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                                                                    Exhibit 10.3



                              EMPLOYMENT AGREEMENT

         AGREEMENT dated the 24th day of March, 1998 between LAWRENCE H. POMEROY
("Employee") and AMERICA SERVICE GROUP INC., a Delaware corporation (the
"Company").

         WHEREAS, the Company seeks to employ the Employee in various executive
capacities at the Company;

         WHEREAS, the Employee accepts the positions contemplated herein;

         NOW, THEREFORE, the parties hereby agree as follows:

         1. Employment and Duties. The Company hereby employs the Employee as
senior vice president responsible for sales and marketing of Prison Health
Services, Inc. ("PHS"), a wholly-owned subsidiary of the Company, and/or such
other offices and duties as the chief executive officer of the Company or PHS
shall reasonably determine from time to time, consistent with Employee's
responsibilities. Employee shall perform the duties and services of the offices
and titles for which he is employed from time to time hereunder.

         2. Performance. Employee agrees to actively devote all of his time and
effort during normal business hours to the performance of his duties hereunder
and to use his reasonable best efforts and endeavors to promote the interests
and welfare of the Company.

         3. Term. The term of Employee's employment hereunder shall commence on
or about April 15, 1998 and shall continue as an employment-at-will unless
terminated by written notice from either party to the other at least thirty (30)
days prior to termination.

         4. Compensation. For all services rendered by Employee, the Company
agrees to pay Employee from and after the date hereof: (i) a salary (the "Base
Salary") at an annual rate of not less than $160,000.00, payable in such
installments as the parties shall mutually agree; plus (ii) such additional
compensation as the Compensation Committee of the Board (the "Committee") shall
from time to time determine.

         5. Employee Benefits. During the period of his employment under this
Agreement, Employee shall be entitled to vacation, insurance, and other
employment benefits customarily provided by the Company to its executives,
including increased or changed benefits as are from time to time provided to the
Company's executives generally.

         6. Expenses. The Company shall promptly pay or reimburse Employee for
all reasonable expenses incurred by him in connection with the performance of
his duties and responsibilities hereunder, including, but not limited to,
payment or reimbursement of reasonable expenses paid or incurred for travel and
entertainment relating to the business of the Company.



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         7. Termination.

            (a) Termination for Cause. Employee may be terminated from his 
employment hereunder, either before Term End or thereafter, and without advance
notice, by the Company for "cause." For purposes hereof, "cause" shall mean: (i)
violation of the material terms of this Agreement, (ii) intentional commission
of an act, or failure to act, in a manner which constitutes dishonesty or fraud
or which has a direct material adverse effect on the Company or its business;
(iii) Employee's conviction of or a plea of guilty to any felony or crime
involving moral turpitude; (iv) continued incompetence, as determined by the
chief executive officer of the Company, using reasonable standards; (v) drug
and/or alcohol abuse which impairs Employee's performance of his duties or
employment; (vi) breach of loyalty to the Company, whether or not involving
personal profit, as determined by the chief executive officer of the Company
using reasonable standards; or (vii) failure to follow the directions of the
chief executive officer of the Company within 20 days after notice to Employee
of such failure, provided that the directions are not inconsistent with
Employee's duties and further provided that Employee is not directed to violate
any law or take any action that he reasonably deems to be immoral or unethical.

            (b) Disability, Death. If Employee shall fail to or be unable to
perform the duties required hereunder because of any physical or mental
infirmity, and such failure or inability shall continue for any six (6)
consecutive months while Employee is employed hereunder, the Company shall have
the right to terminate this Agreement. Except as otherwise provided herein, this
Agreement shall terminate upon the death of Employee, and the estate of Employee
shall be entitled to receive all unpaid amounts due Employee hereunder to such
date of death.

            (c) Termination Without Cause. The Company shall have the right to
terminate the employment of Employee at any time, without cause, cause being
determined under Section 7(a), upon thirty (30) days' advance written notice.

            (d) Change in Control. Employee may terminate his employment
hereunder in the event of a change in control of the Company within ninety (90)
days after such change in control. For purposes of this Agreement, a "change in
control of the Company" shall mean a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934 ("Exchange Act");
provided however, that without limitation, such a change in control shall be
deemed to have occurred if: (i) any "person" (as such term is used in Sections
13(d) and 14(d) (2) of the Exchange Act) other than Employee or any other person
currently the beneficial owner of 10% or more of the outstanding common stock of
the Company, becomes the beneficial owner, directly or indirectly, of securities
of the Company representing 30% or more of the combined voting power of the
Company's then outstanding securities; (ii) during any period of two consecutive
years, individuals who at the beginning of such period constituted the Board of
Directors of the Company cease for any reason to constitute at least a majority
thereof (unless the election of each director, who was not a director at the
beginning of the period, was approved by



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a vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period); or (iii) approval by the stockholders
of the Company of (A) a complete liquidation of the Company; (B) an agreement
for the sale or other disposition of all or substantially all of the assets of
the Company to any "person"; or (C) a merger, consolidation or reorganization
involving the Company, unless (1) the stockholders of the Company immediately
before such merger, consolidation or reorganization own, directly or indirectly
immediately following such merger, consolidation or reorganization, at least
two-thirds of the combined voting power of the outstanding voting securities of
the corporation resulting from such merger or consolidation or reorganization or
its parent company (the "Surviving Corporation") in substantially the same
proportion as their ownership of the voting shares immediately before such
merger, consolidation or reorganization; or (2) the individuals who were members
of the Board immediately prior to the execution of the agreement for such
merger, consolidation or reorganization constitute at least two-thirds of the
members of the board of directors of the Surviving Corporation.

           (e) Voluntary Termination. Employee may voluntarily terminate his
employment hereunder at any time, for any reason or for no reason.

           (f) Termination Compensation. If Employee's employment hereunder is
terminated pursuant to Sections 7(a) or 7(e) of this Agreement, the Company
shall pay the Employee his full base salary through the termination date, plus,
within five (5) business days of the termination date, any bonuses, incentive
compensation, or other payments due which pursuant to the terms of any
compensation or benefit plan have been earned or vested as of the termination
date. If Employee's employment is terminated by the Company under Section 7(c)
without cause, or if there is a change in control of the Company as defined in
Section 7(d), all unexercised options granted to Employee under the Company's
Incentive Stock Plan or Amended Incentive Stock Plan shall accelerate and shall
immediately vest. If Employee's employment is terminated pursuant to Sections
7(b), 7(c) or 7(d) of this Agreement, the Company shall pay the Employee the
following:

               (i) within five (5) business days of the termination,  his full
base salary through the termination date, plus any bonuses, incentive
compensation, or other payments due which pursuant to the terms of any
compensation or benefit plan have been earned or vested as of the termination
date;

               (ii) within five (5) business days of the termination, to 
compensate for all accrued but unpaid leave such as holidays, vacation and sick
pay under the Company's paid leave plan, an amount equal to the Employee's then
current base salary multiplied by the product of (A) the total number of leave
days accrued, divided by (B) the total number of work days in the fiscal year in
which the termination date occurs;

               (iii) within five (5) business days of a termination pursuant to
Section 7(b) or 7(d), a lump sum severance payment equal to the Employee's
annual base salary as of the termination date, less, in the case of a
termination for disability under Section 7(b), any


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payments to be received by the Employee under any disability plan or policy
maintained by the Company;

               (iv) in the event of a termination pursuant to Section 7(c),
Employee's annual base salary as of the termination date shall be continued for
one (1) year following the termination date.

            If Employee's employment is terminated pursuant to Sections 7(b),
7(c) or 7(d) of this Agreement, the Company shall maintain, for eighteen (18)
months following the termination date, in full force and effect for the benefit
of the Employee and Employee's dependents and beneficiaries, at the Company's
expense, all medical insurance under plans and programs in which the Employee
and/or the Employee's dependents and beneficiaries participated immediately
prior to the termination date, provided that continued participation is possible
under the general terms and provisions of such plans and programs. If continued
participation in any such plan or program is barred, the Company shall arrange
at its own expense to provide the Employee with benefits substantially similar
to those which he was entitled to receive under such plans and programs.

         8. Covenant Not to Compete, Nonemployment, Noninducement.

            (a) Employee acknowledges that in the course of his employment he
will become familiar with the Company and its affiliates' confidential
information concerning the Company and its affiliates and that his services are
of special, unique and extraordinary value to the Company and its affiliates.
Therefore, Employee agrees that, during his employment with the Company, and for
one year after Employee ceases to perform duties hereunder, neither Employee nor
any company with which Employee is affiliated as an employee, consultant or
independent contractor, will directly or indirectly (i) engage in any business
similar to the Business of the Company, as described below, anywhere in the
United States of America, or have interest directly or indirectly in any
Business; provided, however, that nothing herein shall prohibit Employee from
(A) owning in the aggregate not more than 5% of the outstanding stock of any
class of stock of a corporation so long as Employee has no active participation
in the business of such corporation; (B) affiliating with any company which may
participate in the Business, so long as that participation at the time of
affiliation aggregates less than 10% of such company's revenue; or (C) directly
or through an affiliate, acquiring, merging or otherwise gaining control, or
purchasing an interest in an organization as long as the Business represents
less than 10% of the acquiree's revenue at the time of the transaction; (ii)
employ or retain as an independent contractor any employee of the Company; or
(iii) recruit, solicit or otherwise induce any employee of the Company to
discontinue such employment relationship. For purposes hereof, the "Business"
shall consist of (i) delivery of contract health care to correctional
facilities, and (ii) any other business in which the Company is significantly
engaged as of the date that Employee ceases to perform duties hereunder.

            (b) If, at the time of enforcement of this Section 8 a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then



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existing, the parties agree that the maximum duration, scope or area reasonable
under such circumstances shall be substituted for the stated duration, scope or
area.

            (c) In the event of the breach by Employee of any of the provisions
of this Section 8, the Company, in addition and supplementary to other rights
and remedies existing in its favor, may apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions hereof.

         9. Notices. All notices hereunder, to be effective, shall be in writing
and shall be deemed delivered when delivered by and or when sent by first-class,
certified mail, postage and fees prepaid, to the following addresses or as
otherwise indicated in writing by the parties:

             (a)      If to the Company:

                      America Service Group Inc.
                      105 Westpark Drive, Suite 300
                      Brentwood, TN 37027
                      Attn: Chief Executive Officer

             (b)      If to Employee:

                      Lawrence H. Pomeroy
                      9152 Saddlebow Drive
                      Brentwood, TN 37027

         10. Assignment. This Agreement is based upon the personal services of
Employee and the rights and obligations of Employee hereunder shall not be
assignable except as herein expressly provided. This Agreement shall inure to
the benefit of and be enforceable by the Employee's personal and legal
representatives, executors, administrators, successors, heirs, and distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to him hereunder if he would have continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Employee's devisee, legatee or other designee and
if there is no such devisee, legatee or designee, to the Employee's estate.

         11. Entire Agreement. This Agreement supersedes all prior
understandings and agreements with respect to the provisions hereof and contains
the entire agreement of the parties and may be amended only in writing, signed
by the parties hereto.

         12. Severability. The provisions of this Agreement are severable, and
the invalidity of any provision shall not affect the validity of any other
provision. In the event that any arbitrator or court of competent jurisdiction
shall determine that any provision of this Agreement



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or the application thereof is unenforceable because of the duration or scope
thereof, the parties hereto agree that said arbitrator or court in making such
determination shall have the power to reduce the duration and scope of each
provision to the extent necessary to make it enforceable, and that the Agreement
in its reduced from shall be valid and enforceable to the full extent permitted
by law.

         13. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Employee's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company (except for
any severance or termination policies, plans, programs or practices) and for
which the Employee may qualify, nor shall anything herein limit or reduce such
rights as the Employee may have under any other Agreement with the Company.
Amounts which are vested benefits or which the Employee is otherwise entitled to
receive under any plan or program of the Company shall be payable in accordance
with such plan or program, except as explicitly modified by this Agreement.

         14. Governing Law. This Agreement shall be construed under and governed
by the internal laws of the State of Tennessee.

         IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as a binding contract as of the day and year first above written.



EMPLOYEE                                   AMERICA SERVICE GROUP INC.

By:                                        By:
   --------------------------                 ------------------------------
      Lawrence H. Pomeroy                       Scott L. Mercy
                                                Chief Executive Officer




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