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Exhibit
10.1
SEVERANCE AND
NON-COMPETITION AGREEMENT
THIS SEVERANCE and
NON-COMPETITION AGREEMENT (the “ Agreement
”) is entered into effective as of this 1st day of January,
2005 by and among Sterling Bancshares, Inc., a Texas corporation
(“Bancshares”), Sterling Bank, a banking association
chartered by the State of Texas and an indirect subsidiary of
Bancshares (“Bank”) and Robert S. Smith (the “
Executive Officer ”).
WHEREAS, the Executive
Officer is being employed by Bancshares and/or Bank in a new
position in which he will have access to, and will gain knowledge
of, additional confidential and proprietary information of
Bancshares, Bank, Sterling Bancorporation, Inc. and their
respective affiliates (each, a “Sterling Entity,” and
together, the “Sterling Entities”), to which he
previously did not have access, and the parties wish to ensure that
the Executive Officer will enjoy access to the Sterling
Entities’ existing and future confidential and proprietary
information in his new position;
WHEREAS, the Sterling
Entities’ confidential and proprietary information
constitutes a substantial asset of the Sterling Entities that the
parties mutually wish to protect;
WHEREAS, the Executive
Officer is already subject to certain confidentiality obligations
under Texas law, and the parties reasonably believe that it would
be difficult, if not impossible, for the Executive Officer to
refrain from using or disclosing the confidential and proprietary
information of the Sterling Entities in the event that the
Executive Officer were to work for any other financial institution
after terminating his employment with Bancshares and/or the
Bank;
WHEREAS, the parties
mutually desire to achieve a level of certainty and predictability
concerning the post-employment activities the Executive Officer may
perform, and when;
WHEREAS, the parties
mutually desire to compensate the Executive Officer for any
restriction on his ability to engage in certain competitive
activities; and
WHEREAS, the parties
mutually desire to ensure that the Executive Officer receives
certain severance benefits in the event that his employment is
terminated by Bancshares and Bank without cause, or following a
“Change of Control” (as herein defined) under the
conditions set forth herein.
NOW, THEREFORE, in
consideration of the foregoing and the premises, representations,
and mutual covenants hereinafter set forth, the parties do hereby
agree as follows:
1. Definitions . The
following words and terms shall have the meanings set forth below
for purposes of this Agreement:
(a) Cause . A
termination of employment is for “Cause” only if it is
due to:
(i) serious intentional
misconduct on the part of the Executive Officer;
(ii) fraud, misappropriation
or embezzlement related to any of the Sterling Entities on the part
of the Executive Officer;
(iii) the conviction of the
Executive Officer of any felony or crime involving moral
turpitude;
(iv) a material violation by
the Executive Officer of any applicable federal or state banking
law or regulation that has had, or may have, a material adverse
effect on any Sterling Entity;
(v) a material breach of any
corporate policy including, without limitation, the Code of
Business Conduct and Ethics and the Code of Ethics for Senior
Officers, as applicable to the Executive Officer which, if
correctable, remains uncorrected for 30 days following written
notice to the Executive Officer by a Sterling Entity of such
breach;
(vi) a material breach of
this Agreement which, if correctable, remains uncorrected for 30
days following written notice to the Executive Officer by a
Sterling Entity of such breach; or
(vii) the willful and
continued failure by the Executive Officer to perform substantially
the Executive Officer’s duties on behalf of any Sterling
Entity, other than any such failure resulting from the Executive
Officer’s incapacity due to Disability, which failure is not
promptly abated after a demand for substantial performance is
delivered to the Executive Officer by Bancshares or other
applicable Sterling Entity that specifically identifies the manner
in which the Executive Officer has not substantially performed the
Executive Officer’s duties and gives the Executive Officer a
reasonable period of cure.
For purposes of this definition, any act
or failure to act on the Executive Officer’s part shall be
considered “material” or “willful” if done
or omitted to be done by the Executive Officer otherwise than in
good faith and without reasonable belief that the Executive
Officer’s action or omission was in the best interest of the
Sterling Entities.
(b) Change of Control
. A “Change of Control” shall be deemed to have
occurred if:
(i) any “person”
or “group” (within the meanings of Sections 13(d) or
14(d)(2) of the Securities Exchange Act of 1934) becomes the
“beneficial owner” (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of
securities of Bancshares representing thirty-five percent (35%) or
more of the combined voting power of Bancshares’ then
outstanding securities eligible to vote for the election of the
board of directors of Bancshares (the “Bancshares Voting
Securities”); provided, however, that the event described in
this paragraph (i) shall not be deemed to be a Change of Control by
virtue of any of the following acquisitions: (A) by Bancshares, (B)
by any employee benefit plan (or related trust) sponsored or
maintained by Bancshares, (C) by any underwriter temporarily
holding securities pursuant to an offering of such
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securities, or (D) pursuant
to a Non-Qualifying Transaction (as defined in paragraph (ii)
below);
(ii) the consummation of a
merger, consolidation, share exchange or similar form of corporate
transaction involving Bancshares that requires the approval of
Bancshares’ shareholders, whether for such transaction or the
issuance of securities in the transaction (a “Business
Combination”), unless immediately following such Business
Combination: (A) more than seventy-five percent (75%) of the total
voting power of (x) the corporation resulting from such Business
Combination (the “Surviving Corporation”), or (y) if
applicable, the ultimate parent corporation that directly or
indirectly has beneficial ownership of 100% of the voting
securities eligible to elect directors of the Surviving Corporation
(the “Parent Corporation”), is represented by
Bancshares Voting Securities that were outstanding immediately
prior to such Business Combination (or if applicable, is
represented by shares into which such Bancshares Voting Securities
were converted pursuant to such Business Combination), and such
voting power among the holders thereof is in substantially the same
proportion of the voting power of such Bancshares Voting Securities
among the holders thereof immediately prior the Business
Combination, (B) no person (other than any employee benefit plan
(or related trust) sponsored or maintained by the Surviving
Corporation or the Parent Corporation), is or becomes the
beneficial owner, directly or indirectly, of fifty-percent (50%) or
more of the total voting power of the outstanding voting securities
eligible to elect directors of the Parent Corporation (or, if there
is no Parent Corporation, the Surviving Corporation) and (C) at
least the majority of the board of directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving
Corporation) following the consummation of the Business Combination
were Incumbent Directors (as herein defined) at the time the board
of directors of Bancshares approved the execution of the initial
agreement providing for such Business Combination (any Business
Combination which satisfies all of the criteria specified in (A),
(B) and (C) above shall be deemed to be a “Non-Qualifying
Transaction”);
(iii) the individuals who
constitute the board of directors of Bancshares as of the date of
this Agreement (the “Incumbent Directors”) shall cease
for any reason to constitute at least a majority of the members of
the board of directors of Bancshares, provided that any person
becoming a director subsequent to the date of this Agreement, whose
election or nomination was approved by a vote of at least a
majority of the Incumbent Directors then comprising the board of
directors of Bancshares shall be, for purposes of this Agreement,
considered an Incumbent Director; provided, however, that no
individual initially elected or nominated as a director of
Bancshares as a result of an actual or threatened contest with
respect to directors or as a result of any other actual or
threatened solicitation of proxies (or consents) by or on behalf of
any person other than the board of directors shall be deemed to be
an Incumbent Director;
(iv) the consummation of a
sale of all or substantially all of the assets of Bancshares;
or
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(v) the shareholders of
Bancshares shall approve a plan of complete liquidation or
dissolution of Bancshares.
(c) Change of Control
Termination . A “Change of Control Termination”
shall mean the termination of the Executive Officer’s
employment with the Sterling Entities (or any Parent Corporation or
Surviving Corporation), within a two-year period commencing on the
effective date of a Change of Control, due to (i) an Involuntary
Termination or (ii) a termination for Good Reason.
(d) Disability .
“Disability” means the Executive Officer’s
permanent and total disability as defined in any long-term
disability plan sponsored by Bancshares and applicable to the
Executive Officer or in the absence of any such long-term
disability plan, the term “Disability” shall mean the
absence of the Executive Officer from his or her duties with the
Sterling Entities on a full-time basis for at least twelve (12)
consecutive weeks as a result of the Executive Officer’s
incapacity due to illness, accident, injury, physical or mental
incapacity or other disability.
(e) General Release of
Liability . A “General Release of Liability” means
the legal document in which the Executive Officer, in exchange for
benefits under this Agreement, releases the Sterling Entities,
their affiliates, their directors, officers, employees and agents,
their employee benefit plans and the fiduciaries and agents of said
plans from liability and damages in any way related to the
Executive Officer’s employment with or separation from the
Sterling Entities.
(f) Good Reason .
“Good Reason” means, without the Executive
Officer’s express written consent, the occurrence of any one
of the following events after a Change of Control:
(i) (A) any change in the
duties or responsibilities of the Executive Officer that is
inconsistent in any material and adverse respect with the Executive
Officer’s position, duties, responsibilities or status with
the Sterling Entities immediately prior to such Change of Control
or (B) a material and adverse change in the Executive
Officer’s titles or offices with the Sterling Entities (or
any Parent Corporation or Surviving Corporation) and including, if
applicable, membership or position on a board of directors with
Bancshares or Bank (or their respective successor), as in effect
immediately prior to such Change of Control;
(ii) a reduction of ten
percent (10%) or more in the Executive Officer’s rate of
annual base salary or annual target bonus opportunity (including
any material and adverse change in the formula for such annual
bonus target) as in effect immediately prior to such Change of
Control or as the same may be increased from time to time
thereafter, or the failure of the applicable Sterling Entity (or
any Parent Corporation or Surviving Corporation) to pay any such
amounts when due;
(iii) any requirement that
the Executive be based anywhere more than twenty-five (25) miles
from the office where the Executive Officer was located
at
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the time of the Change of
Control, if such relocation increases the Executive Officer’s
commute by more than twenty-five (25) miles;
(iv) the failure of the
Sterling Entities (or any Parent Corporation or Surviving
Corporation) to continue in effect benefits and a total
compensation package including, without limitation, employee
benefit plans, compensation plans, welfare benefit plans, material
fringe benefit plans, vacation policies and other similar benefit
plans providing not less than ninety percent (90%) of the Executive
Officer’s total compensation package in the twelve (12)
months immediately preceding the Change of Control; and
(v) the failure of Bancshares
to obtain the assumption (and, if applicable, guarantee) agreement
from any Surviving Corporation (and, if applicable, Parent
Corporation) as contemplated in Section 13(b).
(g) Involuntary
Termination . An “Involuntary Termination” means an
involuntary termination of employment of the Executive Officer by
the Sterling Entities (or any successor thereto including a Parent
Corporation or Surviving Corporation); provided, however, that
“Involuntary Termination” shall not include termination
of employment by reason of death, Disability or Cause.
2. Compensation and Stock
Award . In consideration of the services to be provided by the
Executive and as additional consideration for the covenants and
agreements contained in Sections 3, 4 and 5 of this Agreement,
Bancshares shall award the Executive Officer a $10,000 cash bonus
during the first available payroll period of 2005 following
employment and two thousand (2,000) shares of Bancshares’
common stock, $1.00 par value. The shares of common stock issued to
the Executive Officer hereunder shall be awarded under the terms of
Bancshares’ 2003 Stock Incentive and Compensation Plan (or
any successor plan) and shall not be subject to any forfeiture or
vesting requirements.
3. Non-Competition .
Executive Officer acknowledges that the Sterling Entities are
providing Executive with access to Confidential Information as
defined below. Ancillary to Executive Officer’s agreement not
to disclose Confidential Information, to protect the Confidential
Information described below, and in consideration for Executive
Officer receiving access to this Confidential Information, being
entitled to Severance Payments, having rights after a Change in
Control, the limitations on the Sterling Entities’ right to
terminate employment, and other benefits provided in this
Agreement, the Sterling Entities and Executive Officer agree to the
following non-competition provisions. The Executive Officer shall
not, during the time that he/she is employed by any Sterling Entity
and, in the event of a termination of employment for Cause, an
Involuntary Termination, or a termination of employment by the
Executive Officer, for a period of twelve (12) months after any
such termination:
(a) direc
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