SEVERANCE AND NON-COMPETITION AGREEMENT
THIS SEVERANCE and NON-COMPETITION AGREEMENT (the “ Agreement ”) is entered into effective as of this 4th day of May , 2009 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 Michelle L. Mahfouz (the “ Executive Officer ”).
WHEREAS, the Executive Officer is being employed by Bancshares and/or Bank in a position in which he will have access to, and will gain knowledge of, confidential and proprietary information of Bancshares, Bank, Sterling Bancorporation, Inc. and their respective affiliates (each, a “Sterling Entity,” and together, the “Sterling Entities”), and the parties wish to ensure that the Executive Officer will enjoy access to the Sterling Entities’ existing and future confidential and proprietary information;
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/her 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 such serious intentional misconduct on the part of the Executive Officer as described below:
(i) fraud, misappropriation or embezzlement related to any of the Sterling Entities on the part of the Executive Officer;
(ii) the conviction of the Executive Officer of any felony or crime involving moral turpitude;
(iii) 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;
(iv) 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;
(v) 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
(vi) 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 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
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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 indrectly 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 indrectly, of fifty-percent (50%) or more of the total voting power of the outstanding voting securities eligibile 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 intial agreement providing for such Business Combination (any Business Combinaion 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
(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
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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 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).
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(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 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 2009 following employment and two thousand (2,000) shares of Bancshares’ common stock. These shares of common stock shall be awarded under the terms of Bancshares’ 2003 Stock Incentive and Compensation Plan (or any successor plan) and shall be awarded on the first month of the quarter following the date of hire.
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, 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 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) directly or indirectly, own, manage, operate, control, invest or acquire an equity interest in any financial institution (or any affiliate thereof including, without limitation, any bank holding company or financial holding company) with $10 billion or less in assets located or conducting business in any county in Texas in which Executive Officer has performed any material services for a Sterling Entity in the twelve months preceding termination of employment (the “ Territory ”) which competes with the business conducted by any Sterling Entity;
(b) engage in or carry on, either directly or indirectly, whether for himself or as an employee, officer, director, agent, consultant, proprietor, partner, stockholder, member, joint venturer, investor, or other paid participant, any business with, on behalf of or as a financial institution within the Territory which competes with the business conducted by any Sterling Entity;
(c) request or induce any customer, depositor or borrower of any Sterling Entity or any other person which has a business relationship with any Sterling Entity to curtail, cancel, or otherwise discontinue its business or relationship with any such Sterling Entity; or
(d) publicly denigrate or in any manner undertake to publicly discredit any of the Sterling Entities or any person or operation associated with any Sterling Entity.
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Notwithstanding the foregoing, nothing contained in this Agreement shall prohibit the Executive Officer from owning any issue of stock or securities of any corporation the securities of which are either traded on a national securities exchange or quoted on the automated quotation system of the National Association of Securities Dealers, Inc. and which is engaged in a business which is in competition with any Sterling Entity so long as (i) the Executive Officer is not deemed to be an “affiliate” of such entity as such term is used in paragraphs (c) and (d) of Rule 145 under the Securities Act of 1933 and (ii) the Executive Officer and members of his immediate family do not own or hold more than one percent (1%) of any voting securities of such entity.
Executive Officer warrants that Executive Officer is not a party to any other restrictive agreement except