discontinued strategic initiatives and employee severance) compared with EBITDA of $6.7 million in the prior year quarter. -MORE- ASGR Announces Third Quarter Results Page 2 November 14, 2001 The Company recorded a net loss for the quarter of $996,000, or $0.18 per diluted share. Due to the financial results for the quarter, the Company has obtained a waiver for the period of certain financial covenants as required by its senior credit facility. Effective November 1, Michael W. Taylor, CPA, joined the Company as senior vice president and chief financial officer. Mr. Taylor brings an extensive background as a CPA in a public company setting with multi-facility experience. A listen-only simulcast and 30-day replay of a conference call to discuss this press release will be available online at www.asgr.com, or www.streetevents.com on November 14, 2001, beginning at 9:00 a.m. Eastern time. America Service Group Inc., based in Brentwood, Tennessee, is the leading provider of correctional healthcare services in the United States. America Service Group Inc., through its subsidiaries, provides a wide range of healthcare and pharmacy programs for approximately 340,000 inmates. The Company employs over 7,000 medical, professional and administrative staff nationwide. 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 the Company's filings with the Securities and Exchange Commission. -MORE- ASGR Announces Third Quarter Results Page 3 November 14, 2001 AMERICA SERVICE GROUP INC. FINANCIAL HIGHLIGHTS (In thousands, except per share data)
CONSOLIDATED INCOME STATEMENT: THREE MONTHS ENDED --------------------------------------------------------- SEPT. 30, % OF SEPT. 30, % OF 2001 REVENUE 2000 REVENUE --------- --------- --------- --------- Healthcare revenue $ 140,145 100.0 $ 102,842 100.0 Healthcare expenses 133,085 95.0 92,250 89.7 --------- --------- --------- --------- Gross margin 7,060 5.0 10,592 10.3 Selling, general and administrative expenses 4,303 3.1 3,896 3.8 Impairment of long-lived assets -- -- -- -- Strategic initiative and severance expenses 1,319 0.9 -- -- Depreciation and amortization 1,798 1.3 1,625 1.6 --------- --------- --------- --------- Income (loss) from operations (360) (0.3) 5,071 4.9 Interest, net 1,390 1.0 1,411 1.4 --------- --------- --------- --------- Income (loss) before taxes (1,750) (1.3) 3,660 3.5 Provision (benefit) for income taxes (754) (0.6) 1,558 1.5 --------- --------- --------- --------- Net income (loss) (996) (0.7) 2,102 2.0 Preferred stock dividends -- -- (165) (0.1) --------- --------- --------- --------- Net income (loss) attributable to common shares $ (996) (0.7) 1,937 1.9 ========= ========= ========= ========= Net income (loss) per common share: Basic $ (0.18) $ 0.49 ========= ========= Diluted $ (0.18) $ 0.37 ========= ========= Weighted average shares outstanding: Basic 5,428 3,925 ========= ========= Diluted 5,428 5,650 ========= =========
NINE MONTHS ENDED --------------------------------------------------------- SEPT. 30, % OF SEPT. 30, % OF 2001 REVENUE 2000 REVENUE --------- --------- --------- --------- Healthcare revenue $ 418,865 100.0 $ 268,460 100.0 Healthcare expenses (1) 406,394 97.0 241,840 90.1 --------- --------- --------- --------- Gross margin 12,471 3.0 26,620 9.9 Selling, general and administrative expenses (2) 14,429 3.4 10,307 3.8 Impairment of long-lived assets 13,236 3.2 -- -- Strategic initiative and severance expenses 2,586 0.6 -- -- Depreciation and amortization 5,741 1.4 4,038 1.5 --------- --------- --------- --------- Income (loss) from operations (23,521) (5.6) 12,275 4.6 Interest, net 3,915 1.0 2,767 1.0 --------- --------- --------- --------- Income (loss) before taxes (27,436) (6.6) 9,508 3.6 Provision (benefit) for income taxes (10,399) (2.5) 3,897 1.5 --------- --------- --------- --------- Net income (loss) (17,037) (4.1) 5,611 2.1 Preferred stock dividends (163) -- (489) (0.2) --------- --------- --------- --------- Net income (loss) attributable to common shares $ (17,200) (4.1) $ 5,122 1.9 ========= ========= ========= ========= Net income (loss) per common share: Basic $ (3.28) $ 1.35 ========= ========= Diluted $ (3.28) $ 1.02 ========= ========= Weighted average shares outstanding: Basic 5,245 3,796 ========= ========= Diluted 5,245 5,502 ========= =========
-MORE- ASGR Announces Third Quarter Results Page 4 November 14, 2001 AMERICA SERVICE GROUP INC. FINANCIAL HIGHLIGHTS (In thousands, except per share data)
CONDENSED CONSOLIDATED BALANCE SHEET: SEPT. 30, DEC. 31, 2001 2000 -------- -------- Current assets $98,787 $ 74,376 Intangible assets, net 60,597 77,285 Property and equipment, net, and other assets 15,366 9,741 -------- -------- $174,750 $161,402 ======== ======== Liabilities and debt $150,484 $120,040 Stockholders' equity (3) 24,266 41,362 -------- -------- $174,750 $161,402 ======== ========
(1) Includes $6.4 million of charges in the nine months ended September 30, 2001, related to the strengthening of reserves for medical claims and other costs. (2) Includes $1.3 million of charges in the nine months ended September 30, 2001, related to changes in accounting estimates for legal liabilities. (3) Includes $12.4 million of redeemable preferred stock as of December 31, 2000. On February 5, 2001, all of the redeemable preferred stock was converted into approximately 1.3 million shares of common stock. -END- -----END PRIVACY-ENHANCED MESSAGE-----