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
Execut
