Document:

EX-10.1 SEPARATION AGREEMENT AND GENERAL RELEASE

EXHIBIT 10.1

SEPARATION AGREEMENT AND GENERAL RELEASE

     This Separation Agreement and General Release (this “Separation Agreement”) is made
this 15th day of September, 2008 (the “Effective Date”) by and between America Service
Group Inc., a Delaware corporation (the “Company”), and Michael Catalano
(“Executive”). The Company and the Executive may be referred to collectively herein from
time to time as “the Parties.”

     WHEREAS, Executive and the Company entered into that certain Amended and Restated Employment
Agreement, dated as of September 1, 1998 attached hereto as Exhibit A (the “Employment
Agreement”); and

     WHEREAS, Executive and the Company have mutually agreed that Executive’s employment with the
Company shall terminate effective as of the Separation Date (as defined below); and

     WHEREAS, Executive and the Company desire that Executive shall continue in his executive
offices and as a director of the Company from the Effective Date until the Separation Date (as
defined below), during which transition period, Executive will assist in the transition of his
duties and responsibilities to a successor Chief Executive Officer and a successor Chairman (which
may or may not be the same person); and

     WHEREAS, the Parties have agreed to the terms and conditions relating to the termination of
Executive’s employment as set forth herein; and

     WHEREAS, this Separation Agreement shall supersede and replace in all respects the Employment
Agreement (other than Section 8 which is incorporated by reference in Section 5 below).

     NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the
Parties agree as follows:

	1.	 	Termination of Employment.

	 	a.	 	Executive hereby resigns his employment and any and all positions he holds with the
Company and each of its subsidiaries and affiliates, including but not limited
to his positions as Chairman, Chief Executive Officer of the Company, and a
director of the Company, in each case effective as of the Separation Date (as
defined below). Effective on the Separation Date, the Executive shall have no
further duties or responsibilities to be performed for the Company or any of
its subsidiaries or affiliates, other than as specified herein, and shall have
no authority to act or endeavor to act on behalf of the Company or any of its
subsidiaries or affiliates for any reason whatsoever. For purposes of this
Separation Agreement, Executive’s “Separation Date” shall be January 1,
2009.

 

 

	 	b.	 	All shares of restricted stock, stock options or other equity
awards held by Executive shall accelerate, immediately vest and be fully
exercisable without restriction on and as of the Separation Date.

	 	c.	 	Executive will not receive any compensation or benefits from
the Company after the Separation Date, except as expressly hereinafter provided
in this Separation Agreement. Executive and the Company each acknowledges and
agrees that valid consideration exists for the promises contained in this
Separation Agreement.

	 	d.	 	Executive shall continue as the chief executive officer of the
Company from the Effective Date until the Separation Date (the “Transition
Period”); provided that during the Transition Period, Executive’s
responsibilities shall be to assist in the transition of his duties and
responsibilities to the successor Chief Executive Officer designated by the
Board of Directors and, to the extent requested by the Board of Directors,
assist the Board of Directors in selecting and training a successor Chairman.

	2.	 	Consideration to Executive.

	 	a.	 	On the first payroll payment date applicable to the executive
officers of the Company after the Separation Date, the Company shall pay, in
accordance with the Company’s normal payroll practices on January 1, 2009 and
less all applicable withholding taxes, Executive’s annual base salary that is
earned but unpaid through and as of the Separation Date.

	 	b.	 	Within five (5) business days after the Separation Date, the
Company shall make a one-time, lump sum payment in an amount equal One Million
One Hundred Fifty-Six Thousand Two Hundred Seventy-Two Dollars ($1,156,272),
less all applicable withholding taxes.

	 	c.	 	Within five (5) business days after the Separation Date, the
Company shall make a one-time lump sum payment in an amount equal to the
greater of (i) the bonus amount that would otherwise be paid to Executive for
the Company’s 2008 fiscal year, or (ii) forty-five percent (45%) of the Base
Salary, less, in each case all applicable withholding taxes, to the Executive.

	 	d.	 	Within five (5) business days after the Separation Date, the
Company shall make a one-time lump sum payment, for Executive’s unpaid leave
such as holidays, vacation and sick pay under the Company’s paid leave plan,
equal to the Executive’s 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 calendar year ended on December 31, 2008, less applicable
withholding taxes.

	 	e.	 	For the period from the Separation Date until the earlier of
June 30, 2010, or the date on which the Executive is eligible to receive
similar coverage under another employer’s group health insurance plan, the
Company shall reimburse Executive for the premiums to continue coverage for
Executive

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	 	 	 	and his dependents under the existing group health insurance plan maintained
by the Company for the benefit of its officers and employees, provided
Executive timely provides the requisite election notice required under the
Consolidated Omnibus Budget Reconciliation Act (“COBRA”).
The Executive shall promptly notify the Company when the Executive becomes
eligible to receive similar coverage under another employer’s group health
insurance plan. To the extent any portion of the COBRA payments made by the
Company on behalf of the Executive pursuant to this Section 2(e) are deemed
to be compensation, the Company will gross up such payments in an amount
sufficient to cover any applicable withholding taxes on such payments.

	 	f.	 	The Company agrees to reimburse Executive for the actual
reasonable out of pocket business expenses incurred by the Executive in
connection with the performance of his duties as Chief Executive Officer of the
Company, subject to delivery by the Executive to the Company of receipts and
other appropriate supporting documentation reasonably requested by the Company.

	 	g.	 	The Executive understands and agrees that all payments payable
to the Executive under Sections 2(a), 2(b), 2(c) and 2(d) will be treated by
the Company as compensation expense.

	 	h.	 	Notwithstanding anything in the option agreements or
certificates evidencing Executive’s outstanding options to the contrary, all
options held by the Executive outstanding on the Transition Date shall remain
exercisable until the earlier of (1) one year following the Transition Date or
(2) the final expiration date with respect to such options as set forth in the
applicable option agreements or certificates or the underlying option plan.

	 	i.	 	Notwithstanding anything in this Agreement to the contrary, the
Company shall not be obligated to make the payments provided under and pursuant
to this Section 2 if any of events described in clauses (ii) and (iii) of
Section 7(a) of the Employment Agreement occur on or prior to the Separation
Date.

	3.	 	Waiver, Release of Claims, and Covenant Not to Sue. 

	 	a.	 	Executive hereby unconditionally releases and forever
discharges the Company and all of its affiliated entities and subsidiaries
(collectively the “Released Parties”) from any and all liability of
every kind and nature whatsoever arising out of or connected in any way with
Executive’s employment, or termination of employment, by the Company and any of
its affiliates or subsidiaries, or any other matter relating to the Company or
any of its affiliates or subsidiaries, or the business or assets of any of
them, both as to matters now known and those discovered hereafter, including,
without limitation, any and all claims for monetary relief, injunctive relief,
attorney fees, costs, back pay or unpaid wages, fringe benefits, employment or
reinstatement that could have been raised under common

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	 	 	 	law, wrongful discharge, breach of any contractual rights, both express or
implied, breach of any covenant of good faith and fair dealing, both express
or implied, any tort, any claim of invasion of privacy, any legal
restrictions on the Released Parties’ rights to terminate employees, and any
federal, state, or other governmental statute, regulation, ordinance, or
directive, specifically including, without limitation, Title VII of the
Civil Rights Act of 1964, the Americans with Disabilities Act, the Family
and Medical Leave Act, the Fair Labor Standards Act, the Employee Retirement
Income Security Act, Age Discrimination in Employment Act, the Securities
Act of 1933, the Securities Exchange Act of 1934, and state securities laws,
except to the extent that the Released Party has committed fraud or a crime
against Executive. The foregoing also includes any and all claims Executive
could have brought or could bring as a partner, member, director, officer or
employee of any of the Released Parties and any and all claims Executive may
have, in his capacity as a shareholder, with respect to events occurring
prior to the Separation Date. Executive covenants not to sue the Released
Parties with respect to any of the released claims or potential claims
described above except to the extent that the Executive determines in good
faith that a Released Party has committed fraud or a crime against
Executive; provided, that the Executive will reimburse the Released Parties
for all reasonable attorneys fees and other defense costs if the Executive
brings suit against the Released Parties alleging fraudulent or criminal
conduct and the Released Parties are successful against the Executive on the
merits in defending the action as determined by a final non-appealable
order. Notwithstanding anything herein to the contrary, this Separation
Agreement shall not impact or release any rights that Executive may have,
under the certificate of incorporation or bylaws of the Company, applicable
insurance policies of the Company and/or under applicable law, to
indemnification with respect to liabilities, costs, losses and claims
arising from or related to Executive’s service as an officer, director or
employee of the Company, any parent, subsidiary or affiliate of the Company,
or any of the Released Parties and, except as otherwise required by
applicable law, no amendment by the Company of its certificate of
incorporation or bylaws shall limit or reduce the indemnification provided
to the Executive as of the date hereof.

	 	b.	 	The Company, effective as of the Separation Date, on behalf of
itself and its subsidiaries hereby unconditionally releases and forever
discharges Executive from any and all liability whatsoever for any acts,
occurrences or omissions arising out of or connected in any way with
Executive’s performance or discharge of his duties as a director or officer of
the Company, employment, prospective employment, or termination of employment
by the Company and any of its affiliates or subsidiaries, or any other matter
relating to the Company or any of its affiliates or subsidiaries, or the
business or assets of any of them, both as to matters now known and those
discovered hereafter, except to the extent that the

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	 	 	 	Executive has engaged in any fraudulent or criminal conduct in the
performance of his duties while employed by the Company (the “Released
Claims”); provided, however, the Released Claims shall not include, and
the Company is not releasing the Executive for liability with respect to,
third party claims against the Company for which the Executive is not
entitled to receive indemnification from the Company in accordance with the
Company’s charter, bylaws or Delaware law or for which it is determined that
Executive is required to repay or reimburse fees and expenses paid by the
Company pursuant to the applicable provisions of the Company’s certificate
of incorporation or bylaws. Except as provided in the immediately preceding
sentence, the Released Claims shall include, without limitation, any and all
claims for monetary relief, injunctive relief, attorney fees, costs and
claims the Company could have brought or could bring against Executive as a
shareholder, partner, member, director, officer or employee of any of the
Released Parties. The Company covenants not to sue the Executive with
respect to any of the Released Claims except to the extent that the Company
determines in good faith that the Executive has engaged in any fraudulent or
criminal conduct in the performance of his duties while employed by the
Company; provided, that the Company will reimburse Executive for all
reasonable attorneys fees and other defense costs if the Company brings suit
against Executive alleging fraudulent or criminal conduct and Executive is
successful on the merits in defending the action as determined by a final
non-appealable order.

	 	c.	 	The Parties expressly understand and agree that the waivers,
releases and covenants not to sue set forth in clauses (a) and (b) above do not
preclude either Party from acting to enforce the terms, conditions, rights,
obligations and requirements of this Separation Agreement as provided herein.

	 	d.	 	This Separation Agreement is intended by the Parties to comply
with the requirements of the Older Workers Benefits Protection Act (29 U.S.C. §
626(f)). To that end the Parties acknowledge that (a) Executive has read and
understands the terms of this Separation Agreement and he accepts them
knowingly and voluntarily, (b) the claims released by Executive pursuant to
this Separation Agreement include claims arising under the Age Discrimination
in Employment Act (29 U.S.C. § 626 et. seq.), (c) Executive does not waive any
of his rights or claims that may arise after the date this Separation Agreement
is effective, (d) the consideration provided in Section 2 of this Separation
Agreement in exchange for Executive’s release of claims is in addition to
anything of value which Executive is already entitled to receive from the
Company, (e) Executive has been advised in writing to consult with an attorney
prior to signing this Separation Agreement, and (f) Executive has been given a
period of up to 21 days in which to consider the terms of this Separation
Agreement.

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	4.	 	Nondisclosure of Confidential Information. For a period of 24 months following the
Separation Date, Executive shall keep confidential all secret or Confidential Information,
knowledge or data relating to the Company or any of its affiliated companies, and their
respective businesses and properties, which shall have been obtained by the Executive during
the Executive’s employment by the Company or any of its affiliated companies. Executive shall
not, without the prior written consent of the Company or as may otherwise be required by law
or legal process, communicate or divulge any such information, knowledge or data to anyone
other than the Company and those designated by it. The agreement made in this Section 4 shall
be in addition to, and not in limitation or derogation of, any obligations otherwise imposed
by law upon the Executive in respect of confidential information of the Company.
“Confidential Information,” as used in this Separation Agreement, means any and all
confidential information (whether recorded in documentary form or by electronic or other
means) relating to the properties, business methods, corporate plans, business plans,
strategic plans, confidential employee information (including compensation, qualifications,
and utilization), management systems, finances, existing or developing business opportunities,
processes under development or development projects of the Company or any of its affiliates or
subsidiaries, or relating to the marketing or sales of any past, present or future property or
asset of any of them. Confidential Information also includes any other information in respect
of which the Company owes an obligation of confidentiality to any third party, knowledge of
which Executive acquired at any time during his employment by the Company or any of its
affiliated companies and which is not readily ascertainable to persons not connected with the
Company either at all or without significant expenditure of labor, skill or money.
Confidential Information does not include, however, information which (a) is or becomes
generally available to the public other than as a result of a disclosure by the Executive or
any of his representatives, or (b) becomes available to Executive on a non-confidential basis
from a person other than the Company or any of its representatives who is not known by
Executive to be bound by a confidentiality agreement with the Company or any of its
affiliates. The nondisclosure obligation set forth in this Paragraph is in addition to any
fiduciary duties of Executive to maintain the confidentiality of the Company’s Confidential
Information and, to the extent not otherwise provided herein, the Company’s trade secrets.

	5.	 	Non-competition. The provisions of Section 8 of the Employment Agreement are
incorporated herein by this reference as if set forth fully.

	6.	 	Acknowledgement of Enforceability of Covenants. It is agreed by the Parties that the
covenants contained in Sections 4 and 5 impose a fair and reasonable restraint on Executive in
light of the activities and business of the Company on the date of the execution of this
Separation Agreement and the current plans of the Company. Executive also acknowledges that
this restraint will not prevent him from earning a living in his chosen field of work.

	 	a.	 	In the event any court of competent jurisdiction shall
determine that the scope, time or other restrictions set forth herein are
unreasonable, then it is the intention of the Parties that such restrictions be
enforced to the fullest extent that such court deems reasonable, and this
Separation Agreement shall thereby be reformed to reflect the same.

	 	b.	 	It is specifically agreed that the duration of the period
during which the agreements and covenants of Executive made in Sections 4 and 5
shall be effective shall be computed by excluding from such computation any
time

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	 	 	 	during which Executive is in violation of any provision of Sections 4 and 5.

	 	c.	 	Notwithstanding any of the foregoing, if any applicable law,
judicial ruling or order shall reduce the time period during which Executive
shall be prohibited from engaging in any competitive activity described in
Sections 4 and 5 hereof, the period of time for which Executive shall be
prohibited pursuant to Sections 4 and 5 hereof shall be the maximum time
permitted by law.

	7.	 	Consultation in Advance of Action. Before Executive engages in any action which may
reasonably be construed as a violation of this Separation Agreement, or as to which Executive
believes the application of the Separation Agreement is not clear, specifically including the
provisions of Sections 4 and 5 above, Executive agrees to contact and confer with the Chief
Executive Officer of the Company, or his designee, regarding Executive’s intended action, to
make a good faith effort to avoid a violation, and to discuss the availability of alternative
courses of action that would not result in a violation. Both Parties agree to engage in such
discussions in good faith.

	8.	 	Injunctive and Contractual Relief. Executive understands and agrees that the
covenants contained in Sections 4 and 5 are special, unique and of an extraordinary character.
Because of the difficulty of measuring economic losses to the Company as a result of a breach
of the foregoing covenants, and because of the immediate and irreparable damage that could be
caused to the Company for which it would have no other adequate remedy, in the event of any
default, breach or threatened breach of these Sections by Executive, the Company shall be
entitled to institute and prosecute legal proceedings to enforce its rights hereunder, and
shall be entitled specifically to injunctive relief and to such other and further relief as
may be available to the Company at law and/or in equity. The rights, obligations and remedies
provided in this section shall be in addition to, and not in lieu of, any rights, obligations
and/or remedies imposed by applicable law under statutes enforcing the protection of trade
secrets and other confidential and proprietary information.

	9.	 	Covenant to Cooperate in Legal Proceedings. The Executive agrees to cooperate in
good faith with and provide reasonable assistance to the Company, upon its reasonable request,
with respect to the defense or prosecution of any litigation, investigation or other legal
proceeding involving the Company or its subsidiaries and the Company agrees to cooperate in
good faith with, and provide reasonable assistance to the Executive, upon Executive’s
reasonable request, with respect to the defense or prosecution of any litigation,
investigation or other legal proceeding involving the Executive’s employment by the Company;
provided that nothing herein shall (i) limit, modify or expand the Executive’s right to
receive indemnification under and pursuant to the certificate of incorporation and bylaws of
the Company including, without limitation, the advancement of expenses pursuant to and subject
to the limitations of Section 8.7 of the Company’s bylaws; (ii) require the Company to provide
or disclose any confidential or competitively sensitive information; or (iii) require the
Company provide or disclose any information if the provision or disclosure could cause the
Company to lose any attorney-client or similar privilege with respect to such information.
The Company shall notify the Executive of the initiation of any such litigation and shall keep
executive reasonably informed on the progress of such litigation. The Company shall not be
permitted to admit liability on behalf of Executive with respect to any such litigation or
settle

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on behalf of Executive any such litigation without in each case Executive’s prior written
consent. Any amendment or modification, after the Separation Date, of the indemnification
rights provided to directors or officers set forth in the certificate of incorporation or bylaws
of the Company shall not modify, limit or adversely affect the indemnification rights Executive
has as of the Separation Date. The Company acknowledges that it is currently advancing expenses
to Executive with respect to defense costs of litigation where Executive is named a defendant as
a result of Executive being an officer and director of the Company, which expenses are being
advanced pursuant to Section 8.7 of the Company’s bylaws, one or more undertakings delivered by
the Executive (the “Undertakings”) and applicable Delaware law. The Company agrees to
continue to make such expense advances subject to the restrictions, limits and conditions of the
Company’s certificate of incorporation, bylaws, applicable Delaware law and the Undertakings.

	10.	 	Severability. The Parties understand and agree that every Section, and each subpart,
sub-paragraph or provision therein, of this Separation Agreement is separable, severable and
divisible from the rest of the Separation Agreement. If any Section, subpart, sub-paragraph
or provision herein is ruled invalid, illegal, unenforceable or void by any arbitrator,
regulatory agency or court of competent jurisdiction, the Parties understand and agree that
the remainder of this Separation Agreement shall continue to be enforceable to the fullest
extent permitted by law.

	11.	 	Choice of Governing Law. The Parties understand and agree that the validity,
interpretation, construction and performance of this Separation Agreement, as well as the
rights of the Parties under this Separation Agreement, shall be governed in accordance with
the laws of the State of Delaware, without regard to its conflicts of law principles.

	12.	 	Full Integration. This Separation Agreement constitutes the entire agreement between
the parties regarding the separation of Executive’s employment with the Company. It fully
supersedes any and all prior oral or written representations, communications or agreements
between the parties pertaining to its subject matter, including the Employment Agreement
(other than Section 8 of the Employment Agreement which is incorporated by reference in
Section 5 hereof); provided that this Section 12 shall not limit, modify or expand the
Executive’s right to receive indemnification under and pursuant to the certificate of
incorporation and bylaws of the Company. The Parties understand and agree that by executing
this Separation Agreement, the Parties mutually and voluntarily release one another from each
and every of their respective rights and obligations under the Employment Agreement and agree
that Executive’s Employment Agreement shall be void and shall have no further force or effect
whatsoever. The Parties further acknowledge that no written or oral representations
inconsistent with or additional to the terms and conditions of this Separation Agreement have
been made or reached. Except as provided herein, the parties further agree that no
modification, amendment or waiver of any of the provisions of this Separation Agreement shall
be effective unless made in writing, specifically referring to this Separation Agreement, and
signed by Executive and the Company.

	13.	 	Disputes. Each Party to this Separation Agreement shall be entitled to seek any and
all relief to which it or he, as applicable, is entitled with respect to any violation or
threatened violation by the other Party of this Separation Agreement. Except as otherwise set
forth herein, in the event a Party institutes any proceeding to enforce his or its legal
rights under, or to recover damages for breach by the other Party of, this Separation
Agreement, the

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	 	 	prevailing Party shall be entitled to recover from the other Party any actual expenses for
attorney’s fees and disbursements incurred by such prevailing Party.

	14.	 	No Waiver. The Parties acknowledge and agree that the failure to enforce at any time
any of the provisions of this Separation Agreement or to require at any time performance by
any party of any of the provisions hereto shall in no way be construed as a waiver of such
provision or affect the validity of this Separation Agreement or any part thereof, or the
right of each party thereafter to enforce each and every provision in accordance with the
terms of this Separation Agreement.

	15.	 	Assignability. This Separation Agreement is not assignable by either Party.
Notwithstanding the foregoing, this Separation Agreement will inure to the benefit of, and may
be enforced by, Executive’s heirs or conservators in the event of Executive’s death or
disability.

	16.	 	Non-Disparagement. The Parties agree that they will not take any action or make any
comment which impugns, defames, disparages, criticizes, negatively characterizes or casts in
an unfavorable light, the other. Each Party (except as herein otherwise permitted) agrees not
to voluntarily provide assistance or information to any person or entity pursuing any claim,
charge or complaint against the other Party, except that nothing herein shall be interpreted
to limit either Party’s right to confer with counsel or to provide truthful testimony pursuant
to subpoena or notice of deposition or as otherwise required by law.

	17.	 	Counterparts. This Separation Agreement may be executed in counterparts, each of
which shall be deemed an original for all purposes

	18.	 	Expenses. The Company shall reimburse Executive for his reasonable and documented
legal fees associated with the negotiation of this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Separation Agreement to be signed as of the
day and year first below written. Both Parties have read this Separation Agreement, understand and
agree to its terms and enter into it voluntarily. By signing below, Executive acknowledges that he
is receiving a signed copy of this Separation Agreement.

	 	 	 	 	 
	 	AMERICA SERVICE GROUP, INC.

 	 
	Date: September 15, 2008 	/s/ Richard D. Wright
 	 
	 	By: Richard D. Wright 	 
	 	Title:  	Director and Authorized Signatory 	 
	 

	 	 	 	 	 
	 	 	 
	Date: September 15, 2008 	/s/ Michael Catalano
 	 
	 	MICHAEL CATALANO 	 
	 	 	 
	 

Page 9EX-10.2 AMENDED AND RESTATED EMPLOYMENT AGREEMENT

EXHIBIT 10.2

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

     This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) dated as of the 15th day of September, 2008, between Richard
Hallworth (“Employee”) and America Service Group Inc., a Delaware Corporation (the
“Company”).

     WHEREAS, the Company has heretofore employed Employee as President and Chief Operating Officer
of the Company and President and Chief Executive Officer of Prison Health Services, Inc.
(“PHS”) pursuant to that certain Employment Agreement, dated March 28, 2006; and

     WHEREAS, the Board of Directors (the “Board”) of the Company desires to foster the
continued employment and services of the Employee in his executive officer positions and, in
connection with the separation of Michael Catalano from the Company, appoint Employee to the office
of Chief Executive Officer, effective as of January 1, 2009, and as a member of the Board,
effective the date hereof (the “Transition Date”); and

     WHEREAS, in connection with the appointment of Employee to the office of Chief Executive
Officer and the Board, the parties agree to make certain amendments to Employee’s compensation and
benefits structure.

     NOW, THEREFORE, the parties hereby agree as follows:

     1. Employment Duties and Compensation. The Company hereby employs the Employee as the
President and Chief Operating Officer of the Company and President and Chief Executive Officer of
PHS and, as of January 1, 2009, employs Employee as the President and Chief Executive Officer of
the Company and President and Chief Executive Officer of PHS and Employee shall perform such duties
and services as are normally associated with such offices and titles for which he is employed.

     2. Directorship. The parties agree that the Company will appoint Employee as a member
of the Board effective as of the date hereof. Employee shall be covered by such directors and
officers insurance as is available to the directors of the Company from time to time.

     3. 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, provided that Employee may (i) engage in civic and charitable activities
for which Employee receives no compensation or other pecuniary advantage, including services on the
board, a committee or similar governing body of a charitable or community based organization and
(ii) subject to the restrictions in Section 9 and applicable fiduciary duties, invest his personal
assets in businesses, provided that Employee does not provide any personal services to such
businesses.

     4. Term. The term of Employee’s employment hereunder shall commence as of the date
hereof and shall continue as an employment at will, subject to the contractual rights upon
termination as set forth herein, unless terminated by written notice from either party to the other

 

 

at least thirty (30) days prior to termination. The effective date of termination pursuant to
the terms of this Agreement is herein referred to as the “Termination Date.”

     5. 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 Four Hundred Thousand Dollars ($400,000), payable in such installments as the parties shall
mutually agree; plus (ii) such additional compensation as the Incentive Stock and Compensation
Committee of the Board (the “Committee”) shall from time to time determine. As of the
Transition Date and after the date thereof, the Base Salary shall be at an annual rate of not less
than Five Hundred Thousand Dollars ($500,000).

     6. 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, decreased or changed benefits as
are from time to time provided to the Company’s executives generally; provided that the Company
shall not reduce the number of paid days off or reduce the number of such days earned by the
Employee during any pay period.

     7. 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.

     8. Termination.

     (a) Certain Definitions

     (i) Acquiring Person means that a Person (other than the Employee or any of the
Employee’s affiliates), considered alone or as part of a “group” within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, is or
becomes directly or indirectly the beneficial owner (as defined in Rule 13d-3 under
the Exchange Act) of securities representing at least fifty percent (50%) of the
Company’s then outstanding securities entitled to vote generally in the election of
the Board

     (ii) Cause. For purposes of this Agreement “cause” shall mean: (i) breach by
the Employee of the material terms of this Agreement after written notice of such
breach provided to the Employee and Employee’s failure to cure such breach within 30
days following the date of such notice, (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) incompetence, as determined by the Board, using reasonable standards after
written notice of such incompetence provided to the Employee and Employee’s failure
to cure such incompetence within 30 days following the date of such notice; (v) drug
and/or alcohol abuse which impairs Employee’s performance of his duties or
employment; or (vi) breach of the duty

2

 

of loyalty to the Company, whether or not involving personal profit, as
determined by the Board using applicable corporate governance standards.

     (iii) Change in Control means (i) a Person is or becomes an Acquiring Person;
(ii) holders of the securities of the Company entitled to vote thereon approve any
agreement with a Person (or, if such approval is not required by applicable law and
is not solicited by the Company, the closing of such an agreement) that involves the
transfer of all or substantially all of the Company’s total assets on a consolidated
basis, as reported in the Company’s consolidated financial statements filed with the
Securities and Exchange Commission; (iii) holders of the securities of the Company
entitled to vote thereon approve a transaction (or, if such approval is not required
by applicable law and is not solicited by the Company, the closing of such a
transaction) pursuant to which the Company will undergo a merger, consolidation, or
statutory share exchange with a Person, regardless of whether the Company is
intended to be the surviving or resulting entity after the merger, consolidation, or
statutory share exchange, other than a transaction that results in the voting
securities of the Company carrying the right to vote in elections of persons to the
Board outstanding immediately prior to the closing of the transaction continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 50% (fifty percent) of the Company’s
voting securities carrying the right to vote in elections of persons to the
Company’s Board, or such securities of such surviving entity, outstanding
immediately after the closing of such transaction; or (iv) the Continuing Directors
cease for any reason to constitute a majority of the Board.

     (iv) Continuing Director means any member of the Board, while a member of the
Board and (i) who was a member of, or was appointed to, the Board on the date hereof
or (ii) whose nomination for or election to the Board was recommended or approved by
a majority of the then Continuing Directors

     (v) Disability. For purposes of this Agreement, “disability” shall mean
Employee’s failure to or be unable to perform the duties required hereunder because
of any physical or mental infirmity, and such failure or inability continuing for
any six (6) consecutive months while Employee is employed hereunder as determined by
the Board using reasonable standards.

     (vi) For Good Reason. The termination of Employee’s employment hereunder shall
be “for good reason” for purposes of this Agreement if it occurs no later than six
(6) months following the initial existence of one or more of the following
conditions arising without the consent of Employee: (1) a material diminution in
Employee’s base compensation; (2) a material diminution in Employee’s status, title,
positions, reporting relationships, authority, duties, or responsibilities with
respect to the Company or any of its affiliates, including without limitation the
failure to appoint Employee to the Board of Directors or the failure by the
Company’s Corporate Governance and Nominating Committee (the “Nominating
Committee”) or the Board to renominate Employee for election to

3

 

the Board at the end of any of the Employee’s terms of service as director
(excluding any failure to renominate the Employee if the Nominating Committee or the
Board has determined, in the exercise of good faith, that Employee has not satisfied
or will not satisfy the applicable governance standards to serve as a director
(including without limitation standards of applicable law and the Company’s
Corporate Governance Standards as may then be in effect) or any failure to
renominate the Employee if the election of Employee would cause the Company to
violate any applicable listing standards, law, rule or regulation); (3) a material
change in the geographic location at which Employee must perform the services; and
(4) any other action or inaction that constitutes a material breach by the Company
of this Agreement. Employee must provide notice to Company of the existence of any
condition described in this Section 8(a)(vi) within a period not to exceed 90 days
of the initial existence of the condition, upon the notice of which the Company
shall be provided a period of at least 30 days during which it may remedy the
condition.

     (vii) Person means any human being, firm, corporation, partnership, or other
entity. “Person” also includes any human being, firm, corporation, partnership, or
other entity as defined in sections 13(d)(3) and 14(d)(2) of the Exchange Act. The
term “Person” does not include the Company or any Related Entity, and the term
Person does not include any employee-benefit plan maintained by the Company or any
Related Entity, or any person or entity organized, appointed, or established by the
Company or any Related Entity for or pursuant to the terms of any such
employee-benefit plan, unless the Board determines that such an employee-benefit
plan or such person or entity is a “Person”.

     (viii) Related Entity means any entity that is part of a controlled group of
corporations or is under common control with the Company within the meaning of
Sections 1563(a), 414(b) or 414(c) of the Code.

     (b) Termination at Death. 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 Compensation.

     (i) If Employee’s employment hereunder is terminated hereunder for any reason
or no reason, 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 prior to or as of the
Termination Date.

     (ii) If (1) Employee’s employment is terminated by the Company without cause,
(2) Employee’s employment is terminated by the Employee for good reason, or (3)
there is a change in control, all unexercised options, restricted

4

 

stock or similar awards granted to Employee by the Company, whether before or
after the date hereof, shall accelerate and shall immediately vest.

     (iii) If (1) Employee’s employment is terminated by the Company (x) without
cause, (y) because of Employee’s death or disability, or (z) within one year
following a change in control or (2) Employee’s employment is terminated by the
Employee (y) for good reason or (z) within one year following a change in control
but no later than the 10th day of the third month following the end of the year in
which the change in control occurs, the Company shall pay the Employee the
following:

     (I) within five (5) business days following the Termination Date
(but no later than the 15th day of the third month following the end
of the year in which the change in control occurs in the case of
Employee’s termination of employment by Employee following a change
in control), 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 following the Termination
Date, (but no later than the 15th day of the third month following
the end of the year in which the change in control occurs in the case
of Employee’s termination of employment by Employee following a
change in control), to compensate for all accrued but unpaid holiday
and annual leave (vacation) under the Company’s paid leave plan, an
amount equal to the Employee’s then current Base Salary multiplied by
the quotient 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 following the Termination
Date, (but no later than the 15th day of the third month following
the end of the year in which the change in control occurs in the case
of Employee’s termination of employment by Employee following a
change in control), a lump sum severance payment in an amount equal
to two-hundred percent (200%) of the greater of (A) the incentive
compensation that the Employee could have earned under the Company’s
annual incentive plan for the current fiscal year, said amount to be
determined by projecting the then current financial results of the
Company on an annualized basis throughout the remainder of the fiscal
year, or (B) fifty percent (50%) of the Base Salary as of the
Termination Date; and

     (IV) a lump sum payment, paid within five (5) business days
following the Termination Date (but no later than the15th day

5

 

of the third month following the end of the year in which the
change in control occurs in the case of Employee’s termination of
employment by Employee following a change in control), equal to two
times Employee’s Annual Base Salary as of the Termination Date.

     (d) Continuation of Benefits. If (1) Employee’s employment is terminated by the
Company (i) without cause, (ii) because of Employee’s death or disability, or (iii) within one year
following a change of control or (2) Employee’s employment is terminated by the Employee (i) for
good reason or (ii) within one year following a change in control, for the period commencing on the
Termination Date and ending on the earlier of (i) eighteen months following the Termination Date;
(ii) the last day Employee is permitted to maintain coverage under the Company’s existing group
health insurance plan pursuant to the Consolidated Omnibus Budget Reconciliation Act
(“COBRA”); and (iii) the first day Employee is eligible to receive coverage under another
employer’s group health insurance plan, the Company shall reimburse Employee for the premiums to
continue coverage for Employee and his dependents under the existing group health insurance plan
maintained by the Company for the benefit of its officers and employees, provided Employee timely
provides the requisite election notice required under COBRA. The Employee shall promptly notify
the Company when the Employee becomes eligible to receive similar coverage under another employer’s
group health insurance plan.

     (e) Section 409A. The Company and Employee intend, and the Company and Employee
intend to construe and interpret this Agreement such, that the payments set forth in this Section 8
will not be subject to the excise and other taxes imposed by Section 409A of the Internal Revenue
Code; provided that nothing herein shall cause the Company to be liable for any portion of such
excise or other tax or any income tax of Employee (excluding amounts withheld from such payments in
accordance with applicable law). In furtherance, but not in limitation of the foregoing: (i)
termination of employment under this Agreement shall be administered consistently with a
“separation from service” within the meaning of Code section 409A; and (ii) if Employee is a
“specified employee” within the meaning of Code section 409A on the date of his separation from
service, the payment of benefits hereunder shall be delayed for six (6) months from the date of
Employee’s separation from service (except to the extent that any of such benefits are not subject
to Code section 409A or are subject to an exception to such delay in payment).

     9. Covenant Not to Compete.

     (a) Covenant. Employee acknowledges that in the course of his employment he will
become familiar with the Company’s and its affiliates’ confidential information 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 twelve (12) months
after the Termination Date, neither Employee nor any company with which Employee is affiliated as
an employee, consultant or independent contractor, will directly or indirectly engage in any
business similar to the Business of the Company, as described below, anywhere in the United States
of America, or have 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

6

 

no active participation in the business of such corporation; (ii) working for or affiliating
with any company which may participate in the Business, so long as Employee is not directly or
indirectly assisting such company in its participation in the Business and is not otherwise engaged
in the Business; or (iii) directly or through an affiliate, acquiring, merging or otherwise gaining
control, or purchasing an interest in an organization as long as the Business represents less than
10% of the acquiree’s revenue at the time of the transaction. Following the Termination Date,
Employee shall not directly or indirectly, and shall not cause any company with which Employee is
affiliated to, recruit, solicit or otherwise induce any employee or contractor of the Company to
discontinue such employment or contractual relationship or otherwise employ any contractor or
employee of the Company within one year following such employee’s or contractor’s separation from
the Company. For purposes hereof, the term “Business” shall consist of (A) delivery of medical
services, pharmaceuticals or 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) Modification. If, at the time of enforcement of this Section 9 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) Enforcement. In the event of the breach by Employee of any of the provisions of
this Section 9, 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, the parties agreeing economic damages alone are insufficient for a breach.

     10. 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, Suite 200
	 

	 	Nashville, TN 37027
	 

	 	Attn: Chief Legal Officer
	 
	 	 
	(ii)

	 	If to Employee:
	 
	 	 
	 

	 	Richard Hallworth
	 

	 	105 Westpark Drive, Suite 200
	 

	 	Nashville, Tennessee 37027

     11. 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

7

 

distributees, devisees and legatees. 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.

     12. Entire Agreement. This Agreement supersedes all prior understandings and
agreements with respect to the provisions hereof and contains the entire agreement of the parties.
It may only be amended by a specific written amendment appended to this agreement and signed by the
parties hereto.

     13. 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.

     14. 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.

     15. Governing Law. This Agreement shall be construed under the governed by the
internal laws of the State of Tennessee, without regard to its conflicts of law principles.

     16. Expenses. The Company shall reimburse Employee for all reasonable and documented
legal fees and expenses incurred in connection with the negotiation of this agreement, such
reimbursement to be paid as soon as practicable but in any event not later than the end of the
month following the month in which Employee provides documentation of such fees and expenses.

[Signature page follows.]

8

 

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

	 	 	 	 	 
	 	COMPANY:

AMERICA SERVICE GROUP INC.

 	 
	 	By:  	/s/ Richard D. Wright
 	 
	 	 	Name:  	Richard D. Wright 	 
	 	 	Title:  	Director and Authorized Signatory 	 
	 

	 	 	 	 	 
	 	EMPLOYEE:

 	 
	 	By:  	/s/ Richard Hallworth
 	 
	 	 	Richard Hallworth 	 
	 	 	 	 
	 

SIGNATURE PAGE TO HALLWORTH EMPLOYMENT AGREEMENT

9

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