Document:

Exhibit
10.3

 

AMENDED
AND RESTATED EMPLOYMENT AGREEMENT

(Barry
L. Edwards)

 

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

 

As of the date of this Agreement, the Company is
engaged primarily in the business of providing document and information
management outsourcing solutions.

 

Employee is employed hereunder by the Company in a
confidential relationship wherein Employee, in the course of his employment
with the Company, has and will continue to become familiar with and aware of
information 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 be
established and maintained at great expense to the Company; this information is
a trade secret and constitutes the valuable goodwill of the Company.  In consideration for Employee’s promises
herein, the Company agrees to provide Employee with such confidential information;
in return, Employee recognizes and acknowledges that such information must be
maintained in confidence, and to further such protection agrees to the
provisions 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.                                       Employment
and Duties.

 

(a)                                  The
Company hereby employs Employee as Executive Vice President and Chief Financial
Officer.  As such, Employee shall have
responsibilities, duties and authority reasonably accorded to and expected of
an Executive Vice President and Chief Financial Officer.  Employee hereby accepts this employment upon
the terms and conditions herein contained and, subject to Section 1(b), agrees
to devote his working time, attention and efforts to promote and further the
business of the Company.

 

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(b)                                 Employee
shall not, during the term of his employment hereunder, be engaged in any other
business activity pursued for gain, profit or other pecuniary advantage except
to the extent that such activity (i) does not interfere with Employee’s duties
and responsibilities hereunder and (ii) does not violate Section 3 hereof.  The foregoing limitations shall not be construed
as prohibiting Employee from (A) serving on the boards of directors of
other companies or (B) making personal investments in such form or manner
as will neither require his services, other than to a minimal extent, in the
operation or affairs of the companies or enterprises in which such investments
are made nor violate the terms of Section 3 hereof.

 

2.                                       Compensation.  For all services rendered by Employee, the
Company shall compensate Employee as follows:

 

(a)                                  Base Salary.  The base salary payable to Employee shall be
$308,000 per year, payable on a regular basis in accordance with the Company’s
standard payroll procedures but not less than bi-weekly.  On at least an annual basis, the Board of
Directors of the Company (the “Board”) will review Employee’s performance and
may make increases to such base salary if, in its discretion, any such increase
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 bonus opportunity of up to 65% of his annual base salary in
accordance with the Company’s Incentive Bonus Plan as modified from time to
time, payable in cash and/or equity of the Company (at the Company’s discretion).  The bonus payment and the Company’s targeted
performance shall be determined and approved by the Board or the compensation
committee thereof.

 

(c)                                  Executive
Perquisites, Benefits and Other Compensation.  Employee shall be entitled to receive additional
benefits and compensation from the Company in such form and to such extent as
specified below:

 

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

 

(ii)                                  Reimbursement
for all business travel and other out-of-pocket expenses reasonably incurred by
Employee in the performance of his services pursuant to this Agreement.  All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission of
any request for reimbursement, and in a format and manner consistent with the Company’s
expense reporting policy.

 

(iii)                               Four
(4) weeks paid vacation for each year during the period of employment or such
greater amount as may be afforded officers and key employees generally under
the Company’s policies in effect from time to time (prorated for any year in
which Employee is employed for less than the full year).

 

(iv)                              An
automobile allowance in the amount of $1,000 per month.

 

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

 

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

 

(vii)                           The
Company shall reimburse Employee up to $6,000 per year for expenditures on
health costs, insurance, financial planning or tax planning benefits (or
similar benefits, or such other benefits at 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) and Section 12, Employee will not, during the period
of his employment by or with the Company, and for a period of two (2) years
immediately following the termination of his employment with the Company, for
any reason whatsoever, directly or indirectly, for himself or on behalf of or
in conjunction with any other person, company, partnership, corporation,
business or entity of whatever nature:

 

(i)                                     engage,
as an officer, director, shareholder, owner, partner, joint venturer, or in a
managerial capacity, whether as an employee, independent contractor, consultant
or advisor, or as a sales representative, in any business selling any products
or services in direct competition with the Company, within 100 miles of (i) the
principal executive offices of the Company or (ii) any place to which the
Company provides products or services or in which the Company (including the
subsidiaries thereof) is in the process of initiating business operations
during the term of this covenant (the “Territory”);

 

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

 

(iii)                               call
upon 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 the
subsidiaries thereof) within the Territory for the purpose of soliciting or
selling products or services in direct competition with the Company within the
Territory;

 

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

 

(v)                                 disclose
customers, whether in existence or proposed, of the Company (or the
subsidiaries thereof) to any person, firm, partnership, corporation or business
for any reason or purpose whatsoever.

 

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As used in Section 3(a), references to the
business, customers, Territory, etc. of the 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 a successor to the Company resulting from a Change
in Control).  Notwithstanding the above,
the foregoing covenant shall not be deemed to prohibit Employee from acquiring
as an investment not more than three percent (3%) of the capital stock of a
competing business, whose stock is traded on a national securities exchange or
over-the-counter.

 

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

 

(c)                                  In
the course of Employee’s employment with the Company, Employee will become
exposed to certain of the Company’s confidential information and business
relationships, which the above covenants are designed to protect.  It is agreed by the parties that the
foregoing covenants in this Section 3 impose a reasonable restraint on Employee
in light of the activities and business of the Company (including the Company’s
subsidiaries) on the date of the execution of this Agreement and the current
plans of the Company (including the Company’s subsidiaries); but it is also the
intent of the Company and Employee that such covenants 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 of termination of the employment of Employee,
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 activities or business in
addition to or other than the activities or business enumerated under the
Recitals above or the locations currently established therefor, then Employee
will be precluded from soliciting the customers or employees of such new
activities or business or from such new location and from directly competing
with such new business within 100 miles of its then-established operating
location(s) through the term of this covenant.

 

It is further agreed by the parties hereto that, in
the event that Employee shall cease to be employed hereunder, and shall enter
into a business or pursue other activities not in competition with the Company
(including the Company’s subsidiaries), or similar activities or business in
locations the operation of which, under such circumstances, does not violate
clause (i) of this Section 3, and in any event such new business, activities or
location are not in violation of this Section 3 or of Employee’s obligations
under this Section 3, if any, Employee shall not be chargeable with a violation
of this Section 3 if the Company (including the Company’s subsidiaries) 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 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of
any other covenant.  Moreover, in the
event any court of competent jurisdiction shall determine that the scope, time
or territorial restrictions set forth are unreasonable, then it is the
intention of the parties that such

 

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

 

(e)                                  All
of the covenants in this Section 3 shall be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of Employee against the Company, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company of such covenants.  It is
specifically agreed that the period of two (2) years following Employee’s
employment set forth at the beginning of this Section 3, during which the
agreements and covenants of Employee made in this Section 3 shall be effective,
shall be computed by excluding from such computation any time during which
Employee is in violation of any provision of this Section 3.

 

4.                                       Place
of Performance.

 

(a)                                  Employee’s
place of employment is the Company’s headquarters in Dallas, Texas.  Employee understands that he may be
requested by the Board to relocate from his present residence to another
geographic location in order to more efficiently carry out his duties and
responsibilities under this Agreement or as part of a promotion or other
increase 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 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 costs prior to moving into a new
permanent residence; duplicate home carrying costs; all closing costs on the
sale of Employee’s present residence and on the purchase of a comparable
residence 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 are
not deductible for tax purposes.  The
general intent of the foregoing is that Employee shall not personally bear any
out-of-pocket cost as a result of the relocation, with an understanding that
Employee will use his best efforts to incur only those costs which are
reasonable and necessary to effect a smooth, efficient and orderly relocation with
minimal disruption to the business affairs of the Company and the personal life
of Employee and his family.

 

(b)                                 Notwithstanding
the above, if Employee is requested by the Board to relocate and Employee
refuses, such refusal shall not constitute “good cause” for termination of this
Agreement 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 continue
through December 31, 2004 (the “Term”). 
This Agreement and Employee’s employment may be terminated in any one of
the following ways:

 

(a)                                  Death.  The death of Employee shall immediately
terminate the Agreement with no severance compensation due to Employee’s
estate.

 

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

 

5

 

terminate
Employee’s employment hereunder provided Employee is unable to resume his
full-time duties at the conclusion of such notice period.  Also, Employee may terminate his employment
hereunder if his health should become impaired to an extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Employee shall have furnished the
Company with a written statement from a qualified doctor to such effect 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 an examination
by a doctor selected by the Company who is reasonably acceptable to Employee or
Employee’s doctor and such doctor shall have concurred in the conclusion of
Employee’s doctor.  In the event 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 rate then in effect for a
period 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’s
gross negligence in the performance or intentional nonperformance (continuing
for ten (10) days after receipt of the written notice of same) of any of
Employee’s material duties and responsibilities hereunder; (3) Employee’s
dishonesty, fraud or misconduct with respect to the business or affairs of the
Company which materially and adversely affects the operations or reputation of
the Company; (4) Employee’s conviction of a felony crime; or (5) chronic
alcohol abuse 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 Company may, without cause, terminate this
Agreement and Employee’s employment, effective thirty (30) days after written
notice is provided to the Employee. 
Should Employee be terminated by the Company without cause, Employee
shall receive from the Company, in a lump-sum payment (“Severance Pay”) due on
the effective date of termination, the base salary at the rate then in effect
for a period of one (1) year.  Further,
any termination without cause by the 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 of termination of employment.

 

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

 

(f)                                    Termination
by Employee for Good Reason. 
Employee may terminate his employment hereunder for “Good Reason.”  As used herein, “Good Reason” shall mean the
continuance of any of the following after ten (10) days’ prior written notice
by Employee to the Company, specifying the basis for such Employee’s having
Good Reason to terminate this Agreement:

 

(i)                                     the
assignment to Employee of any duties materially and adversely inconsistent with
Employee’s position as specified in Section 1 hereof (or such other position to
which he may be promoted), including status, offices, responsibilities or
persons to whom Employee reports as contemplated under Section 1 of this
Agreement,

 

6

 

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

 

(ii)                                  Employee’s
removal from, or failure to 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 this Agreement by the Company that is not cured within
the ten (10) day time period set forth in Section 5(f) above, including the
failure to pay Employee on a timely basis the amounts to which he is entitled
under this Agreement.

 

In the event of any termination by the Employee for Good Reason, as
determined by a court of competent jurisdiction or pursuant to the provisions
of Section 16 below, the Company shall pay all amounts and damages to which
Employee may be entitled as a result of such breach, including interest thereon
and all reasonable legal fees and expenses and other costs incurred by Employee
to enforce his rights hereunder.  In
addition, Employee shall be entitled to receive Severance Pay equivalent to the
base salary at the rate then in effect for a period of one (1) year.  Further, none of the provisions of Section 3
shall apply in the event this Agreement is terminated by Employee for Good
Reason.

 

(g)                                 Termination
by Employee Without Cause. 
If Employee resigns or otherwise terminates his employment without Good
Reason 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 compensation
earned and all benefits vested and reimbursements due through the effective
date of termination.  Additional
compensation subsequent to such a termination of this Agreement, if any, will
be due and payable to Employee only to the extent and in the manner expressly
provided above or in Section 16.  Except
as otherwise provided in this Section 5, all other rights and obligations of
the Company and Employee under this Agreement shall cease as of the effective
date of termination of this Agreement; however, the Company’s obligations under
Section 9 herein and Employee’s obligations under Sections 3, 6, 7, 8 and 10 herein
shall survive such termination in accordance with their terms.

 

6.                                       Return
of 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 behalf
of the Company (including the Company’s subsidiaries) or its representatives,
vendors or customers which pertain 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 to its discretion and control.  Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company (including the Company’s
subsidiaries) which is collected by Employee shall be delivered promptly to the
Company without request by it upon termination of Employee’s employment.

 

7

 

7.                                       Inventions.  Employee shall disclose promptly to the
Company any and all significant conceptions and ideas for inventions,
improvements and valuable discoveries, whether patentable or not, which are
conceived or made by Employee, solely or jointly with another, during the
period of employment or within one (1) year thereafter, and which are directly
related to the business or activities of the Company (including the Company’s
subsidiaries) and which Employee conceives as a result of his employment by the
Company.  Employee hereby assigns and
agrees 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 other
instruments that the Company shall deem necessary to apply for and obtain
letters patent of the United States or any foreign country or to otherwise
protect the Company’s interest therein.

 

8.                                       Trade
Secrets.  Employee agrees that he
will not, during or after the term of this Agreement with the Company, disclose
the specific terms of the Company’s (including the Company’s subsidiaries)
relationships or agreements with its significant vendors or customers or any
other significant and material trade secret of the Company (including the
Company’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 any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Employee), by reason of the fact that he is or was performing services
under this Agreement, then the Company shall indemnify Employee against all
expenses (including attorneys’ fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith.  In the event that both
Employee and the Company are made a party to the same third-party action,
complaint, suit or proceeding, the Company agrees to engage competent legal
representation, and Employee agrees to use the same representation, provided
that if counsel selected by the Company shall have a conflict of interest that
prevents such counsel from representing Employee, Employee may engage separate
counsel and the Company shall pay all attorneys’ fees of such separate
counsel.  Further, while Employee is
expected at all times to use his best efforts to faithfully discharge his duties
under this Agreement, Employee cannot be held liable to the Company for errors
or omissions made in good faith where Employee has not exhibited gross, willful
and wanton negligence and misconduct or performed criminal and fraudulent acts
which materially damage the business of the Company.

 

10.                                 No
Prior Agreements.  Employee hereby
represents and warrants to the Company that the execution of this Agreement by
Employee and his employment by the Company and the performance of his duties
hereunder will not violate or be a breach of any agreement with a former
employer, 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 hereafter
come to have against the Company based upon or arising out of any
non-competition agreement, invention or secrecy agreement between Employee and
such third party which was in existence as of the date of this Agreement.

 

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11.                                 Assignment;
Binding Effect.  Employee
understands that he has been selected for employment by the Company on the
basis of his personal qualifications, experience and skills.  Employee agrees, therefore, he cannot assign
all or any portion of his performance under this Agreement and the Company
agrees 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) sentences
and the express provisions of Section 12 below, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and assigns.

 

12.                                 Change
in Control.

 

(a)                                  Unless
he elects to terminate this Agreement pursuant to (c) below, Employee
understands and acknowledges that the Company may be merged or consolidated
with or into another entity and that such entity shall automatically succeed to
the rights and obligations of the Company hereunder.

 

(b)                                 In
the event of a pending Change in Control wherein the Employee has not received
written notice at least fifteen (15) business days prior to the anticipated
closing date of the transaction giving rise to the Change in Control from the
successor to all or a substantial portion of the Company’s business and/or
assets that such successor is willing as of the closing to assume and agree to
perform the Company’s obligations under this Agreement in the same manner and
to the same extent that the Company is hereby required to perform, such Change
in Control shall be deemed to be a termination of this Agreement by the Company
and the amount of the lump-sum severance payment due to Employee shall be 2.5
times the sum of Employee’s annual salary plus maximum bonus opportunity in
effect immediately prior to the Change in Control and the non-competition
provisions of Section 3 shall not apply whatsoever.  Payment shall be made either at closing of the transaction if
notice is served at least five (5) days before closing or within ten (10) days
of Employee’s written notice.

 

(c)                                  In
any Change in Control situation in which Employee has received written notice
from the successor to the Company that such pending successor is willing to
assume the Company’s obligations hereunder or Employee receives notice after
(or within 15 business days prior to) the Change in Control that Employee is
being terminated, Employee may nonetheless, at his sole discretion, elect to
terminate this Agreement by providing written notice to the Company at any time
prior to closing of the transaction and up to two (2) years after the closing
of the transaction giving rise to the Change in Control.  In such case, the amount of the lump-sum
severance payment due to Employee shall be 2.5 times the sum of Employee’s
annual salary plus maximum bonus opportunity in effect immediately prior to the
Change in Control and the non-competition provisions of Section 3 shall all
apply.  Payment shall be made either at
closing 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 5 under the circumstances described in (b) and (c)
above, the effective date of termination will be the later of the closing date
of the transaction giving rise to the Change in Control or Employee’s notice as
described above, and all compensation, reimbursements and lump-sum payments due
Employee must be paid in full by the Company at such time.  Further, Employee will be given sufficient
time in order to comply with the Securities and Exchange Commission’s
regulations to elect whether to exercise and sell

 

9

 

all or any of his vested
options to purchase Common Stock of the Company, including any options with
accelerated vesting under the provisions of the Company’s stock option or
similar plan, as amended or any warrants, such that he may convert the options
or warrants to shares of Common Stock of the Company at or prior to the closing
of 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)                                     any
person, other than the Company or an employee benefit plan of the Company,
acquires directly or indirectly the Beneficial Ownership (as defined in Section
13(d) of the Securities Exchange Act of 1934, as amended) of any voting
security of the Company and immediately after such acquisition such person is,
directly or indirectly, the Beneficial Owner of voting securities representing
30% or more of the total voting power of all of the then-outstanding voting
securities of the Company;

 

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

 

(iii)                               the
consummation of a merger, consolidation, recapitalization or reorganization of
the Company, a reverse stock split of outstanding voting securities of the
Company, or consummation of any such transaction if stockholder approval is not
sought or obtained, other than any such transaction which would result in at
least 75% of the total voting power represented by the voting securities of the
surviving entity outstanding immediately after such transaction being
Beneficially Owned by holders of at least 75% of the outstanding voting
securities of the Company immediately prior to the transaction, with the voting
power of each such continuing holder relative to other such continuing holders
not substantially altered in the transaction; or

 

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

 

(f)                                    The
Executive shall not be required to seek other employment following a Change in
Control Termination and any compensation earned from other employment shall not
reduce the amounts otherwise payable under this Agreement.

 

10

 

(g)                                 If
any portion of the severance benefits, Change in Control benefits or any other
payment under this Agreement, or under any other agreement with, or plan of the
Company, including but not limited to stock options, warrants and other
long-term incentives (in the aggregate “Total Payments”) would be subject to
the excise tax imposed by Section 4999 of the Code, as amended (or any
similar tax that may hereafter be imposed) or any interest or penalties with
respect to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the “Excise Tax”), then
Employee shall be entitled to receive from the Company an additional payment
(the “Gross-up Payment”) (i.e., in addition to such other severance benefits,
Change in Control benefits or any other payments under this Agreement) in an
amount such that the net 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 and all federal, state and local income tax, employment tax and
Excise Tax on the Gross-up Payment, shall be equal to the Total Payments.

 

For purposes of this Section Employee’s applicable
Federal, state and local taxes shall be computed at the maximum marginal rates,
taking into account the effect of any loss of personal exemptions resulting
from receipt of the Gross-Up Payment.

 

All determinations
required to be made under this Section 12, including whether a Gross-Up
Payment is required under this Section, and the assumptions to be used in
determining the Gross-Up Payment, shall be made by the Company’s current
independent accounting firm, or such other firm as the Company may designate in
writing prior to a Change in Control (the “Accounting Firm”), which shall
provide detailed supporting calculations both to the Company and Employee
within twenty business days of the receipt of notice from Employee that there
will likely be a Change in Control, or such earlier time as is requested by the
Company.  In the event that the Accounting
Firm is serving as accountant or auditor for the party effecting the Change in
Control or is otherwise unavailable, Employee (together with all other
employees with comparable appointment rights in their respective employment
agreements such that all such employees may collectively select a single
accounting firm) may appoint another nationally recognized accounting firm to
make the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). 
All fees and expenses of the Accounting Firm with respect to such
determinations described above shall be borne solely by the Company.

 

11

 

Employee agrees (unless requested otherwise by the
Company) to use reasonable efforts to contest in good faith any subsequent
determination by the Internal Revenue Service that Employee owes an amount of
Excise Tax greater than the amount determined pursuant to this Section; provided,
that Employee shall be entitled to reimbursement by the Company (on an after
tax basis) of all fees and expenses reasonably incurred by Employee in
contesting such determination.  In the
event the Internal Revenue Service or any court of competent jurisdiction
determines that Employee owes an amount of Excise Tax that is greater than the
amount previously taken into account and paid under this Agreement (such
additional Excise Tax being the “Additional Excise Tax”), the Company shall
promptly pay to Employee the amount of such shortfall.  In the case of any payment that the Company
is required to make to Employee pursuant to the preceding sentence (a “Later
Payment”), the Company shall also pay to Employee an additional amount such
that after payment by Employee of all of Employee’s applicable Federal, state
and local taxes, including any interest and penalties assessed by any taxing
authority, on the Later Payment, Employee will retain from the Later Payment an
amount equal to the Additional Excise Tax, which Employee shall use to pay the
Additional Excise Tax.

 

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

 

13.                                 Complete
Agreement.  This Agreement is not a
promise of future employment.  Employee
has no oral representations, understandings or agreements with the Company or
any of its officers, directors or representatives covering the same subject
matter as this Agreement.  This written
Agreement is the final, complete and exclusive statement and expression of the
agreement between the Company and Employee and of all the terms of this
Agreement, and it cannot be varied, contradicted or supplemented by evidence of
any prior or contemporaneous oral or written agreements, including without
limitation 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 later
modified except by a further writing signed by a duly authorized officer of the
Company and Employee, and no term of this Agreement may be waived except by
writing 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

  

 

12

 

	
  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:

  	
  Barry L. Edwards

  
	
   

  	
  3900 Greenbrier Dr.

  
	
   

  	
  Dallas, TX 75225

  
	
   

  	
   

  

 

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

 

15.                                 Severability;
Headings.  If any portion of this
Agreement is held invalid or inoperative, the other portions of this Agreement
shall 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 or
inoperative.  The Section headings
herein are for reference 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 controversy
arising under or in connection with this Agreement or Employee’s employment
shall be settled exclusively by arbitration, conducted before a panel of three
(3) arbitrators in Dallas, Texas, in accordance with the rules of the American
Arbitration Association then in effect. 
The arbitrators shall not have the authority to add to, detract from, or
modify any provision hereof nor to award punitive damages to any injured
party.  The arbitrators shall have the
authority to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Employee was terminated without disability or good
cause, as defined in Sections 5(b) and 5(c), respectively, or that the Company
has otherwise materially breached this Agreement.  A decision by a majority of the arbitration panel shall be final
and binding.  Judgment may be entered on
the arbitrators’ award in any court having jurisdiction.  The costs of any arbitration proceeding
shall be borne by the party or parties not prevailing in such proceeding as
determined by the arbitrators.  This
Section shall survive any termination of this Agreement.

 

 

[Balance of page intentionally left blank]

 

13

 

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

 

 

	
   

  	
  EMPLOYEE:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Barry L.
  Edwards

  
	
   

  	
  Barry L. Edwards

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  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

  
				

 

14Exhibit
10.4

 

AMENDED
AND RESTATED EMPLOYMENT AGREEMENT

(Charles
S. Gilbert)

 

This Employment Agreement (the “Agreement”) by and
between SOURCECORP, Incorporated,
a Delaware corporation, and SOURCECORP
Management, L.P., a Texas limited partnership and indirect wholly owned
subsidiary 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 other
employment agreements or understandings, written or oral, between the Company
and 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 is
engaged primarily in the business of providing document and information management
outsourcing solutions.

 

Employee is employed hereunder by the Company in a
confidential relationship wherein Employee, in the course of his employment
with the Company, has and will continue to become familiar with and aware of
information 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 be
established and maintained at great expense to the Company; this information is
a trade secret and constitutes the valuable goodwill of the Company.  In consideration for Employee’s promises
herein, the Company agrees to provide Employee with such confidential information;
in return, Employee recognizes and acknowledges that such information must be
maintained in confidence, and to further such protection agrees to the
provisions 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.                                       Employment
and Duties.

 

(a)                                  The
Company hereby employs Employee as Senior Vice President, General Counsel and
Secretary.  As such, Employee shall have
responsibilities, duties and authority reasonably accorded to and expected of a
Senior Vice President, General Counsel and Secretary.  Employee hereby accepts this employment upon the terms and
conditions herein contained and, subject to Section 1(b), agrees to devote his
working time, attention and efforts to promote and further the business of the
Company.

 

1

 

(b)                                 Employee
shall not, during the term of his employment hereunder, be engaged in any other
business activity pursued for gain, profit or other pecuniary advantage except
to the extent that such activity (i) does not interfere with Employee’s duties
and responsibilities hereunder and (ii) does not violate Section 3 hereof.  The foregoing limitations shall not be
construed as prohibiting Employee from (A) serving on the boards of
directors of other companies or (B) making personal investments in such
form or manner as will neither require his services, other than to a minimal
extent, in the operation or affairs of the companies or enterprises in which
such investments are made nor violate the terms of Section 3 hereof.

 

2.                                       Compensation.  For all services rendered by Employee, the
Company 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’s
standard payroll procedures but not less than bi-weekly.  On at least an annual basis, the Board of
Directors of the Company (the “Board”) will review Employee’s performance and
may make increases to such base salary if, in its discretion, any such increase
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 bonus opportunity of up to 65% of his annual base salary in
accordance with the Company’s Incentive Bonus Plan as modified from time to
time, payable in cash and/or equity of the Company (at the Company’s discretion).  The bonus payment and the Company’s targeted
performance shall be determined and approved by the Board or the compensation
committee thereof.

 

(c)                                  Executive
Perquisites, Benefits and Other Compensation.  Employee shall be entitled to receive additional
benefits and compensation from the Company in such form and to such extent as
specified below:

 

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

 

(ii)                                  Reimbursement
for all business travel and other out-of-pocket expenses reasonably incurred by
Employee in the performance of his services pursuant to this Agreement.  All reimbursable expenses shall be
appropriately documented in reasonable detail by Employee upon submission of
any request for reimbursement, and in a format and manner consistent with the
Company’s expense reporting policy.

 

(iii)                               Four
(4) weeks paid vacation for each year during the period of employment or such
greater amount as may be afforded officers and key employees generally under
the Company’s policies in effect from time to time (prorated for any year in
which Employee is employed for less than the full year).

 

(iv)                              An
automobile allowance in the amount of $1,000 per month.

 

2

 

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

 

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

 

(vii)                           The
Company shall reimburse Employee up to $5,000 per year for expenditures on
health costs, insurance, financial planning or tax planning benefits (or
similar benefits, or such other benefits at 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) and Section 12, Employee will not, during the period
of his employment by or with the Company, and for a period of two (2) years
immediately following the termination of his employment with the Company, for
any reason whatsoever, directly or indirectly, for himself or on behalf of or
in conjunction with any other person, company, partnership, corporation,
business or entity of whatever nature:

 

(i)                                     engage,
as an officer, director, shareholder, owner, partner, joint venturer, or in a
managerial capacity, whether as an employee, independent contractor, consultant
or advisor, or as a sales representative, in any business selling any products
or services in direct competition with the Company, within 100 miles of (i) the
principal executive offices of the Company or (ii) any place to which the
Company provides products or services or in which the Company (including the
subsidiaries thereof) is in the process of initiating business operations
during the term of this covenant (the “Territory”);

 

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

 

(iii)                               call
upon 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 the
subsidiaries thereof) within the Territory for the purpose of soliciting or
selling products or services in direct competition with the Company within the
Territory;

 

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

 

(v)                                 disclose
customers, whether in existence or proposed, of the Company (or the subsidiaries
thereof) to any person, firm, partnership, corporation or business for any
reason or purpose whatsoever.

 

3

 

As used in Section 3(a), references to the
business, customers, Territory, etc. of the 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 a successor to the Company resulting from a Change
in Control).  Notwithstanding the above,
the foregoing covenant shall not be deemed to prohibit Employee from acquiring
as an investment not more than three percent (3%) of the capital stock of a
competing business, whose stock is traded on a national securities exchange or
over-the-counter.

 

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

 

(c)                                  In
the course of Employee’s employment with the Company, Employee will become
exposed to certain of the Company’s confidential information and business
relationships, which the above covenants are designed to protect.  It is agreed by the parties that the
foregoing covenants in this Section 3 impose a reasonable restraint on Employee
in light of the activities and business of the Company (including the Company’s
subsidiaries) on the date of the execution of this Agreement and the current
plans of the Company (including the Company’s subsidiaries); but it is also the
intent of the Company and Employee that such covenants 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 of termination of the employment of
Employee, 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 activities
or business in addition to or other than the activities or business enumerated
under the Recitals above or the locations currently established therefor, then
Employee will be precluded from soliciting the customers or employees of such
new activities or business or from such new location and from directly
competing with such new business within 100 miles of its then-established
operating location(s) through the term of this covenant.

 

It is further agreed by the parties hereto that, in
the event that Employee shall cease to be employed hereunder, and shall enter
into a business or pursue other activities not in competition with the Company
(including the Company’s subsidiaries), or similar activities or business in
locations the operation of which, under such circumstances, does not violate
clause (i) of this Section 3, and in any event such new business, activities or
location are not in violation of this Section 3 or of Employee’s obligations
under this Section 3, if any, Employee shall not be chargeable with a violation
of this Section 3 if the Company (including the Company’s subsidiaries) 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 are severable and separate, and the
unenforceability of any specific covenant shall not affect the provisions of
any other covenant.  Moreover, in the
event any court of competent jurisdiction shall determine that the scope, time
or territorial restrictions set forth are unreasonable, then it is the
intention of the parties that such

 

4

 

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

 

(e)                                  All
of the covenants in this Section 3 shall be construed as an agreement
independent of any other provision in this Agreement, and the existence of any
claim or cause of action of Employee against the Company, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company of such covenants.  It is
specifically agreed that the period of two (2) years following Employee’s
employment set forth at the beginning of this Section 3, during which the
agreements and covenants of Employee made in this Section 3 shall be effective,
shall be computed by excluding from such computation any time during which
Employee is in violation of any provision of this Section 3.

 

4.                                       Place
of Performance.

 

(a)                                  Employee’s
place of employment is the Company’s headquarters in Dallas, Texas.  Employee understands that he may be
requested by the Board to relocate from his present residence to another
geographic location in order to more efficiently carry out his duties and
responsibilities under this Agreement or as part of a promotion or other
increase 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 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 costs prior to moving into a new
permanent residence; duplicate home carrying costs; all closing costs on the
sale of Employee’s present residence and on the purchase of a comparable
residence 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 are
not deductible for tax purposes.  The
general intent of the foregoing is that Employee shall not personally bear any
out-of-pocket cost as a result of the relocation, with an understanding that
Employee will use his best efforts to incur only those costs which are
reasonable and necessary to effect a smooth, efficient and orderly relocation
with minimal disruption to the business affairs of the Company and the personal
life of Employee and his family.

 

(b)                                 Notwithstanding
the above, if Employee is requested by the Board to relocate and Employee
refuses, such refusal shall not constitute “good cause” for termination of this
Agreement 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 continue
through December 31, 2004 (the “Term”). 
This Agreement and Employee’s employment may be terminated in any one of
the following ways:

 

(a)                                  Death.  The death of Employee shall immediately
terminate the Agreement with no severance compensation due to Employee’s
estate.

 

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

 

5

 

terminate
Employee’s employment hereunder provided Employee is unable to resume his
full-time duties at the conclusion of such notice period.  Also, Employee may terminate his employment
hereunder if his health should become impaired to an extent that makes the
continued performance of his duties hereunder hazardous to his physical or
mental health or his life, provided that Employee shall have furnished the
Company with a written statement from a qualified doctor to such effect 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 an examination
by a doctor selected by the Company who is reasonably acceptable to Employee or
Employee’s doctor and such doctor shall have concurred in the conclusion of
Employee’s doctor.  In the event 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 rate then in effect for a
period 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’s
gross negligence in the performance or intentional nonperformance (continuing
for ten (10) days after receipt of the written notice of same) of any of
Employee’s material duties and responsibilities hereunder; (3) Employee’s
dishonesty, fraud or misconduct with respect to the business or affairs of the
Company which materially and adversely affects the operations or reputation of
the Company; (4) Employee’s conviction of a felony crime; or (5) chronic
alcohol abuse 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 Company may, without cause, terminate this
Agreement and Employee’s employment, effective thirty (30) days after written
notice is provided to the Employee. 
Should Employee be terminated by the Company without cause, Employee
shall receive from the Company, in a lump-sum payment (“Severance Pay”) due on
the effective date of termination, the base salary at the rate then in effect
for a period of one (1) year.  Further,
any termination without cause by the 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 of termination of employment.

 

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

 

(f)                                    Termination
by Employee for Good Reason. 
Employee may terminate his employment hereunder for “Good Reason.”  As used herein, “Good Reason” shall mean the
continuance of any of the following after ten (10) days’ prior written notice
by Employee to the Company, specifying the basis for such Employee’s having
Good Reason to terminate this Agreement:

 

(i)                                     the
assignment to Employee of any duties materially and adversely inconsistent with
Employee’s position as specified in Section 1 hereof (or such other position to
which he may be promoted), including status, offices, responsibilities or
persons to whom Employee reports as contemplated under Section 1 of this
Agreement, 

 

6

 

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

 

(ii)                                  Employee’s
removal from, or failure to 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 this Agreement by the Company that is not cured within
the ten (10) day time period set forth in Section 5(f) above, including the
failure to pay Employee on a timely basis the amounts to which he is entitled
under this Agreement.

 

In the event of any termination by the Employee for Good Reason, as
determined by a court of competent jurisdiction or pursuant to the provisions
of Section 16 below, the Company shall pay all amounts and damages to which
Employee may be entitled as a result of such breach, including interest thereon
and all reasonable legal fees and expenses and other costs incurred by Employee
to enforce his rights hereunder.  In
addition, Employee shall be entitled to receive Severance Pay equivalent to the
base salary at the rate then in effect for a period of one (1) year.  Further, none of the provisions of Section 3
shall apply in the event this Agreement is terminated by Employee for Good
Reason.

 

(g)                                 Termination
by Employee Without Cause. 
If Employee resigns or otherwise terminates his employment without Good
Reason 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 compensation
earned and all benefits vested and reimbursements due through the effective
date of termination.  Additional
compensation subsequent to such a termination of this Agreement, if any, will
be due and payable to Employee only to the extent and in the manner expressly
provided above or in Section 16.  Except
as otherwise provided in this Section 5, all other rights and obligations of
the Company and Employee under this Agreement shall cease as of the effective
date of termination of this Agreement; however, the Company’s obligations under
Section 9 herein and Employee’s obligations under Sections 3, 6, 7, 8 and 10
herein shall survive such termination in accordance with their terms.

 

6.                                       Return
of 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 behalf
of the Company (including the Company’s subsidiaries) or its representatives,
vendors or customers which pertain 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 to its discretion and control.  Likewise, all correspondence, reports,
records, charts, advertising materials and other similar data pertaining to the
business, activities or future plans of the Company (including the Company’s
subsidiaries) which is collected by Employee shall be delivered promptly to the
Company without request by it upon termination of Employee’s employment.

 

7

 

7.                                       Inventions.  Employee shall disclose promptly to the Company
any and all significant conceptions and ideas for inventions, improvements and
valuable discoveries, whether patentable or not, which are conceived or made by
Employee, solely or jointly with another, during the period of employment or
within one (1) year thereafter, and which are directly related to the business
or activities of the Company (including the Company’s subsidiaries) and which
Employee conceives as a result of his employment by the Company.  Employee hereby assigns and agrees 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 other
instruments that the Company shall deem necessary to apply for and obtain
letters patent of the United States or any foreign country or to otherwise
protect the Company’s interest therein.

 

8.                                       Trade
Secrets.  Employee agrees that he
will not, during or after the term of this Agreement with the Company, disclose
the specific terms of the Company’s (including the Company’s subsidiaries)
relationships or agreements with its significant vendors or customers or any
other significant and material trade secret of the Company (including the
Company’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 any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by the Company
against Employee), by reason of the fact that he is or was performing services
under this Agreement, then the Company shall indemnify Employee against all
expenses (including attorneys’ fees), judgments, fines and amounts paid in
settlement, as actually and reasonably incurred by Employee in connection
therewith.  In the event that both
Employee and the Company are made a party to the same third-party action,
complaint, suit or proceeding, the Company agrees to engage competent legal
representation, and Employee agrees to use the same representation, provided
that if counsel selected by the Company shall have a conflict of interest that prevents
such counsel from representing Employee, Employee may engage separate counsel
and the Company shall pay all attorneys’ fees of such separate counsel.  Further, while Employee is expected at all
times to use his best efforts to faithfully discharge his duties under this
Agreement, Employee cannot be held liable to the Company for errors or
omissions made in good faith where Employee has not exhibited gross, willful
and wanton negligence and misconduct or performed criminal and fraudulent acts
which materially damage the business of the Company.

 

10.                                 No
Prior Agreements.  Employee hereby
represents and warrants to the Company that the execution of this Agreement by
Employee and his employment by the Company and the performance of his duties
hereunder will not violate or be a breach of any agreement with a former
employer, 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 hereafter
come to have against the Company based upon or arising out of any
non-competition agreement, invention or secrecy agreement between Employee and
such third party which was in existence as of the date of this Agreement.

 

8

 

11.                                 Assignment;
Binding Effect.  Employee
understands that he has been selected for employment by the Company on the
basis of his personal qualifications, experience and skills.  Employee agrees, therefore, he cannot assign
all or any portion of his performance under this Agreement and the Company
agrees 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) sentences
and the express provisions of Section 12 below, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and
their respective heirs, legal representatives, successors and assigns.

 

12.                                 Change
in Control.

 

(a)                                  Unless
he elects to terminate this Agreement pursuant to (c) below, Employee
understands and acknowledges that the Company may be merged or consolidated
with or into another entity and that such entity shall automatically succeed to
the rights and obligations of the Company hereunder.

 

(b)                                 In
the event of a pending Change in Control wherein the Employee has not received
written notice at least fifteen (15) business days prior to the anticipated closing
date of the transaction giving rise to the Change in Control from the successor
to all or a substantial portion of the Company’s business and/or assets that
such successor is willing as of the closing to assume and agree to perform the
Company’s obligations under this Agreement in the same manner and to the same
extent that the Company is hereby required to perform, such Change in Control
shall be deemed to be a termination of this Agreement by the Company and the
amount of the lump-sum severance payment due to Employee shall be 1.22 times
the sum of Employee’s annual salary plus maximum bonus opportunity in effect
immediately prior to the Change in Control and the non-competition provisions
of Section 3 shall not apply whatsoever. 
Payment shall be made either at closing of the transaction if notice is
served at least five (5) days before closing or within ten (10) days of
Employee’s written notice.

 

(c)                                  In
any Change in Control situation in which Employee has received written notice
from the successor to the Company that such pending successor is willing to
assume the Company’s obligations hereunder or Employee receives notice after
(or within 15 business days prior to) the Change in Control that Employee is
being terminated, Employee may nonetheless, at his sole discretion, elect to
terminate this Agreement by providing written notice to the Company at any time
prior to closing of the transaction and up to two (2) years after the closing
of the transaction giving rise to the Change in Control.  In such case, the amount of the lump-sum
severance payment due to Employee shall be 1.22 times the sum of Employee’s
annual salary plus maximum bonus opportunity in effect immediately prior to the
Change in Control and the non-competition provisions of Section 3 shall all
apply.  Payment shall be made either at
closing 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 5 under the circumstances described in (b) and (c)
above, the effective date of termination will be the later of the closing date
of the transaction giving rise to the Change in Control or Employee’s notice as
described above, and all compensation, reimbursements and lump-sum payments due
Employee must be paid in full by the Company at such time.  Further, Employee will be given sufficient
time in order to comply with the Securities and Exchange Commission’s
regulations to elect whether to exercise and sell

 

9

 

all or any of his vested
options to purchase Common Stock of the Company, including any options with
accelerated vesting under the provisions of the Company’s stock option or
similar plan, as amended or any warrants, such that he may convert the options
or warrants to shares of Common Stock of the Company at or prior to the closing
of 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)                                     any
person, other than the Company or an employee benefit plan of the Company,
acquires directly or indirectly the Beneficial Ownership (as defined in Section
13(d) of the Securities Exchange Act of 1934, as amended) of any voting
security of the Company and immediately after such acquisition such person is,
directly or indirectly, the Beneficial Owner of voting securities representing
30% or more of the total voting power of all of the then-outstanding voting
securities of the Company;

 

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

 

(iii)                               the
consummation of a merger, consolidation, recapitalization or reorganization of
the Company, a reverse stock split of outstanding voting securities of the
Company, or consummation of any such transaction if stockholder approval is not
sought or obtained, other than any such transaction which would result in at
least 75% of the total voting power represented by the voting securities of the
surviving entity outstanding immediately after such transaction being
Beneficially Owned by holders of at least 75% of the outstanding voting
securities of the Company immediately prior to the transaction, with the voting
power of each such continuing holder relative to other such continuing holders
not substantially altered in the transaction; or

 

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

 

(f)                                    The
Executive shall not be required to seek other employment following a Change in
Control Termination and any compensation earned from other employment shall not
reduce the amounts otherwise payable under this Agreement.

 

10

 

 (g)                              If any portion of the
severance benefits, Change in Control benefits or any other payment under this
Agreement, or under any other agreement with, or plan of the Company, including
but not limited to stock options, warrants and other long-term incentives (in
the aggregate “Total Payments”) would be subject to the excise tax imposed by
Section 4999 of the Code, as amended (or any similar tax that may
hereafter be imposed) or any interest or penalties with respect to such excise
tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the “Excise Tax”), then Employee shall
be entitled to receive from the Company an additional payment (the “Gross-up
Payment”) (i.e., in addition to such other severance benefits, Change in Control
benefits or any other payments under this Agreement) in an amount such that the
net 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 and
all federal, state and local income tax, employment tax and Excise Tax on the
Gross-up Payment, shall be equal to the Total Payments.

 

For purposes of this Section Employee’s applicable
Federal, state and local taxes shall be computed at the maximum marginal rates,
taking into account the effect of any loss of personal exemptions resulting
from receipt of the Gross-Up Payment.

 

All determinations
required to be made under this Section 12, including whether a Gross-Up
Payment is required under this Section, and the assumptions to be used in
determining the Gross-Up Payment, shall be made by the Company’s current
independent accounting firm, or such other firm as the Company may designate in
writing prior to a Change in Control (the “Accounting Firm”), which shall
provide detailed supporting calculations both to the Company and Employee
within twenty business days of the receipt of notice from Employee that there
will likely be a Change in Control, or such earlier time as is requested by the
Company.  In the event that the Accounting
Firm is serving as accountant or auditor for the party effecting the Change in
Control or is otherwise unavailable, Employee (together with all other
employees with comparable appointment rights in their respective employment
agreements such that all such employees may collectively select a single
accounting firm) may appoint another nationally recognized accounting firm to
make the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). 
All fees and expenses of the Accounting Firm with respect to such
determinations described above shall be borne solely by the Company.

 

11

 

Employee agrees (unless requested otherwise by the
Company) to use reasonable efforts to contest in good faith any subsequent
determination by the Internal Revenue Service that Employee owes an amount of
Excise Tax greater than the amount determined pursuant to this Section; provided,
that Employee shall be entitled to reimbursement by the Company (on an after
tax basis) of all fees and expenses reasonably incurred by Employee in
contesting such determination.  In the
event the Internal Revenue Service or any court of competent jurisdiction
determines that Employee owes an amount of Excise Tax that is greater than the
amount previously taken into account and paid under this Agreement (such
additional Excise Tax being the “Additional Excise Tax”), the Company shall
promptly pay to Employee the amount of such shortfall.  In the case of any payment that the Company
is required to make to Employee pursuant to the preceding sentence (a “Later
Payment”), the Company shall also pay to Employee an additional amount such
that after payment by Employee of all of Employee’s applicable Federal, state
and local taxes, including any interest and penalties assessed by any taxing
authority, on the Later Payment, Employee will retain from the Later Payment an
amount equal to the Additional Excise Tax, which Employee shall use to pay the
Additional Excise Tax.

 

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

 

13.                                 Complete
Agreement.  This Agreement is not a
promise of future employment.  Employee
has no oral representations, understandings or agreements with the Company or
any of its officers, directors or representatives covering the same subject
matter as this Agreement.  This written
Agreement is the final, complete and exclusive statement and expression of the
agreement between the Company and Employee and of all the terms of this
Agreement, and it cannot be varied, contradicted or supplemented by evidence of
any prior or contemporaneous oral or written agreements, including without
limitation 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 later
modified except by a further writing signed by a duly authorized officer of the
Company and Employee, and no term of this Agreement may be waived except by
writing 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

  

 

 

12

 

	
  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 the
deposit in the U.S. mail of a writing addressed as above and sent first class
mail, certified, return receipt requested, or when actually received, whichever
is earlier.  Either party may change the
address for notice by notifying the other party of such change in accordance
with this Section 14.

 

15.                                 Severability;
Headings.  If any portion of this
Agreement is held invalid or inoperative, the other portions of this Agreement
shall 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 or
inoperative.  The Section headings
herein are for reference 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 controversy
arising under or in connection with this Agreement or Employee’s employment
shall be settled exclusively by arbitration, conducted before a panel of three
(3) arbitrators in Dallas, Texas, in accordance with the rules of the American
Arbitration Association then in effect. 
The arbitrators shall not have the authority to add to, detract from, or
modify any provision hereof nor to award punitive damages to any injured
party.  The arbitrators shall have the
authority to order back-pay, severance compensation, vesting of options (or cash
compensation in lieu of vesting of options), reimbursement of costs, including
those incurred to enforce this Agreement, and interest thereon in the event the
arbitrators determine that Employee was terminated without disability or good
cause, as defined in Sections 5(b) and 5(c), respectively, or that the Company
has otherwise materially breached this Agreement.  A decision by a majority of the arbitration panel shall be final
and binding.  Judgment may be entered on
the arbitrators’ award in any court having jurisdiction.  The costs of any arbitration proceeding
shall be borne by the party or parties not prevailing in such proceeding as
determined by the arbitrators.  This
Section shall survive any termination of this Agreement.

 

 

[Balance of page intentionally left blank]

 

13

 

17.                                 Governing
Law.  This Agreement shall in all
respects 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

  
				

 

14

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