**EXHIBIT10.7**

** **

**AMENDED AND RESTATEDEMPLOYMENT AGREEMENT**

**(Thomas C. Walker)**

 

This EmploymentAgreement (the “Agreement”) by and between *SOURCECORP*,**Incorporated, a Delaware corporation, and*SOURCECORP* Management, L.P., aTexas limited partnership and indirect wholly owned subsidiary of *SOURCECORP*, Incorporated (collectively,the “Company”), and Thomas C. Walker (“Employee”) is hereby entered into andeffective as of April 8, 2002.  ThisAgreement hereby supersedes any other employment agreements or understandings,written or oral, between the Company and 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 Chairman of the Board and Chief Development Officer.  As such, Employee shall haveresponsibilities, duties and authority reasonably accorded to and expected of aChairman of the Board and Chief Development Officer and will report directly tothe Board of Directors of the Company (the “Board”).  Employee hereby accepts this employment upon the terms and conditionsherein contained and, subject to Section 1(b), agrees to devote his workingtime, attention and efforts to promote and further the business of the Company.

 

## (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

 

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## extent that such activity(i) does not interfere with Employee’s duties and responsibilities hereunderand (ii) does not violate Section 3 hereof. The foregoing limitations shall not be construed as prohibiting Employeefrom (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 $330,000 per year,payable on a regular basis in accordance with the Company’s standard payrollprocedures but not less than bi-weekly. On at least an annual basis, the Board will review Employee’s performanceand may make increases to such base salary if, in its discretion, any suchincrease is warranted. Such recommended increase would, in all likelihood,require approval by the Board or a duly constituted committee thereof.

 

## (b)           *Incentive Bonus Plan*.  Employee shall be eligible for a bonusopportunity of up to 65% of his annual base salary in accordance with theCompany’s Incentive Bonus Plan as modified from time to time, payable in cashand/or equity of the Company (at the Company’s discretion).  The bonus payment and the Company’s targetedperformance shall be determined and approved by the Board or the compensationcommittee thereof.  Employee has alreadybeen awarded a bonus option potentially in lieu of any 2002 bonus opportunity.

 

## (c)           *Executive Perquisites, Benefits and OtherCompensation*.  Employee shallbe entitled to receive additional benefits and compensation from the Company insuch form and to such extent as specified below:

 

### (i)            Payment of all premiums for coveragefor Employee and his dependent family members under health, hospitalization,disability, dental, life and other insurance plans that the Company may have ineffect from time to time, and not less favorable than the benefits provided toother Company executives.

 

### (ii)           Reimbursement for all business traveland other out-of-pocket expenses reasonably incurred by Employee in theperformance of his services pursuant to this Agreement.  All reimbursable expenses shall beappropriately documented in reasonable detail by Employee upon submission ofany request for reimbursement, and in a format and manner consistent with theCompany’s expense reporting policy.

 

### (iii)          Four (4) weeks paid vacation for eachyear during the period of employment or such greater amount as may be affordedofficers and key employees generally under the Company’s policies in effectfrom time to time (prorated for any year in which Employee is employed for lessthan the full year).

 

### (iv)          An automobile allowance in the amountof $1,000 per month.

 

### (v)           The Company shall reimburse Employeeup to $300 per month for club dues actually incurred by Employee, providedthat such club is used at least 50% of the

 

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time for business purposes.

 

### (vi)          The Company shall provide Employeewith other executive perquisites as may be available to or deemed appropriatefor Employee by the Board and participation in all other Company-wide employeebenefits as available from time to time, which will include participation inthe Company’s Incentive Compensation Plan.

 

### (vii)         The Company shall provide Employee withreasonable assistance in personal tax planning from the Company’s auditors.

 

### (viii)        Participation in the Company’s 401(k)Plan and Non-Qualified Plan.

 

### (ix)           The Company shall, under Employee’sdirection, establish a Supplemental Retirement Plan/Survivor Protection Plan tobe placed inside the Company’s Non-Qualified Plan and provide Employee withsuch benefit.

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### (x)            The Company shall reimburse Employeeup to $7,000 per year for expenditures on health costs, insurance, financialplanning or tax planning benefits (or similar benefits, or such other benefitsat the discretion of the Company) or club dues, all as selected by Employee.

 

# 3.             Non-Competition Agreement.

 

## (a)           Subject to Sections 5(d) and (f) andSection 12, Employee will not, during the period of his employment by or withthe Company, and for a period of two (2) years immediately following thetermination of his employment with the Company, for any reason whatsoever,directly or indirectly, for himself or on behalf of or in conjunction with anyother person, company, partnership, corporation, business or entity of whatevernature:

 

### (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 any person who is, at thattime, within the Territory, an employee of the Company (including thesubsidiaries thereof) in a managerial capacity for the purpose or with theintent of enticing such employee away from or out of the employ of the Company(including the subsidiaries thereof), provided that Employee shall be permittedto call upon and hire any member of his immediate family;

 

### (iii)          call upon any person or entity whichis, at that time, or which has been, within one (1) year prior to that time, acustomer of the Company (including the subsidiaries thereof) within theTerritory for the purpose of soliciting or selling products or services indirect competition with the Company within the Territory;

 

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### (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.

 

As used inSection 3(a), references to the business, customers, Territory, etc. ofthe Company refer to the status of the Company prior to any Change in Control (*i.e.*, such breadth of business, customers,Territory, etc. shall not automatically be expanded to include those of asuccessor to the Company resulting from a Change in Control).  Notwithstanding the above, the foregoingcovenant shall not be deemed to prohibit Employee from acquiring as aninvestment not more than three percent (3%) of the capital stock of a competingbusiness, whose stock is traded on a national securities exchange orover-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 thatcould be caused to the Company for which it would have no other adequateremedy, Employee agrees that the foregoing covenant may be enforced by theCompany in the event of breach by him by injunctions and restraining orderswithout the necessity 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 Employee will be precluded fromsoliciting the customers or employees of such new activities or business orfrom such new location and from directly competing with such new businesswithin 100 miles of its then-established operating location(s) through the termof 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

 

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chargeable with aviolation of this Section 3 if the Company (including the Company’ssubsidiaries) shall thereafter enter the same, similar or a competitive (i)business, (ii) course of activities or (iii) location, as applicable.

 

## (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 which 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 suchcovenants.  It is specifically agreedthat the period of two (2) years following Employee’s employment set forth atthe beginning of this Section 3, during which the agreements and covenants ofEmployee made in this Section 3 shall be effective, shall be computed byexcluding from such computation any time during which Employee is in violationof any provision of this 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 and agrees to do so, the Company will pay all relocation costs to moveEmployee, his immediate family and their personal property and effects.  Such costs may include, by way of example,but are not limited to, pre-move visits to search for a new residence,investigate schools or for other purposes; temporary lodging and living costsprior to moving into a new permanent residence; duplicate home carrying costs;all closing costs on the sale of Employee’s present residence and on thepurchase of a comparable residence in the new location; and added income taxesthat Employee may incur, as a result of any payment hereunder, to the extentany 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 Employee will use his best efforts toincur only those costs which are reasonable and necessary to effect a smooth,efficient and orderly relocation with minimal disruption to the businessaffairs of the Company and the personal life of Employee and his family.

 

## (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 December 31,2003, and, unless terminated sooner as herein provided, shall continuethereafter on a two-year rolling basis on the same terms and conditionscontained herein until written notice is given by the Company or Employee, notless

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than sixty (60) daysprior to the December 31st of any anniversary date of this Agreementduring the Initial Term or thereafter, that the balance of the term of theAgreement shall be two (2) years from the January 1st following suchnotice (the “Term”).  This Agreement andEmployee’s employment may be terminated 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 whatever time period is remaining under the Term of thisAgreement or for one (1) year, whichever amount is greater.

 

(c)           *Good Cause*.  The Company may terminate the Agreement ten (10) days afterwritten notice to Employee for good cause, which shall be: (1) Employee’smaterial and irreparable breach of this Agreement; (2) Employee’s grossnegligence in the performance or intentional nonperformance (continuing for ten(10) days after receipt of the written notice of same) of any of Employee’smaterial duties and responsibilities hereunder; (3) Employee’s dishonesty,fraud or misconduct with respect to the business or affairs of the Companywhich materially and adversely affects the operations or reputation of theCompany; (4) Employee’s conviction of a felony crime; or (5) chronic alcoholabuse or illegal drug abuse by Employee. In the event of a termination for good cause, as enumerated above,Employee shall have no right to 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, in alump-sum payment (“Severance Pay”) due on the effective date of termination,the base salary at the rate then in effect for whatever time period isremaining under the Term of this Agreement or for two (2) years, whicheveramount is

 

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greater.  Further, any termination without cause bythe Company shall operate to shorten the period set forth in Section 3(a)and during which the terms of Section 3 apply to one (1) year from the date oftermination of employment.

 

(e)           *Change in Control*.  Refer to Section 12 below.

 

(f)            *Termination by Employee for Good Reason*.  Employee may terminate his employmenthereunder for “Good Reason.”  As usedherein, “Good Reason” shall mean the continuance of any of the following afterten (10) days’ prior written notice by Employee to the Company, specifying thebasis for such Employee’s having Good 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 (or such other position to which he may bepromoted), including status, offices, responsibilities or persons to whomEmployee reports as contemplated under Section 1 of this Agreement, or anyother action by the Company which results in a material and adverse change insuch position, status, offices, titles or responsibilities;

 

### (ii)           Employee’s removal from, or failureto be reappointed or reelected to, Employee’s position under this Agreement,except as contemplated by Sections 5(a), (b), (c) and (e); or

 

### (iii)          any other material breach of thisAgreement by the Company that is not cured within the ten (10) day time periodset forth in Section 5(f) above, including the failure to pay Employee on atimely basis the amounts to which he is entitled under this Agreement.

 

In the event of any termination by the Employee for Good Reason, asdetermined by a court of competent jurisdiction or pursuant to the provisionsof Section 16 below, the Company shall pay all amounts and damages to whichEmployee may be entitled as a result of such breach, including interest thereonand all reasonable legal fees and expenses and other costs incurred by Employeeto enforce his rights hereunder.  Inaddition, Employee shall be entitled to receive Severance Pay equivalent to thebase salary at the rate then in effect for whatever time period is remainingunder the Term of this Agreement or for two (2) years, whichever amount isgreater.  Further, none of theprovisions of Section 3 shall apply in the event this Agreement is terminatedby Employee for Good Reason.

 

(g)           *Termination by Employee Without Cause*.  If Employee resigns or otherwise terminateshis employment without Good Reason pursuant to Section 5(f), Employee shallreceive no severance compensation.

 

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 5, all other rights and obligations ofthe Company and

 

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Employee under this Agreement shall cease as of the effective date oftermination of this Agreement; however, the Company’s obligations under Section9 herein and Employee’s obligations under Sections 3, 6, 7, 8 and 10 hereinshall survive such termination in accordance with their 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) which is collected by Employeeshall be delivered promptly to the Company without request by it upontermination of 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 business for any reason or purpose whatsoever,except as is disclosed in the ordinary course of business.

 

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

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to faithfully discharge his duties under this Agreement, Employeecannot be held liable to the Company for errors or omissions made in good faithwhere Employee has not exhibited gross, willful and wanton negligence andmisconduct or performed criminal and fraudulent acts which materially damagethe 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 to indemnifythe Company for any claim, including, but not limited to, attorneys’ fees andexpenses of investigation, by any such third party that such third party maynow have or may hereafter come to have against the Company based upon orarising 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 and the Company agrees not to assign all orany portion of its obligations under this Agreement (other than to a successoras a result of a Change in Control). 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.

 

# 12.           Change in Control.

 

(a)           Unless he elects to terminate thisAgreement pursuant to (c) below, Employee understands and acknowledges that theCompany may be merged or consolidated with or into another entity and that suchentity shall automatically succeed to the rights and obligations of the Companyhereunder.

 

(b)           In the event of a pending Change inControl wherein the Employee has not received written notice at least fifteen(15) business days prior to the anticipated closing date of the transactiongiving rise to the Change in Control from the successor to all or a substantialportion of the Company’s business and/or assets that such successor is willingas of the closing to assume and agree to perform the Company’s obligationsunder this Agreement in the same manner and to the same extent that the Companyis hereby required to perform, such Change in Control shall be deemed to be atermination of this Agreement by the Company and the amount of the lump-sumseverance payment due to Employee shall be 3.64 times the sum of Employee’sannual salary plus maximum bonus opportunity in effect immediately prior to theChange in Control and the non-competition provisions of Section 3 shall notapply whatsoever.  Payment shall be madeeither at closing of the transaction if notice is served at least five (5) daysbefore closing or within ten (10) days of Employee’s written notice.

 

(c)           In any Change in Control situation inwhich Employee has received written notice from the successor to the Companythat such pending successor is willing to assume the Company’s obligationshereunder or Employee receives notice after (or within 15 business days priorto) the Change in Control that Employee is being terminated, Employee maynonetheless,

 

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at his sole discretion,elect to terminate this Agreement by providing written notice to the Company atany time prior to closing of the transaction and up to two (2) years after theclosing of the transaction giving rise to the Change in Control.  In such case, the amount of the lump-sumseverance payment due to Employee shall be 3.64 times the sum of Employee’sannual salary plus maximum bonus opportunity in effect immediately prior to theChange in Control and the non-competition provisions of Section 3 shall allapply.  Payment shall be made either atclosing if notice is served at least five (5) days before closing or within ten(10) days of written notice by Employee.

 

(d)           For purposes of applying Section 5under the circumstances described in (b) and (c) above, the effective date oftermination will be the later of the closing date of the transaction givingrise to the Change in Control or Employee’s notice as described above, and allcompensation, reimbursements and lump-sum payments due Employee must be paid infull by the Company at such time. Further, Employee will be given sufficient time in order to comply withthe Securities and Exchange Commission’s regulations to elect whether toexercise and sell all or any of his vested options to purchase Common Stock ofthe Company, including any options with accelerated vesting under theprovisions of the Company’s stock option or similar plan, as amended or anywarrants, such that he may convert the options or warrants to shares of CommonStock of the Company at or prior to the closing of the transaction giving riseto the Change in Control, if he so desires.

 

(e)           A “Change in Control” shall be deemedto 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 Securities ExchangeAct of 1934, as amended) of any voting security of the Company and immediatelyafter such acquisition such person is, directly or indirectly, the BeneficialOwner of voting securities representing 30% or more of the total voting powerof all of the then-outstanding voting securities of the Company;

 

(ii)           theindividuals (A) who, as of the closing date of the Company’s initial publicoffering, constitute the Board of Directors of the Company (the “OriginalDirectors”) or (B) who thereafter are elected to the Board of Directors of theCompany 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 then still in office (such directors becoming“Additional Original Directors” immediately following their election) or (C)who are elected 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 and AdditionalOriginal Directors then still in office (such directors also becoming“Additional Original Directors” immediately following their election), ceasefor any reason to constitute a majority of the members of the Board of Directorsof 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 entity

 

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outstandingimmediately after such transaction being Beneficially Owned by holders of atleast 75% of the outstanding voting securities of the Company immediately priorto the transaction, with the voting power of each such continuing holderrelative to other such continuing holders not substantially altered in thetransaction; or

 

(iv)          the consummation of a 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 (including the Company’ssubsidiaries)).

 

(f)            Continuation of Benefits.  (i) Following the termination of theExecutive’s employment in connection with a Change in Control (as contemplatedby Section 12(b) or 12(c) of this Agreement) (a “Change in ControlTermination”) and until the earlier of (A) three (3) years following suchChange in Control Termination or (B) the date on which the Executive becomesemployed by a new employer (other than to the successor to the Company followingsuch Change in Control), the Company shall, at its expense, provide theExecutive with medical, dental, life insurance, disability and accidental deathand dismemberment benefits (“Insurance Benefits”) at the highest level providedto the Executive immediately prior to the Change in Control; provided, however,if the Executive becomes employed by a new employer that maintains InsuranceBenefits that either (x) do not cover the Executive with respect to apre-existing condition that was covered under the Company’s Insurance Benefits,or (y) do not cover the Executive for a designated waiting period, or (z) donot provide for a certain benefit, the Executive’s coverage under the Company’sInsurance Benefits shall continue (with respect to such area of non-coveragedescribed in (x), (y) or (z), as applicable), without limitation, until theearlier of the end of the applicable period of non-coverage under the newemployer’s Insurance Benefits or the third anniversary of the Change inControl.

 

(ii) Following aChange in Control Termination the special benefit allowance of $7,000contemplated by Section 2(c)(x) of this Agreement will continue for 3years thereafter.

 

(iii) The Companyshall reimburse all reasonable expenses incurred by the Executive for reasonableoffice and secretarial expenses and for reasonable professional outplacementservices by qualified consultants selected by the Executive for up to 3 yearsafter a Change in Control Termination.

 

(iv) The Executiveshall not be required to seek other employment following a Change in ControlTermination and any compensation earned from other employment shall not reducethe amounts otherwise payable under this Agreement.

 

 (g)          Ifany portion of the severance benefits, Change in Control benefits or any otherpayment under this Agreement, or under any other agreement with, or plan of theCompany, including but not limited to stock options, warrants and otherlong-term incentives (in the aggregate “Total Payments”) would be subject tothe excise tax imposed by Section 4999 of the Code, as amended (or anysimilar tax that may hereafter be imposed) or any interest or penalties withrespect to such excise tax (such excise tax, together with any such interestand penalties, are hereinafter collectively referred to as the “Excise Tax”),then Employee shall be entitled to 

 

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receive from theCompany an additional payment (the “Gross-up Payment”) (i.e., in addition tosuch other severance benefits, Change in Control benefits or any other paymentsunder this Agreement) in an amount such that the net amount of Total Paymentsand Gross-up Payment retained by the Employee, after the calculation anddeduction of all Excise Tax on the Total Payments and all federal, state andlocal income tax, employment tax and Excise Tax on the Gross-up Payment, shallbe equal to the Total Payments.

 

For purposes of this Section Employee’s applicableFederal, state and local taxes shall be computed at the maximum marginal rates,taking into account the effect of any loss of personal exemptions resultingfrom 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 the AccountingFirm is serving as accountant or auditor for the party effecting the Change inControl or is otherwise unavailable, Employee (together with all otheremployees with comparable appointment rights in their respective employmentagreements such that all such employees may collectively select a singleaccounting firm) may appoint another nationally recognized accounting firm tomake the determinations required hereunder (which accounting firm shall then bereferred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm with respect to suchdeterminations described above shall be borne solely by the Company.

 

Employee agrees (unless requested otherwise by theCompany) to use reasonable efforts to contest in good faith any subsequentdetermination by the Internal Revenue Service that Employee owes an amount ofExcise Tax greater than the amount determined pursuant to this Section; provided,that Employee shall be entitled to reimbursement by the Company (on an aftertax basis) of all fees and expenses reasonably incurred by Employee incontesting such determination.  In theevent the Internal Revenue Service or any court of competent jurisdictiondetermines that Employee owes an amount of Excise Tax that is greater than theamount previously taken into account and paid under this Agreement (suchadditional Excise Tax being the “Additional Excise Tax”), the Company shallpromptly pay to Employee the amount of such shortfall.  In the case of any payment that the Companyis required to make to Employee pursuant to the preceding sentence (a “LaterPayment”), the Company shall also pay to Employee an additional amount suchthat after payment by Employee of all of Employee’s applicable Federal, stateand local taxes, including any interest and penalties assessed by any taxingauthority, on the Later Payment, Employee will retain from the Later Payment anamount equal to the Additional Excise Tax, which Employee shall use to pay theAdditional Excise Tax.

 

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(h)           In the event of a Change in Control,the Company shall require that the ultimate parent entity (or if no parententity, the acquiring entity itself) of any entity that acquires control(through ownership of securities or assets, consistent with the definitionaltriggers of a Change in Control set forth above) of the Company in connectionwith such Change in Control assume or guaranty the Company’s obligations underSections 12(f) and 12(g) of this Agreement.

 

# 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 itcannot be varied, contradicted or supplemented by evidence of any prior orcontemporaneous oral or written agreements, including without limitationEmployee’s Amended and Restated Employment Agreement dated May 18, 2001, whichis superseded and replaced in its entirety by this Agreement.  This written Agreement may not be latermodified except by a further writing signed by a duly authorized officer of theCompany and Employee, and no term of this Agreement may be waived except bywriting signed by the party waiving the benefit of such term.

 

# 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:   President         |
|            |                           |
| with a copy to: | *SOURCECORP*,  Incorporated    |
|            | 3232 McKinney Avenue           |
|            | Suite 1000                     |
|            | Dallas, Texas 75204            |
|            | Attn:   General Counsel   |
|            |                           |
| with a copy to: | Charles C. Reeder, Esq.        |
|            | Locke Liddell &  Sapp LLP  |
|            | 2200 Ross Avenue               |
|            | Suite 2200                     |
|            | Dallas, Texas 75201            |
|            |                           |
| To Employee:    | Thomas C. Walker               |
|            | 3510 Turtle Creek Blvd., #10 A |
|            | Dallas, Texas 75219            |

 

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

 

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actually received.  Either party may change the address fornotice by notifying the other party of such change in accordance with thisSection 14.

 

# 15.           Severability; Headings.  If any portion of this Agreement is heldinvalid or inoperative, the other portions of this Agreement shall be deemedvalid and operative and, so far as is reasonable and possible, effect shall begiven to the intent manifested by the portion held invalid or inoperative.  The Section headings herein are forreference purposes only and are not intended in any way to describe, interpret,define or limit the extent or intent 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 to add to, detract from, ormodify 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 as determined by the arbitrators.  This Section shall survive any termination of this Agreement.

 

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

 

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

 
|   | EMPLOYEE:                         |
|--------|-----------------------------------|
|   |                              |
|   |                              |
|   | /s/ Thomas C. Walker              |
|   | Thomas C. Walker                  |
|   |                              |
|   |                              |
|   | *SOURCECORP*,** INCORPORATED |
|   |                              |
|   | By:                               | /s/ Ed H. Bowman, Jr. |
|   | Title:                            | President and Chief Executive Officer |
|   |                              |
|   | *SOURCECORP*Management,  L.P.     |
|   |                              |
|   | By: SRCP**Management,  Inc.,      |
|   | General Partner                   |
|   |                              |
|   | By:                               | /s/ Ed H. Bowman, Jr. |
|   | Title:                            | President |
|        |                                   |  |  |  |

 

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