**EXHIBIT10.1**

 

**EMPLOYMENTAGREEMENT**

**(Kerry D. Walbridge)**

 

This Employment Agreement (the “Agreement”) by and between *SOURCECORP,*Incorporated, a Delawarecorporation, and *SOURCECORP*Management,L.P., a Texas limited partnership and indirect wholly owned subsidiary of *SOURCECORP,*Incorporated (collectively,the “Company”), and Kerry D. Walbridge (“Employee”) is hereby entered intoeffective as of April 23, 2002 (the “Effective Date”).  This Agreement hereby supersedes any otheremployment agreements or understandings, written or oral, between the Companyand Employee.

 

R E C I T A L S

 

The followingstatements are true and correct:

 

As of the date ofthis Agreement, the Company is engaged primarily in the business of providingdocument and information management outsourcing solutions.

 

Employee isemployed hereunder by the Company in a confidential relationship whereinEmployee, in the course of his employment with the Company, has and willcontinue to become familiar with and aware of information as to the Company’scustomers, specific manner of doing business, including the processes,techniques and trade secrets utilized by the Company, and future plans withrespect thereto, all of which has been and will be established and maintainedat great expense to the Company; this information is a trade secret andconstitutes the valuable goodwill of the Company.  In consideration for Employee’s promises herein, the Companyagrees to provide Employee with such confidential information; in return,Employee recognizes and acknowledges that such information must be maintainedin confidence, and to further such protection agrees to the provisions ofSection 3 of this Agreement.

 

Therefore, inconsideration of the mutual promises, terms, covenants and conditions set forthherein and the performance of each, it is hereby agreed as follows:

 

A G R E E M E N TS

 

# 1.             Employment and Duties.

 

## (a)           The Company hereby employs Employeeas a Division President, with the makeup of such divisions as determined by theCompany from time to time.  As such,Employee shall have responsibilities, duties and authority reasonably accordedto and expected of a Division President and will report directly to theCompany’s Chief Operating Officer or such other officer designated by theCompany.  Employee hereby accepts thisemployment upon the terms and conditions herein contained and, subject toSection 1(b), agrees to devote his working time, attention and efforts topromote and further the business of the Company.

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## (b)           Employee shall not, during the termof his employment hereunder, be engaged in any other business activity pursuedfor gain, profit or other pecuniary advantage except to the extent that suchactivity (i) does not interfere with Employee’s duties and responsibilitieshereunder and (ii) does not violate Section 3 hereof.  The foregoing limitations shall not be construed as prohibitingEmployee from (A) serving on the boards of directors of other companies or(B) making personal investments in such form or manner as will neitherrequire his services, other than to a minimal extent, in the operation oraffairs of the companies or enterprises in which such investments are made norviolate the terms of Section 3 hereof.

 

# 2.             Compensation.  For all services rendered by Employee, theCompany shall compensate Employee as follows:

 

## (a)           *Base Salary*.  The base salary payable to Employee shall be $250,000 per year,payable on a regular basis in accordance with the Company’s standard payrollprocedures but not less than bi-weekly. Employee shall also be entitled to a supplemental salary opportunity of$25,000 payable at such time and on such terms as agreed to by Employee and theCompany as part of the Company’s 2002 Compensation and Incentive Bonus Plan(such base salary and supplemental salary opportunity are referred to herein asthe “Total Base Salary Opportunity.”

 

## (b)           *Incentive Bonus Plan*.  Employee shall be eligible for a bonusopportunity of up to 75% of his Total Base Salary Opportunity in accordancewith the Company’s Incentive Bonus Plan as modified from time to time, payablein cash and/or equity of the Company (at the Company’s discretion).  The bonus payment and the Company’s targetedperformance shall be determined by the Board or the compensation committeethereof.

 

## (c)           *Executive Perquisites, Benefits and OtherCompensation*.  Employee shallbe entitled to receive additional benefits from the Company in such form and tosuch extent as determined from time to time by the Company.

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# 3.             Non-CompetitionAgreement.

 

## (a)           Subjectto Sections 5(d) and (e) and Section 12, Employee will not, during the periodof his employment by or with the Company, and for a period of two (2) yearsimmediately following the termination of his employment with the Company, forany reason whatsoever, directly or indirectly, for himself or on behalf of orin conjunction with any other person, company, partnership, corporation,business or entity of whatever nature:

 

### (i)            engage, as an officer, director,shareholder, owner, partner, joint venturer, or in a managerial capacity,whether as an employee, independent contractor, consultant or advisor, or as asales representative, in any business selling any products or services indirect competition with the Company, within 100 miles of (i) the principalexecutive offices of the Company or (ii) any place to which the Companyprovides products or services or in which the Company (including thesubsidiaries thereof) is in the process of initiating business operationsduring the term of this covenant (the “Territory”);

 

### (ii)           call upon, hire, attempt to hire,contact or solicit with respect to hiring (for

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### Employee or onbehalf of another) any person who is, at that time, or who has been within one(1) year prior to that time, an employee of the Company (including thesubsidiaries thereof) in a managerial or sales capacity, provided that Employeeshall be permitted to call upon and hire any member of his immediate family;

 

### (iii)          call upon, solicit, divert or takeaway or attempt to call upon, solicit, divert or take away any person or entitywhich is, at that time, or which has been, within one (1) year prior to thattime, a customer of the Company (including the subsidiaries thereof) for thepurpose of soliciting or selling products or services in direct competitionwith the Company;

 

### (iv)          call upon any prospective acquisitioncandidate, on Employee’s own behalf or on behalf of any competitor, whichcandidate was either called upon by the Company (including the subsidiariesthereof) or for which the Company made an acquisition analysis, for the purposeof acquiring such entity; or

 

### (v)           disclose customers, whether inexistence or proposed, of the Company (or the subsidiaries thereof) to anyperson, firm, partnership, corporation or business for any reason or purposewhatsoever.

 

Notwithstandingthe above, the foregoing covenant shall not be deemed to prohibit Employee fromacquiring as an investment not more than three percent (3%) of the capitalstock of a competing business, whose stock is traded on a national securitiesexchange or over-the-counter.

 

## (b)           Because of the difficulty ofmeasuring economic losses to the Company as a result of a breach of theforegoing covenant, and because of the immediate and irreparable damage that couldbe caused to the Company for which it would have no other adequate remedy,Employee agrees that the foregoing covenant may be enforced by the Company inthe event of breach by him by injunctions and restraining orders without thenecessity of posting any bond therefor.

 

## (c)           In the course of Employee’semployment with the Company, Employee will become exposed to certain of theCompany’s confidential information and business relationships, which the abovecovenants are designed to protect.  Itis agreed by the parties that the foregoing covenants in this Section 3 imposea reasonable restraint on Employee in light of the activities and business ofthe Company (including the Company’s subsidiaries) on the date of the executionof this Agreement and the current plans of the Company (including the Company’ssubsidiaries); but it is also the intent of the Company and Employee that suchcovenants be construed and enforced in accordance with the changing activities,business and locations of the Company (including the Company’s subsidiaries)throughout the term of this covenant, whether before or after the date oftermination of the employment of Employee, subject to the followingparagraph.  For example, if, during theTerm of this Agreement, the Company (including the Company’s subsidiaries)engages in new and different activities, enters a new business or establishednew locations for its current activities or business in addition to or otherthan the activities or business enumerated under the Recitals above or thelocations currently established therefor, then

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## Employee will beprecluded from soliciting the customers or employees of such new activities orbusiness or from such new location and from directly competing with such newbusiness within 100 miles of its then-established operating location(s) throughthe term of this covenant.

 

It is furtheragreed by the parties hereto that, in the event that Employee shall cease to beemployed hereunder, and shall enter into a business or pursue other activitiesnot in competition with the Company (including the Company’s subsidiaries), orsimilar activities or business in locations the operation of which, under suchcircumstances, does not violate clause (i) of this Section 3, and in any eventsuch new business, activities or location are not in violation of this Section3 or of Employee’s obligations under this Section 3, if any, Employee shall notbe chargeable with a violation of this Section 3 if the Company (including theCompany’s subsidiaries) shall thereafter enter the same, similar or acompetitive (i) business, (ii) course of activities or (iii) location, asapplicable.

 

## (d)           The covenants in this Section 3 areseverable and separate, and the unenforceability of any specific covenant shallnot affect the provisions of any other covenant.  Moreover, in the event any court of competent jurisdiction shalldetermine that the scope, time or territorial restrictions set forth areunreasonable, then it is the intention of the parties that such restrictions beenforced to the fullest extent that the court deems reasonable, and theAgreement shall thereby be reformed to such extent.

 

## (e)           All of the covenants in this Section3 shall be construed as an agreement independent of any other provision in thisAgreement, and the existence of any claim or cause of action of Employeeagainst the Company, whether predicated on this Agreement or otherwise, shallnot constitute a defense to the enforcement by the Company of such covenants.  It is specifically agreed that the period oftwo (2) years following Employee’s employment set forth at the beginning ofthis Section 3, during which the agreements and covenants of Employee made inthis Section 3 shall be effective, shall be computed by excluding from suchcomputation any time during which Employee is in violation of any provision ofthis Section 3.

 

# 4.             ­Place of Performance.

 

## (a)           Employee’s place of employment is theCompany’s headquarters in Dallas, Texas. Employee understands that he may be requested by the Board to relocatefrom his present residence to another geographic location in order to moreefficiently carry out his duties and responsibilities under this Agreement oras part of a promotion or other increase in duties and responsibilities.  In the event that Employee is requested torelocate from Dallas and agrees to do so, the Company will pay all reasonablerelocation costs to move Employee, his immediate family and their personalproperty and effects.  Such costs may include,by way of example, but are not limited to, pre-move visits to search for a newresidence, investigate schools or for other purposes; temporary lodging andliving costs prior to moving into a new permanent residence; duplicate homecarrying costs; all closing costs on the sale of Employee’s present residenceand on the purchase of a comparable residence in the new location; and addedincome taxes that Employee may incur, as a result of any payment hereunder, tothe extent any relocation costs are not deductible for tax purposes.  The general intent of the foregoing is thatEmployee shall not personally bear any out-of-pocket cost as a result of therelocation, with an understanding that

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## Employee will use hisbest efforts to incur only those costs which are reasonable and necessary toeffect a smooth, efficient and orderly relocation with minimal disruption tothe business affairs of the Company and the personal life of Employee and hisfamily.

 

## (b)           Notwithstanding the above, ifEmployee is requested by the Board to relocate and Employee refuses, suchrefusal shall not constitute “good cause” for termination of this Agreementunder the terms of Section 5(c).

 

# 5.             Term; Termination; Rights onTermination.  The term of thisAgreement shall begin on the date hereof and continue through April 1, 2003(the “Term”).  Any renewal or extensionof this Agreement must be in writing, signed by both parties hereto.  This Agreement and/or Employee’s employmentmay be terminated earlier in any one of the following ways:

 

(a)           *Death*. The death of Employee shall immediately terminate the Agreement with noseverance compensation due to Employee’s estate.

 

(b)           *Disability*.  If, as a result of incapacity due to physical or mental illnessor injury, Employee shall have been absent from his full-time duties hereunderfor four (4) consecutive months, then thirty (30) days after receiving writtennotice (which notice may occur before or after the end of such four (4) monthperiod, but which shall not be effective earlier than the last day of such four(4) month period), the Company may terminate Employee’s employment hereunderprovided Employee is unable to resume his full-time duties at the conclusion ofsuch notice period.  Also, Employee mayterminate his employment hereunder if his health should become impaired to anextent that makes the continued performance of his duties hereunder hazardousto his physical or mental health or his life, provided that Employee shall havefurnished the Company with a written statement from a qualified doctor to sucheffect and provided, further, that, at the Company’s request made within thirty(30) days of the date of such written statement, Employee shall submit to anexamination by a doctor selected by the Company who is reasonably acceptable toEmployee or Employee’s doctor and such doctor shall have concurred in theconclusion of Employee’s doctor.  In theevent this Agreement is terminated as a result of Employee’s disability,Employee shall receive from the Company, in a lump sum payment due within ten(10) days of the effective date of termination, the base salary, at the ratethen in effect for one (1) year.

 

(c)           *Good Cause*.  The Company may terminate the Agreement ten (10) days after writtennotice to Employee for good cause, which shall be: (1) Employee’s material andirreparable breach of this Agreement; (2) Employee’s gross negligence in theperformance or intentional nonperformance (continuing for ten (10) days afterreceipt of written notice of same) of any of Employee’s material duties andresponsibilities hereunder, or Employee’s material failure to meet mutuallyagreed-upon targets as set forth in Employee’s performance plan; (3) Employee’sdishonesty, fraud, or misconduct with respect to the business or affairs of theCompany which materially and adversely affects the operations or reputation ofthe Company; (4) Employee’s conviction of a felony crime; or (5) chronicalcohol abuse or illegal drug abuse by Employee.  In the

 

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event of atermination for good cause, as enumerated above, Employee shall have no rightto any severance compensation.

 

(d)           *Without Cause*.  At any time after the commencement of employment, the Companymay, without cause, terminate this Agreement and Employee’s employment,effective thirty (30) days after written notice is provided to theEmployee.  Should Employee be terminatedby the Company without cause, Employee shall receive from the Company, on orbefore the effective date of termination, a standard Company executiveseparation agreement providing for a gross lump-sum severance payment(“Severance Pay”) equivalent to the base salary at the rate then in effect forsix (6) months or the remaining Term, whichever is longer.  Further, any termination without cause bythe Company shall operate to shorten the period set forth in Section 3(a) andduring which the terms of Section 3 apply to six (6) months or the remaining Term,whichever is longer, from the date of termination of employment.  In the event Employee is terminated withoutcause within six months following the expiration of the Term and this Agreementhas neither been renewed nor replaced with another employment agreement,Employee shall receive from the Company, on or before the effective date oftermination, a standard Company executive separation agreement providing for agross lump-sum severance payment equivalent to the base salary at the rate thenin effect for six (6) months.

 

 (e)          *Terminationby Employee for Good Reason*. Employee may terminate his employment hereunder for “Good Reason.”  As used herein, “Good Reason” shall mean thecontinuance of any of the following after ten (10) days’ prior written noticeby Employee to the Company, specifying the basis for such Employee’s havingGood Reason to terminate this Agreement:

 

### (i)            the assignment to Employee of anyduties materially and adversely inconsistent with Employee’s position asspecified in Section 1 hereof.

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### (ii)           any material breach of this Agreementby the Company that is not cured within the ten (10) day time period set forthin Section 5(f) above, including the failure to pay Employee on a timely basisthe amounts to which he is entitled under this Agreement.

 

In the event of anytermination by the Employee for Good Reason, as determined by a court ofcompetent jurisdiction or pursuant to the provisions of Section 16 below, theCompany shall pay all amounts and damages (which damages shall not includepayment of salary for the then unexpired Term in light of the Severance Pay setforth below), to which Employee may be entitled as a result of such breach,including interest thereon and all reasonable legal fees and expenses and othercosts incurred by Employee to enforce his rights hereunder.  In addition, Employee shall be entitled toreceive Severance Pay from the Company, in a lump-sum payment due on theeffective date of termination, equal to the base salary then in effect for one(1) year.  Further, none of theprovisions of Section 3 shall apply in the event this Agreement is terminatedby Employee for Good Reason.

 

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(f)                                    *Terminationby Employee Without Good Reason*. If Employee resigns or otherwise terminates his employment without Good Reasonpursuant to Section 5(f), Employee shall receive no severance compensation.

 

(g)                                 *Change ofControl*.  Refer to Section12, below.

 

Upon termination of this Agreement for any reason provided in clauses(a) through (g) above, Employee shall be entitled to receive all compensationearned and all benefits vested and reimbursements due through the effectivedate of termination.  Additionalcompensation subsequent to such a termination of this Agreement, if any, willbe due and payable to Employee only to the extent and in the manner expresslyprovided above or in Section 16.  Exceptas otherwise provided in this Section, all other rights and obligations of theCompany and Employee under this Agreement shall cease as of the effective dateof termination of this Agreement; however, the Company’s obligations underSection 5(d) and Section 9 herein and Employee’s obligations under Sections 3,6, 7, 8, 9 and 10 herein shall survive such termination in accordance withtheir terms.

 

# 6.             Return of Company Property.  All records, designs, patents, businessplans, financial statements, manuals, memoranda, lists and other propertydelivered to or compiled by Employee by or on behalf of the Company (includingthe Company’s subsidiaries) or its representatives, vendors or customers whichpertain to the business of the Company (including the Company’s subsidiaries)shall be and remain the property of the Company and be subject at all times toits discretion and control.  Likewise,all correspondence, reports, records, charts, advertising materials and othersimilar data pertaining to the business, activities or future plans of theCompany (including the Company’s subsidiaries) that is collected by Employeeshall be delivered promptly to the Company without request by it upon terminationof Employee’s employment.

 

# 7.             Inventions.  Employee shall disclose promptly to theCompany any and all significant conceptions and ideas for inventions,improvements and valuable discoveries, whether patentable or not, which areconceived or made by Employee, solely or jointly with another, during theperiod of employment or within one (1) year thereafter, and which are directlyrelated to the business or activities of the Company (including the Company’ssubsidiaries) and which Employee conceives as a result of his employment by theCompany.  Employee hereby assigns andagrees to assign all his interests therein to the Company or its nominee.  Whenever requested to do so by the Company,Employee shall execute any and all applications, assignments or otherinstruments that the Company shall deem necessary to apply for and obtainletters patent of the United States or any foreign country or to otherwiseprotect the Company’s interest therein.

 

# 8.             Trade Secrets.  Employee agrees that he will not, during orafter the term of this Agreement with the Company, disclose the specific termsof the Company’s (including the Company’s subsidiaries) relationships oragreements with its significant vendors or customers or any other significantand material trade secret of the Company (including the Company’ssubsidiaries), whether in existence or proposed, to any person, firm,partnership, corporation or

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# business for any reasonor purpose whatsoever, except as is disclosed in the ordinary course ofbusiness.

 

# 9.             Indemnification.  In the event Employee is made a party to anythreatened, pending or completed action, suit or proceeding, whether civil,criminal, administrative or investigative (other than an action by the Companyagainst Employee), by reason of the fact that he is or was performing servicesunder this Agreement, then the Company shall indemnify Employee against allexpenses (including attorneys’ fees), judgments, fines and amounts paid insettlement, as actually and reasonably incurred by Employee in connectiontherewith.  In the event that bothEmployee and the Company are made a party to the same third-party action,complaint, suit or proceeding, the Company agrees to engage competent legalrepresentation, and Employee agrees to use the same representation, providedthat if counsel selected by the Company shall have a conflict of interest thatprevents such counsel from representing Employee, Employee may engage separatecounsel and the Company shall pay all attorneys’ fees of such separatecounsel.  Further, while Employee isexpected at all times to use his best efforts to faithfully discharge hisduties under this Agreement, Employee cannot be held liable to the Company forerrors or omissions made in good faith where Employee has not exhibited gross,willful and wanton negligence and misconduct or performed criminal andfraudulent acts which materially damage the business of the Company.

 

# 10.           No Prior Agreements.  Employee hereby represents and warrants tothe Company that the execution of this Agreement by Employee and his employmentby the Company and the performance of his duties hereunder will not violate orbe a breach of any agreement with a former employer, client or any other personor entity.  Further, Employee agrees toindemnify the Company for any claim, including, but not limited to, attorneys’fees and expenses of investigation, by any such third party that such thirdparty may now have or may hereafter come to have against the Company based uponor arising out of any non-competition agreement, invention or secrecy agreementbetween Employee and such third party which was in existence as of the date ofthis Agreement.

 

# 11.           Assignment; Binding Effect.  Employee understands that he has beenselected for employment by the Company on the basis of his personalqualifications, experience and skills. Employee agrees, therefore, he cannot assign all or any portion of hisperformance under this Agreement. Subject to the preceding two (2) sentences and the express provisions ofSection 12 below, this Agreement shall be binding upon, inure to the benefit ofand be enforceable by the parties hereto and their respective heirs, legalrepresentatives, successors and assigns.

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# 12.           Change in Control.

 

(a)           Unlesshe elects to terminate this Agreement pursuant to (c) below, Employeeunderstands and acknowledges that the Company may be merged or consolidatedwith or into another entity and that such entity shall automatically succeed tothe rights and obligations of the Company hereunder.

 

(b)           In the event of apending Change in Control wherein the Employee has not received written noticeat least fifteen (15) business days prior to the anticipated closing date ofthe transaction giving rise to the Change in Control from the successor to allor a substantial portion of the Company’s business and/or assets that suchsuccessor is willing as of the closing to assume and agree to perform theCompany’s obligations under this Agreement in the same manner and to the sameextent that the Company is hereby required to perform, such Change in Controlshall be deemed to be a termination of this Agreement by the Company and theamount of the lump-sum severance payment due to Employee shall be 1.15 timesthe sum of Employee’s annual salary plus maximum annual bonus opportunityimmediately prior to the Change in Control and the non-competition provisionsof Section 3 shall not apply whatsoever. Payment shall be made either at closing of the transaction if notice isserved at least five (5) days before closing or within ten (10) days ofEmployee’s written notice.

 

(c)           In any Change inControl situation in which Employee has received written notice from thesuccessor to the Company that such pending successor is willing to assume theCompany’s obligations hereunder or Employee receives notice after (or withinfifteen (15) days prior to) the Change in Control that Employee is beingterminated, Employee may nonetheless, at his sole discretion, elect toterminate this Agreement by providing written notice to the Company at any timeprior to closing of the transaction and up to six (6) months after the closingof the transaction giving rise to the Change in Control.  In such case, the amount of the lump-sumseverance payment due to Employee shall be 1.15 times the sum of Employee’sannual salary and maximum annual bonus opportunity immediately prior to theChange in Control and the non-competition provisions of Section 3 shallall apply.  Payment shall be made eitherat closing if notice is served at least five (5) days before closing or withinten (10) days of written notice by Employee.

 

(d)           For purposes ofapplying Section 5 under the circumstances described in (b) and (c) above, theeffective date of termination will be the later of the closing date of thetransaction giving rise to the Change in Control or Employee’s notice asdescribed above, and all compensation, reimbursements and lump-sum payments dueEmployee must be paid in full by the Company at such time.  Further, Employee will be given sufficienttime in order to comply with then Securities and Exchange Commission’sregulations to elect whether to exercise and sell all or any of his vestedoptions to purchase Common Stock of the Company, including any options withaccelerated vesting under the provisions of the Company’s stock option plan, asamended (and as modified by the related option agreement/certificate inaccordance with such Plan) or any warrants, such that he may convert suchoptions or warrants to shares of Common Stock of the Company at or prior to theclosing of the transaction giving rise to the Change in Control, if he sodesires.

 

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(e)           A“Change in Control” shall be deemed to have occurred if:

 

(i)            any person, other than the Companyor an employee benefit plan of the Company, acquires directly or indirectly theBeneficial Ownership (as defined in Section 13(d) of the SecuritiesExchange Act of 1934, as amended) of any voting security of the Company andimmediately after such acquisition such Person is, directly or indirectly, theBeneficial Owner of voting securities representing 30% or more of the totalvoting power of all of the then-outstanding voting securities of the Company;

 

(ii)           the individuals (A) who, as of theclosing date of the Company’s initial public offering, constitute the Board ofDirectors of the Company (the “Original Directors”) or (B) who thereafter areelected to the Board of Directors of the Company and whose election, ornomination for election, to the Board of Directors of the Company was approvedby a vote of at least two-thirds (2/3) of the Original Directors then still inoffice (such directors becoming “Additional Original Directors” immediatelyfollowing their election) or (C) who are elected to the Board of Directors ofthe Company and whose election, or nomination for election, to the Board ofDirectors of the Company was approved by a vote of at least two-thirds (2/3) ofthe Original Directors and Additional Original Directors then still in office(such directors also becoming “Additional Original Directors” immediatelyfollowing their election), cease for any reason to constitute a majority of themembers of the Board of Directors of the Company;

 

(iii)          the consummation of a merger,consolidation, recapitalization, or reorganization of the Company, a reversestock split of outstanding voting securities of the Company, or consummation ofany such transaction if stockholder approval is not sought or obtained, otherthan any such transaction which would result in at least 75% of the totalvoting power represented by the voting securities of the surviving entityoutstanding immediately after such transaction being Beneficially Owned byholders of at least 75% of the outstanding voting securities of the Companyimmediately prior to the transaction, with the voting power of each suchcontinuing holder relative to other such continuing holders not substantiallyaltered in the transaction; or

 

(iv)          the consummation of a plan of completeliquidation of the Company or an agreement for the sale or disposition by theCompany of all or a substantial portion of the Company’s assets (i.e., 50% ormore of the total assets of the Company).

 

(f)            If any portion of the severancebenefits, Change in Control benefits or any other payment under this Agreement,or under any other agreement with, or plan of the Company, including but notlimited to stock options, warrants and other long-term incentives (in theaggregate “Total Payments”) would be subject to the excise tax imposed bySection 4999 of the Code, as amended (or any similar tax that mayhereafter be imposed) or any interest or penalties with respect to such excisetax (such excise tax, together with any such interest and penalties, arehereinafter collectively referred to as the “Excise Tax”), then Employee shallbe entitled to receive from the Company an additional payment (the “Gross-upPayment”) in an amount such that the net amount of Total Payments and Gross-upPayment retained by the Employee, after the calculation and deduction of allExcise Tax on the Total Payments and all federal, state and local

 

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income tax,employment tax and Excise Tax on the Gross-up Payment, shall be equal to theTotal Payments.

 

For purposes of this Section Employee’sapplicable Federal, state and local taxes shall be computed at the maximummarginal rates, taking into account the effect of any loss of personal exemptionsresulting from receipt of the Gross-Up Payment.

 

All determinationsrequired to be made under this Section 12, including whether a Gross-UpPayment is required under this Section, and the assumptions to be used indetermining the Gross-Up Payment, shall be made by the Company’s currentindependent accounting firm, or such other firm as the Company may designate inwriting prior to a Change in Control (the “Accounting Firm”), which shallprovide detailed supporting calculations both to the Company and Employeewithin twenty business days of the receipt of notice from Employee that therewill likely be a Change in Control, or such earlier time as is requested by theCompany.  In the event that theAccounting Firm is serving as accountant or auditor for the party effecting theChange in Control or is otherwise unavailable, Employee (together with allother employees with comparable appointment rights in their respectiveemployment agreements such that all such employees may collectively select asingle accounting firm) may appoint another nationally recognized accountingfirm to make the determinations required hereunder (which accounting firm shallthen be referred to as the Accounting Firm hereunder).  All fees and expenses of the Accounting Firmwith respect to such determinations described above shall be borne solely bythe Company.

 

Employee agrees(unless requested otherwise by the Company) to use reasonable efforts tocontest in good faith any subsequent determination by the Internal RevenueService that Employee owes an amount of Excise Tax greater than the amountdetermined pursuant to this Section; provided, that Employee shall beentitled to reimbursement by the Company (on an after tax basis) of all feesand expenses reasonably incurred by Employee in contesting suchdetermination.  In the event theInternal Revenue Service or any court of competent jurisdiction determines thatEmployee owes an amount of Excise Tax that is greater than the amountpreviously taken into account and paid under this Agreement (such additionalExcise Tax being the “Additional Excise Tax”), the Company shall promptly payto Employee the amount of such shortfall. In the case of any payment that the Company is required to make to Employeepursuant to the preceding sentence (a “Later Payment”), the Company shall alsopay to Employee an additional amount such that after payment by Employee of allof Employee’s applicable Federal, state and local taxes, including any interestand penalties assessed by any taxing authority, on the Later Payment, Employeewill retain from the Later Payment an amount equal to the Additional ExciseTax, which Employee shall use to pay the Additional Excise Tax.

 

# 13.           Complete Agreement.  This Agreement is not a promise of futureemployment.  Employee has no oralrepresentations, understandings or agreements with the Company or any of itsofficers, directors or representatives covering the same subject matter as thisAgreement.  This written Agreement isthe final, complete and exclusive statement and expression of the agreementbetween the Company and Employee and of all the terms of this Agreement, and it

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# cannot be varied,contradicted or supplemented and may only be amended by a written agreement executedby each of the parties hereto.

 

# 14.           Notice.  Whenever any notice is required hereunder,it shall be given in writing addressed as follows:

 
| To the Company: | *SOURCECORP,*  Incorporated          |
|-----------------|--------------------------------------|
|            | 3232 McKinney Avenue                 |
|            | Suite 1000                           |
|            | Dallas, Texas 75204                  |
|            | Attn:  Chief  Operating Officer |
|            |                                 |
| with a copy to: | *SOURCECORP,*  Incorporated          |
|            | 3232 McKinney Avenue                 |
|            | Suite 1000                           |
|            | Dallas, Texas 75204                  |
|            | Attn:   General Counsel         |
|            |                                 |
| with a copy to: | Locke Liddell  & Sapp LLP        |
|            | 2200 Ross Avenue                     |
|            | Suite 2200                           |
|            | Dallas, Texas 75201                  |
|            | Attn:  Charles C. Reeder, Esq.  |
|            |                                 |
| To Employee:    | Kerry D. Walbridge                   |
|            | 5335 Willow Wood Lane           |
|            | Dallas, Texas 75252             |

 

Notice shall be deemedgiven and effective three (3) days after the deposit in the U.S. mail of awriting addressed as above and sent first class mail, certified, return receiptrequested, or when actually received. Either party may change the address for notice by notifying the otherparty of such change in accordance with this Section 14.

 

# 15.           Severability; Headings.  If any portion of this Agreement is heldinvalid or inoperative in any circumstance, (i) such portion shall remain validand operative in all other circumstances; (ii) the other portions of thisAgreement shall be deemed valid and operative; and (iii) so far as isreasonable and possible, effect shall be given to the intent manifested by theportion held invalid or inoperative. The Section headings herein are for reference purposes only and are notintended in any way to describe, interpret, define or limit the extent orintent of the Agreement or of any part hereof.

 

# 16.           Arbitration.  Any unresolved dispute or controversyarising under or in connection with this Agreement or Employee’s employmentshall be settled exclusively by arbitration, conducted before a panel of three(3) arbitrators in Dallas, Texas, in accordance with the rules of the AmericanArbitration Association then in effect. The arbitrators shall not have the authority

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# to add to, detract from,or modify any provision hereof nor to award punitive damages to any injuredparty.  The arbitrators shall have theauthority to order back-pay, severance compensation, vesting of options (orcash compensation in lieu of vesting of options), reimbursement of costs,including those incurred to enforce this Agreement, and interest thereon in theevent the arbitrators determine that Employee was terminated without disabilityor good cause, as defined in Sections 5(b) and 5(c), respectively, or that theCompany has otherwise materially breached this Agreement.  A decision by a majority of the arbitrationpanel shall be final and binding. Judgment may be entered on the arbitrators’ award in any court havingjurisdiction.  The costs of anyarbitration proceeding shall be borne by the party or parties not prevailing insuch proceeding determined by the arbitrators. This paragraph shall survive any termination of this Agreement.

 

# 17.           Governing Law.  This Agreement shall in all respects beconstrued according to the laws of the State of Delaware.

 

**[Balance of sheet intentionally left blank]**

 

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|   | EMPLOYEE:                     |
|--------|-------------------------------|
|   |                          |
|   |                          |
|   | /s/ Kerry D. Walbridge        |
|   | Kerry D. Walbridge            |
|   |                          |
|   |                          |
|   | *SOURCECORP,*  INCORPORATED   |
|   |                          |
|   |                          |
|   | By:                           | /s/ Joe Rose |
|   | Title:                        | Chief Operating Officer |
|   |                          | Executive Vice President |
|   |                          |
|   |                          |
|   | *SOURCECORP*Management,  L.P. |
|   |                          |
|   |                          |
|   | By: SRCP Management, Inc.,    |
|   |                          | General Partner |
|   |                          |
|   |                          |
|   |                          | By: | /s/ Joe Rose |
|   |                          | Title: | Chief Operating Officer |
|        |                               |  |  |  |

 

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