**Exhibit10.4**

 

**AMENDEDAND RESTATED EMPLOYMENT AGREEMENT**

**(CharlesS. Gilbert)**

 

This Employment Agreement (the “Agreement”) by andbetween *SOURCECORP,*Incorporated,a Delaware corporation, and *SOURCECORP*Management, L.P., a Texas limited partnership and indirect wholly ownedsubsidiary of *SOURCECORP,*Incorporated (collectively, the “Company”), and Charles S. Gilbert (“Employee”)is hereby entered into and effective as of March 31, 2003.  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 following statements are true and correct:

 

As of the date of this Agreement, the Company isengaged primarily in the business of providing document and information managementoutsourcing solutions.

 

Employee is employed hereunder by the Company in aconfidential relationship wherein Employee, in the course of his employmentwith the Company, has and will continue to become familiar with and aware ofinformation as to the Company’s customers, specific manner of doing business,including the processes, techniques and trade secrets utilized by the Company,and future plans with respect thereto, all of which has been and will beestablished and maintained at great expense to the Company; this information isa trade secret and constitutes the valuable goodwill of the Company.  In consideration for Employee’s promisesherein, the Company agrees to provide Employee with such confidential information;in return, Employee recognizes and acknowledges that such information must bemaintained in confidence, and to further such protection agrees to theprovisions of Section 3 of this Agreement.

 

Therefore, in consideration of the mutual promises,terms, covenants and conditions set forth herein and the performance of each,it is hereby agreed as follows:

 

A G R E E M E N T S

 

# 1.                                       Employmentand Duties.

 

## (a)                                  TheCompany hereby employs Employee as Senior Vice President, General Counsel andSecretary.  As such, Employee shall haveresponsibilities, duties and authority reasonably accorded to and expected of aSenior Vice President, General Counsel and Secretary.  Employee hereby accepts this employment upon the terms andconditions herein contained and, subject to Section 1(b), agrees to devote hisworking time, attention and efforts to promote and further the business of theCompany.

 

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## (b)                                 Employeeshall not, during the term of his employment hereunder, be engaged in any otherbusiness activity pursued for gain, profit or other pecuniary advantage exceptto the extent that such activity (i) does not interfere with Employee’s dutiesand responsibilities hereunder and (ii) does not violate Section 3 hereof.  The foregoing limitations shall not beconstrued as prohibiting Employee from (A) serving on the boards ofdirectors of other companies or (B) making personal investments in suchform or manner as will neither require his services, other than to a minimalextent, in the operation or affairs of the companies or enterprises in whichsuch investments are made nor violate 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$242,000 per year, payable on a regular basis in accordance with the Company’sstandard payroll procedures but not less than bi-weekly.  On at least an annual basis, the Board ofDirectors of the Company (the “Board”) will review Employee’s performance andmay make increases to such base salary if, in its discretion, any such increaseis warranted. Such recommended increase would, in all likelihood, requireapproval by the Board or a duly constituted committee thereof.

 

## (b)                                 *IncentiveBonus Plan*.  Employee shallbe eligible for a bonus opportunity of up to 65% of his annual base salary inaccordance with the Company’s Incentive Bonus Plan as modified from time totime, payable in cash and/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.

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## (c)                                  *ExecutivePerquisites, Benefits and Other Compensation*.  Employee shall be entitled to receive additionalbenefits and compensation from the Company in such form and to such extent asspecified below:

 

### (i)                                     Paymentof all premiums for coverage for Employee and his dependent family membersunder health, hospitalization, disability, dental, life and other insuranceplans that the Company may have in effect from time to time, and not lessfavorable than the benefits provided to other Company executives.

 

### (ii)                                  Reimbursementfor all business travel and other out-of-pocket expenses reasonably incurred byEmployee in the performance 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 each year during the period of employment or suchgreater amount as may be afforded officers and key employees generally underthe Company’s policies in effect from time to time (prorated for any year inwhich Employee is employed for less than the full year).

 

### (iv)                              Anautomobile allowance in the amount of $1,000 per month.

 

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### (v)                                 TheCompany shall provide Employee with other executive perquisites as may beavailable to or deemed appropriate for Employee by the Board and participationin all other Company-wide employee benefits as available from time to time,which will include participation in the Company’s Incentive Compensation Plan.

 

### (vi)                              Participationin the Company’s 401(k) Plan and Non-Qualified Plan.

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### (vii)                           TheCompany shall reimburse Employee up to $5,000 per year for expenditures onhealth costs, insurance, financial planning or tax planning benefits (orsimilar benefits, or such other benefits at the discretion of the Company) orclub dues, all as selected by Employee.

 

# 3.                                       Non-CompetitionAgreement.

 

## (a)                                  Subjectto Sections 5(d) and (f) 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 amanagerial capacity, whether as an employee, independent contractor, consultantor advisor, or as a sales representative, in any business selling any productsor services in direct competition with the Company, within 100 miles of (i) theprincipal executive offices of the Company or (ii) any place to which theCompany provides 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)                                  callupon any person who is, at that time, within the Territory, an employee of theCompany (including the subsidiaries thereof) in a managerial capacity for thepurpose or with the intent of enticing such employee away from or out of theemploy of the Company (including the subsidiaries thereof), provided thatEmployee shall be permitted to call upon and hire any member of his immediatefamily;

 

### (iii)                               callupon any person or entity which is, at that time, or which has been, within one(1) year prior to that time, a customer of the Company (including thesubsidiaries thereof) within the Territory for the purpose of soliciting orselling products or services in direct competition with the Company within theTerritory;

 

### (iv)                              callupon any prospective acquisition candidate, on Employee’s own behalf or onbehalf of any competitor, which candidate was either called upon by the Company(including the subsidiaries thereof) or for which the Company made anacquisition analysis, for the purpose of acquiring such entity; or

 

### (v)                                 disclosecustomers, whether in existence or proposed, of the Company (or the subsidiariesthereof) to any person, firm, partnership, corporation or business for anyreason or purpose whatsoever.

 

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As used in Section 3(a), references to thebusiness, customers, Territory, etc. of the Company refer to the status of theCompany prior to any Change in Control (*i.e.*,such breadth of business, customers, Territory, etc. shall not automatically beexpanded to include those of a successor to the Company resulting from a Changein Control).  Notwithstanding the above,the foregoing covenant shall not be deemed to prohibit Employee from acquiringas an investment not more than three percent (3%) of the capital stock of acompeting business, whose stock is traded on a national securities exchange orover-the-counter.

 

## (b)                                 Becauseof the difficulty of measuring economic losses to the Company as a result of abreach of the foregoing covenant, and because of the immediate and irreparabledamage that could be caused to the Company for which it would have no otheradequate remedy, Employee agrees that the foregoing covenant may be enforced bythe Company in the event of breach by him by injunctions and restraining orderswithout the necessity of posting any bond therefor.

 

## (c)                                  Inthe course of Employee’s employment with the Company, Employee will becomeexposed to certain of the Company’s confidential information and businessrelationships, which the above covenants are designed to protect.  It is agreed by the parties that theforegoing covenants in this Section 3 impose a reasonable restraint on Employeein light of the activities and business of the Company (including the Company’ssubsidiaries) on the date of the execution of this Agreement and the currentplans of the Company (including the Company’s subsidiaries); but it is also theintent of the Company and Employee that such covenants be construed andenforced in accordance with the changing activities, business and locations ofthe Company (including the Company’s subsidiaries) throughout the term of thiscovenant, whether before or after the date of termination of the employment ofEmployee, subject to the following paragraph. For example, if, during the Term of this Agreement, the Company(including the Company’s subsidiaries) engages in new and different activities,enters a new business or established new locations for its current activitiesor business in addition to or other than the activities or business enumeratedunder the Recitals above or the locations currently established therefor, thenEmployee will be precluded from soliciting the customers or employees of suchnew activities or business or from such new location and from directlycompeting with such new business within 100 miles of its then-establishedoperating location(s) through the term of this covenant.

 

It is further agreed by the parties hereto that, inthe event that Employee shall cease to be employed hereunder, and shall enterinto a business or pursue other activities not in competition with the Company(including the Company’s subsidiaries), or similar activities or business inlocations the operation of which, under such circumstances, does not violateclause (i) of this Section 3, and in any event such new business, activities orlocation are not in violation of this Section 3 or of Employee’s obligationsunder this Section 3, if any, Employee shall not be chargeable with a violationof this Section 3 if the Company (including the Company’s subsidiaries) shallthereafter enter the same, similar or a competitive (i) business, (ii) courseof activities or (iii) location, as applicable.

 

## (d)                                 Thecovenants in this Section 3 are severable and separate, and theunenforceability of any specific covenant shall not affect the provisions ofany other covenant.  Moreover, in theevent any court of competent jurisdiction shall determine that the scope, timeor territorial restrictions set forth are unreasonable, then it is theintention of the parties that such

 

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restrictions be enforced to the fullest extent which the court deemsreasonable, and the Agreement shall thereby be reformed to such extent.

 

## (e)                                  Allof the covenants in this Section 3 shall be construed as an agreementindependent of any other provision in this Agreement, and the existence of anyclaim or cause of action of Employee against the Company, whether predicated onthis Agreement or otherwise, shall not constitute a defense to the enforcementby the Company of such covenants.  It isspecifically agreed that the period of two (2) years following Employee’semployment set forth at the beginning of this Section 3, during which theagreements and covenants of Employee made in this Section 3 shall be effective,shall be computed by excluding from such computation any time during whichEmployee is in violation of any provision of this Section 3.

 

# 4.                                       Placeof Performance.

 

## (a)                                  Employee’splace of employment is the Company’s headquarters in Dallas, Texas.  Employee understands that he may berequested by the Board to relocate from his present residence to anothergeographic location in order to more efficiently carry out his duties andresponsibilities under this Agreement or as part of a promotion or otherincrease in duties and responsibilities. In the event that Employee is requested to relocate and agrees to do so,the Company will pay all relocation costs to move Employee, his immediatefamily and their personal property and effects.  Such costs may include, by way of example, but are not limitedto, pre-move visits to search for a new residence, investigate schools or forother purposes; temporary lodging and living costs prior to moving into a newpermanent residence; duplicate home carrying costs; all closing costs on thesale of Employee’s present residence and on the purchase of a comparableresidence in the new location; and added income taxes that Employee may incur,as a result of any payment hereunder, to the extent any relocation costs arenot deductible for tax purposes.  Thegeneral intent of the foregoing is that Employee shall not personally bear anyout-of-pocket cost as a result of the relocation, with an understanding thatEmployee will use his best efforts to incur only those costs which arereasonable and necessary to effect a smooth, efficient and orderly relocationwith minimal disruption to the business affairs of the Company and the personallife of Employee and his family.

 

## (b)                                 Notwithstandingthe above, if Employee is requested by the Board to relocate and Employeerefuses, such refusal shall not constitute “good cause” for termination of thisAgreement under the terms of Section 5(c).

 

# 5.                                       Term;Termination; Rights on Termination. The term of this Agreement shall begin on the date hereof and continuethrough December 31, 2004 (the “Term”). This Agreement and Employee’s employment may be terminated in any one ofthe following ways:

 

(a)                                  *Death*.  The death of Employee shall immediatelyterminate the Agreement with no severance compensation due to Employee’sestate.

 

(b)                                 *Disability*.  If, as a result of incapacity due tophysical or mental illness or injury, Employee shall have been absent from hisfull-time duties hereunder for four (4) consecutive months, then thirty (30)days after receiving written notice (which notice may occur before or after theend of such four (4) month period, but which shall not be effective earlierthan the last day of such four (4) month period), the Company may

 

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terminateEmployee’s employment hereunder provided Employee is unable to resume hisfull-time duties at the conclusion of such notice period.  Also, Employee may terminate his employmenthereunder if his health should become impaired to an extent that makes thecontinued performance of his duties hereunder hazardous to his physical ormental health or his life, provided that Employee shall have furnished theCompany with a written statement from a qualified doctor to such effect andprovided, further, that, at the Company’s request made within thirty (30) daysof the date of such written statement, Employee shall submit to an examinationby a doctor selected by the Company who is reasonably acceptable to Employee orEmployee’s doctor and such doctor shall have concurred in the conclusion ofEmployee’s doctor.  In the event thisAgreement is terminated as a result of Employee’s disability, Employee shallreceive from the Company, in a lump-sum payment due within ten (10) days of theeffective date of termination, the base salary at the rate then in effect for aperiod of one (1) year.

 

(c)                                  *Good Cause*.  The Company may terminate the Agreement ten(10) days after written notice to Employee for good cause, which shall be: (1)Employee’s material and irreparable breach of this Agreement; (2) Employee’sgross negligence in the performance or intentional nonperformance (continuingfor ten (10) days after receipt of the written notice of same) of any ofEmployee’s material duties and responsibilities hereunder; (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 event of a termination for good cause, as enumeratedabove, Employee shall have no right to any severance compensation.

 

(d)                                 *WithoutCause*.  At any time after thecommencement of employment, the Company may, without cause, terminate thisAgreement and Employee’s employment, effective thirty (30) days after writtennotice is provided to the Employee. Should Employee be terminated by the Company without cause, Employeeshall receive from the Company, in a lump-sum payment (“Severance Pay”) due onthe effective date of termination, the base salary at the rate then in effectfor a period of one (1) year.  Further,any termination without cause by the Company shall operate to shorten theperiod set forth in Section 3(a) and during which the terms of Section 3apply to one (1) year from the date of termination of employment.

 

(e)                                  *Change inControl*.  Refer to Section 12below.

 

(f)                                    *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)                                     theassignment to Employee of any duties materially and adversely inconsistent withEmployee’s position as specified in Section 1 hereof (or such other position towhich he may be promoted), including status, offices, responsibilities orpersons to whom Employee reports as contemplated under Section 1 of thisAgreement, 

 

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or any other action by the Company which results in amaterial and adverse change in such position, status, offices, titles orresponsibilities;

 

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

 

### (iii)                               anyother material breach of this Agreement by the Company that is not cured withinthe ten (10) day time period set forth in Section 5(f) above, including thefailure to pay Employee on a timely basis the amounts to which he is entitledunder 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 a period of one (1) year.  Further, none of the provisions of Section 3shall apply in the event this Agreement is terminated by Employee for GoodReason.

 

(g)                                 *Terminationby Employee Without Cause*. If Employee resigns or otherwise terminates his employment without GoodReason pursuant to Section 5(f), Employee shall receive 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 Employee under this Agreement shall cease as of the effectivedate of termination of this Agreement; however, the Company’s obligations underSection 9 herein and Employee’s obligations under Sections 3, 6, 7, 8 and 10herein shall survive such termination in accordance with their terms.

 

# 6.                                       Returnof Company Property.  All records,designs, patents, business plans, financial statements, manuals, memoranda,lists and other property delivered to or compiled by Employee by or on behalfof the Company (including the Company’s subsidiaries) or its representatives,vendors or customers which pertain to the business of the Company (includingthe Company’s subsidiaries) shall be and remain the property of the Company andbe subject at all times to its discretion and control.  Likewise, all correspondence, reports,records, charts, advertising materials and other similar data pertaining to thebusiness, activities or future plans of the Company (including the Company’ssubsidiaries) which is collected by Employee shall be delivered promptly to theCompany without request by it upon termination of Employee’s employment.

 

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# 7.                                       Inventions.  Employee shall disclose promptly to the Companyany and all significant conceptions and ideas for inventions, improvements andvaluable discoveries, whether patentable or not, which are conceived or made byEmployee, solely or jointly with another, during the period of employment orwithin one (1) year thereafter, and which are directly related to the businessor activities of the Company (including the Company’s subsidiaries) and whichEmployee conceives as a result of his employment by the Company.  Employee hereby assigns and agrees to assignall 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.                                       TradeSecrets.  Employee agrees that hewill not, during or after the term of this Agreement with the Company, disclosethe specific terms of the Company’s (including the Company’s subsidiaries)relationships or agreements with its significant vendors or customers or anyother significant and material trade secret of the Company (including theCompany’s subsidiaries), 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 that preventssuch counsel from representing Employee, Employee may engage separate counseland the Company shall pay all attorneys’ fees of such separate counsel.  Further, while Employee is expected at alltimes to use his best efforts to faithfully discharge his duties under thisAgreement, Employee cannot be held liable to the Company for errors oromissions made in good faith where Employee has not exhibited gross, willfuland wanton negligence and misconduct or performed criminal and fraudulent actswhich materially damage the business of the Company.

 

# 10.                                 NoPrior Agreements.  Employee herebyrepresents and warrants to the Company that the execution of this Agreement byEmployee and his employment by the Company and the performance of his dutieshereunder will not violate or be a breach of any agreement with a formeremployer, client or any other person or entity.  Further, Employee agrees to indemnify the Company for any claim,including, but not limited to, attorneys’ fees and expenses of investigation,by any such third party that such third party may now have or may hereaftercome to have against the Company based upon or arising out of anynon-competition agreement, invention or secrecy agreement between Employee andsuch third party which was in existence as of the date of this Agreement.

 

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# 11.                                 Assignment;Binding Effect.  Employeeunderstands that he has been selected for employment by the Company on thebasis of his personal qualifications, experience and skills.  Employee agrees, therefore, he cannot assignall or any portion of his performance under this Agreement and the Companyagrees not to assign all or any portion of its obligations under this Agreement(other than to a successor as a result of a Change in Control).  Subject to the preceding two (2) sentencesand the express provisions of Section 12 below, this Agreement shall be bindingupon, inure to the benefit of and be enforceable by the parties hereto andtheir respective heirs, legal representatives, successors and assigns.

 

# 12.                                 Changein 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)                                 Inthe event of a pending Change in Control wherein the Employee has not receivedwritten notice at least fifteen (15) business days prior to the anticipated closingdate of the transaction giving rise to the Change in Control from the successorto all or a substantial portion of the Company’s business and/or assets thatsuch successor 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 1.22 timesthe sum of Employee’s annual salary plus maximum bonus opportunity in effectimmediately 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)                                  Inany Change in Control situation in which Employee has received written noticefrom the successor to the Company that such pending successor is willing toassume the Company’s obligations hereunder or Employee receives notice after(or within 15 business days prior to) the Change in Control that Employee isbeing terminated, 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 two (2) years 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 1.22 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)                                 Forpurposes of applying Section 5 under the circumstances described in (b) and (c)above, the effective date of termination will be the later of the closing dateof the transaction 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 the Securities and Exchange Commission’sregulations to elect whether to exercise and sell

 

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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 orsimilar plan, as amended or any warrants, such that he may convert the optionsor warrants to shares of Common Stock of the Company at or prior to the closingof the transaction giving rise to the Change in Control, if he so desires.

 

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

 

### (i)                                     anyperson, other than the Company or an employee benefit plan of the Company,acquires directly or indirectly the Beneficial Ownership (as defined in Section13(d) of the Securities Exchange Act of 1934, as amended) of any votingsecurity of the Company and immediately after such acquisition such person is,directly or indirectly, the Beneficial Owner of voting securities representing30% or more of the total voting power of all of the then-outstanding votingsecurities 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 ofDirectors of the Company;

 

(iii)                               theconsummation of a merger, consolidation, recapitalization or reorganization ofthe Company, a reverse stock split of outstanding voting securities of theCompany, or consummation of any such transaction if stockholder approval is notsought or obtained, other than any such transaction which would result in atleast 75% of the total voting power represented by the voting securities of thesurviving entity outstanding immediately after such transaction beingBeneficially Owned by holders of at least 75% of the outstanding votingsecurities of the Company immediately prior to the transaction, with the votingpower of each such continuing holder relative to other such continuing holdersnot substantially altered in the transaction; or

 

(iv)                              theconsummation of a complete liquidation of the Company or an agreement for thesale or disposition by the Company of all or a substantial portion of theCompany’s assets (i.e., 50% or more of the total assets of the Company(including the Company’s subsidiaries)).

 

(f)                                    TheExecutive shall not be required to seek other employment following a Change inControl Termination and any compensation earned from other employment shall notreduce the amounts otherwise payable under this Agreement.

 

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 (g)                              If any portion of theseverance benefits, Change in Control benefits or any other payment under thisAgreement, or under any other agreement with, or plan of the Company, includingbut not limited to stock options, warrants and other long-term incentives (inthe aggregate “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”) (i.e., in addition to such other severance benefits, Change in Controlbenefits or any other payments under this Agreement) in an amount such that thenet amount of Total Payments and Gross-up Payment retained by the Employee,after the calculation and deduction of all Excise Tax on the Total Payments andall federal, state and local income tax, employment tax and Excise Tax on theGross-up Payment, shall be 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.

 

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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.

 

(h)                                 Inthe event of a Change in Control, the Company shall require that the ultimateparent entity (or if no parent entity, the acquiring entity itself) of anyentity that acquires control (through ownership of securities or assets, consistentwith the definitional triggers of a Change in Control set forth above) of theCompany in connection with such Change in Control assume or guaranty theCompany’s obligations under Section 12(g) of this Agreement.

 

# 13.                                 CompleteAgreement.  This Agreement is not apromise of future employment.  Employeehas no oral representations, understandings or agreements with the Company orany of its officers, directors or representatives covering the same subjectmatter as this Agreement.  This writtenAgreement is the final, complete and exclusive statement and expression of theagreement between the Company and Employee and of all the terms of thisAgreement, and it cannot be varied, contradicted or supplemented by evidence ofany prior or contemporaneous oral or written agreements, including withoutlimitation Employee’s Amended and Restated Employment Agreement dated April 24,2002, which is 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      |

 

 

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| 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:    | Charles S. Gilbert           |
|            | 4339 Normandy                |
|            | Dallas, TX 75205             |

 

Notice shall be deemed given and effective three (3) days after thedeposit in the U.S. mail of a writing addressed as above and sent first classmail, certified, return receipt requested, or when actually received, whicheveris earlier.  Either party may change theaddress for notice by notifying the other party of such change in accordancewith this Section 14.

 

# 15.                                 Severability;Headings.  If any portion of thisAgreement is held invalid or inoperative, the other portions of this Agreementshall be deemed valid and operative and, so far as is reasonable and possible,effect shall be given to the intent manifested by the portion held invalid orinoperative.  The Section headingsherein are for reference purposes only and are not intended in any way todescribe, interpret, define or limit the extent or intent of the Agreement orof 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 (or cashcompensation in lieu of vesting of options), reimbursement of costs, includingthose incurred to enforce this Agreement, and interest thereon in the event thearbitrators determine that Employee was terminated without disability or goodcause, as defined in Sections 5(b) and 5(c), respectively, or that the Companyhas otherwise materially breached this Agreement.  A decision by a majority of the arbitration panel shall be finaland binding.  Judgment may be entered onthe arbitrators’ award in any court having jurisdiction.  The costs of any arbitration proceedingshall be borne by the party or parties not prevailing in such proceeding asdetermined by the arbitrators.  ThisSection shall survive any termination of this Agreement.

#  

#  

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17.                                 GoverningLaw.  This Agreement shall in allrespects be construed according to the laws of the State of Delaware.

 

 
|   | EMPLOYEE:                                   |
|--------|---------------------------------------------|
|   |                                        |
|   |                                        |
|   | /s/ Charles S.  Gilbert                     |
|   | Charles S. Gilbert                          |
|   |                                        |
|   |                                        |
|   | *SOURCECORP,* INCORPORATED             |
|   |                                        |
|   |                                        |
|   | By:                                         | /s/ Ed H.  Bowman, Jr. |
|   | Title:   President & CEO |
|   |                                        |
|   |                                        |
|   | *SOURCECORP*Management,  L.P.               |
|   |                                        |
|   |                                        |
|   | By: SRCP**Management,  Inc.,                |
|   | General Partner                             |
|   |                                        |
|   |                                        |
|   | By:                                         | /s/ Thomas C.  Walker |
|   | Title:   Vice  President     |
|        |                                             |  |  |

 

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