<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
Sterling Bancshares, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
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<PAGE> 2
STERLING
- ------------
BANCSHARES
1998
NOTICE OF
ANNUAL MEETING
AND PROXY STATEMENT
- ----------------------
APRIL 23, 1998
THURSDAY AT 1:30 P.M. LOCAL TIME
[STERLING BANK LOGO]
MANGUM OFFICE
2201 MANGUM ROAD
HOUSTON, TEXAS 77092
<PAGE> 3
STERLING BANCSHARES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 23, 1998
TO OUR SHAREHOLDERS:
The Annual Meeting of Shareholders (the "Meeting") of Sterling
Bancshares, Inc. (the "Company") will be held at Sterling Bank's Mangum Office,
2201 Mangum Road, Houston, Texas, at 1:30 p.m., Houston time, on Thursday, April
23, 1998, for the following purposes:
1. To elect one Class I director for a term of one year ending at
the 1999 Annual Meeting of Shareholders, or until his successor
has been elected and qualified.
2. To elect five Class III directors for a term of three years
ending at the 2001 Annual Meeting of Shareholders, or until their
successors have been elected and qualified.
3. To authorize an amendment to the Company's Restated and Amended
Articles of Incorporation to increase the number of authorized
shares of the Company's Common Stock, par value $1.00 per share,
from 30,000,000 to 50,000,000 shares.
4. To authorize certain amendments to the Company's 1994 Stock
Incentive Plan as more fully described in the Proxy Statement for
the Meeting.
5. To act on such other business as may properly come before the
Meeting or any adjournment thereof.
The close of business on March 1, 1998 has been fixed as the record
date for determining shareholders entitled to notice of and to vote at the
Meeting or at any adjournments thereof. For a period of at least ten days prior
to the Meeting, a complete list of shareholders entitled to vote at the Meeting
will be open to examination by any shareholder during ordinary business hours at
the executive offices of the Company, 15000 Northwest Freeway, Houston, Texas
77040. Information concerning the matters to be acted upon at the Meeting is set
forth in the accompanying Proxy Statement.
You are cordially invited and urged to attend the Meeting. If, however,
you are unable to attend the Meeting, you are requested to sign and date the
accompanying proxy and return it promptly in the enclosed envelope. If you
attend the Meeting, you may, if you wish, vote in person regardless of whether
you have given your proxy. In any event, a proxy may be revoked at any time
before it is exercised.
/s/ MICHAEL A. ROY
Michael A. Roy
Secretary
March 17, 1998
YOUR VOTE IS IMPORTANT.
YOU ARE URGED TO DATE, SIGN AND PROMPTLY RETURN YOUR PROXY SO THAT YOUR SHARES
MAY BE VOTED IN ACCORDANCE WITH YOUR WISHES AND TO ASSURE THE PRESENCE OF A
QUORUM. THE PROMPT RETURN OF YOUR SIGNED PROXY, REGARDLESS OF THE NUMBER OF
SHARES YOU HOLD, WILL AID THE COMPANY IN REDUCING THE EXPENSE OF ADDITIONAL
PROXY SOLICITATION. THE GIVING OF SUCH PROXY DOES NOT AFFECT YOUR RIGHT TO VOTE
IN PERSON IF YOU ATTEND THE MEETING.
<PAGE> 4
STERLING BANCSHARES, INC.
PROXY STATEMENT
SOLICITATION OF PROXY, REVOCABILITY AND VOTING OF PROXIES
GENERAL
The accompanying proxy is solicited on behalf of the Board of Directors
(the "Board") of Sterling Bancshares, Inc., a Texas corporation (the "Company"),
for use at the 1998 Annual Meeting of Shareholders (the "Meeting") to be held on
Thursday, April 23, 1998, at the time and place and for the purposes set forth
in the accompanying Notice and at any recess or adjournment thereof. Holders of
record of common stock, par value $1.00 per share ("Common Stock"), of the
Company at the close of business on March 1, 1998 (the "Record Date") are
entitled to notice of and to vote at the Meeting. On the Record Date, there were
20,799,863 shares of Common Stock outstanding and entitled to vote. The total
outstanding shares of Common Stock reflect the results of the three-for-two
stock split that the Company effected on February 20, 1998, in the form of a 50%
stock dividend.
The Company's principal executive offices are located at 15000
Northwest Freeway, Houston, Texas 77040. This proxy statement and accompanying
proxy are first being mailed to shareholders on or about March 23, 1998.
VOTING
Holders of Common Stock are entitled to one vote per share. The
presence at the Meeting, in person or by proxy, of holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Meeting will
constitute a quorum for the transaction of business. The affirmative vote of the
holders of a majority of the outstanding shares of Common Stock represented at
the Meeting is required to (i) elect the Class I and Class III nominees to the
Board of Directors and (ii) authorize certain amendments to the Sterling
Bancshares, Inc. 1994 Stock Incentive Plan. The affirmative vote of two-thirds
of the outstanding shares of Common Stock as of the Record Date is required to
authorize an amendment to the Company's Restated and Amended Articles of
Incorporation to increase the number of authorized shares of Common Stock. If a
share of Common Stock is represented for any purpose at the Meeting, it is
deemed to be present for all other matters. Abstentions and shares held of
record by a broker or nominee ("Broker Shares") that are voted on any matter are
included in determining the number of votes present. Shares with respect to
which authority is withheld, abstentions, and Broker Shares that are not voted
are treated as shares as to which voting authority has been withheld by the
holder of those shares and, therefore, as shares not voting on the proposal.
REVOCABILITY OF PROXIES
The accompanying proxy, even though executed and returned, may be
revoked at any time prior to being voted by notifying the Secretary in writing
or by appearing in person and voting at the Meeting.
SOLICITATION
The Company will bear the full cost of preparing, assembling, printing,
and mailing this Proxy Statement, the accompanying proxy card, and any
additional materials that may be furnished to shareholders and will reimburse
brokerage firms and other custodians, nominees, and fiduciaries for their
reasonable expenses incurred in forwarding solicitation materials regarding the
Meeting to beneficial owners. The solicitation of proxies will be made by mail.
Further solicitation of proxies may be made by telephone or other form of direct
communication by
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<PAGE> 5
officers, directors, and regular employees of the Company or its subsidiaries,
who will not be additionally compensated therefor, or by a proxy solicitation
service that may be engaged at the expense of the Company.
ANNUAL REPORT
The Company's Annual Report to Shareholders for the fiscal year ended
December 31, 1997, is being furnished with this Proxy Statement to shareholders
of record on the Record Date. The Annual Report to Shareholders does not
constitute a part of this Proxy Statement or the proxy solicitation material.
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
The Board currently consists of 15 directors. In accordance with the
Company's Restated By-Laws, the members of the Board are divided into three
classes, Class I, Class II, and Class III, respectively. Pursuant to the
Company's Restated By-Laws, the members of each class are elected for a term of
office expiring at the third succeeding annual meeting of shareholders following
their election or until their successors are duly elected and qualified. The
Company's Restated By-Laws provide further that the classes shall be as nearly
equal in number as possible. The term of office of the Class III directors
expires at the Meeting. The Class I and Class II directors are serving terms
that expire at the annual meetings of shareholders in 1999 and 2000,
respectively.
Due to the resignation of certain directors, the Board recommends that
the director classes be reconstituted in order for the classes to be as nearly
equal as possible as required by the Company's Restated By-Laws. Accordingly,
two of the existing Class I directors, John H. Buck and Bruce J., Harper, have
been nominated for election as Class III directors. Upon their election as Class
III directors, Messrs. Buck and Harper will resign their positions as Class I
directors. In addition, under the terms of the Agreement and Plan of Merger
relating to the acquisition of First Houston Bancshares, Inc. ("First Houston")
that was consummated on September 30, 1997, the Company agreed to nominate one
director who was designated by First Houston for election to a one year term. At
the time of the acquisition of First Houston, John B. Carter, Jr. was designated
by First Houston as its board designee. If the nominees for Class I and Class
III directors are elected at the Meeting, the composition of the three classes
of directors will be five Class I directors, four Class II directors and five
Class III directors.
The Board has nominated one Class I director for election at the
Meeting: John B. Carter, Jr. Following the acquisition of First Houston, Mr.
Carter was appointed on October 20, 1997 as a Class III director to fill a
vacancy on the Board. If elected at the Meeting, Mr. Carter will serve until the
Company's 1999 annual meeting of shareholders or until his successor is elected.
The Board has nominated five individuals for election as Class III
directors at the Meeting: J. Downey Bridgwater, John H. Buck, Bruce J. Harper,
George Martinez and Steven F. Retzloff. Two of the Class III nominees, Messrs.
Martinez and Retzloff, have served as Class III directors since the 1995 annual
meeting of shareholders and two of the Class III nominees, Messrs. Buck and
Harper, have served as Class I directors since the 1996 annual meeting of
shareholders. Mr. Bridgwater was appointed to fill a Class III vacancy on the
Board in January 1998. The five Class III nominees, if elected at the Meeting,
will serve until the Company's 2001 annual meeting of shareholders or until
their respective successors are elected.
THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE ELECTION OF THE
NOMINEES LISTED ABOVE AS CLASS I AND CLASS III DIRECTORS. UNLESS OTHERWISE
DIRECTED IN THE ACCOMPANYING PROXY, THE PERSONS NAMED THEREIN WILL VOTE "FOR"
THE ELECTION OF THE NOMINEES LISTED ABOVE AS CLASS I AND CLASS III DIRECTORS.
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Shareholders may not cumulate their votes in the election of directors.
The Class I nominee and the five Class III nominees receiving the affirmative
vote of the holders of a majority of the shares of Common Stock represented at
the Meeting will be elected to the Board. Shareholders entitled to vote for the
election of directors may withhold authority to vote for any or all nominees for
directors. If any nominee becomes unavailable for any reason, then the shares
represented by the proxy will be voted "FOR" the remainder of the listed
nominees and for such other nominees as may be designated by the Board as
replacements for those who become unavailable. Discretionary authority to do so
is included in the proxy. The following table sets forth certain information
concerning the persons who have been nominated for election as Class I and Class
III directors and the other current directors of the Company, other than Class
III directors whose terms expire at the Meeting and who have not been nominated
for reelection.
<TABLE>
<CAPTION>
DIRECTOR
NAME DESCRIPTION AGE SINCE DIRECTOR CLASS
- ---- ----------- --- ----- --------------
<S> <C> <C> <C> <C>
J. Downey Bridgwater President and director of the 40 1998 Class III Nominee
(1)(2)(3)(4) Company and Sterling Bank
John H. Buck (1)(5) Director 55 1996 Class III Nominee
John B. Carter, Jr. Director 73 1997 Class I Nominee
James M. Clepper (2) Director 52 1997 Class II
Walter P. Gibbs, Jr. (1) Director 65 1994 Class I
Bruce J. Harper (6) Director 63 1996 Class III Nominee
Glenn H. Johnson (6) Director 57 1990 Class I
James J. Kearney (2) Director 54 1995 Class II
George Martinez (1)(2)(3) Chairman, Chief Financial 56 1980 Class III Nominee
Officer and director of the
Company and Sterling Bank
Russell I. Orr (6) Director 63 1993 Class I
Christian A. Rasch Director 35 1996 Class I
Steven F. Retzloff (1)(5) Director 41 1988 Class III Nominee
Raimundo Riojas Director 58 1994 Class II
Cuba Wadlington, Jr.(2) Director 54 1997 Class II
</TABLE>
- ----------------
(1) Member of the Executive Committee
(2) Member of the Asset/Liability Management
(3) Member of the Director Compensation Committee
(4) Member of the Employee Savings Plan Administration Committee
(5) Member of the Compensation Committee
(6) Member of the Audit Committee
The following is a brief biographical summary of the directors of the
Company.
J. Downey Bridgwater (Class III Nominee) was elected President of the
Company and Sterling Bank on December 29, 1997. Mr. Bridgwater was elected to
the Board on January 26, 1998 to fill a vacancy among the Class III directors.
From January 1996 until his election as President, he was the CEO of Sterling
Bank's
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Memorial Office. Prior to joining Sterling Bank on January 1, 1996, Mr.
Bridgwater was a Senior Vice President of Corporate Banking with Charter
National Bank - Houston from 1990 to 1995.
John H. Buck (Class III Nominee) has been a partner since 1990 in the
Houston law firm of Buck, Keenan & Owens, L.L.P.
John B. Carter, Jr. (Class I Nominee) is engaged in various investment
and consulting activities. He was Chairman of the Board of Directors of First
Houston Bancshares, Inc. from February 1990 to September 1997 and of Houston
National Bank from January 1987 to September 1997.
James M. Clepper (Class II) has been since 1986 the President, Chief
Executive Officer and sole shareholder of Southwest Solvents & Chemicals, an
independent chemical distributor based in Houston, Texas.
Walter P. Gibbs, Jr. (Class I) is retired. He was Chairman of the
Sterling Bank Mangum Office from March 1994 to July 1995. From 1970 to March
1994, Mr. Gibbs was the President of Guardian Bancshares, Inc. and its
subsidiary, Guardian Bank, prior to the merger of Guardian Bancshares, Inc. with
the Company.
Bruce J. Harper (Class III Nominee) independently advises business
owners on developing strategies to improve operational effectiveness. From
formation in 1962 until January 1998, Mr. Harper served as President and Chief
Executive Officer of Harper & Pearson Company, a Houston accounting and
consulting firm with emphasis on serving financial institutions and
owner-managed businesses.
Glenn H. Johnson (Class I) has been a partner in the Houston law firm
of Johnson & Wurzer since 1973.
James J. Kearney (Class II) has been since 1974 Senior Vice President
and Director of the Private Client Group for the Houston, Texas office of Cowen
& Co., a New York Stock Exchange investment banking and securities brokerage
firm.
George Martinez (Class III Nominee) has been Chairman of the Company
since 1994, Chairman of Sterling Bank since December 1989, and Chief Financial
Officer of the Company and Sterling Bank since January 1997. Prior to 1994, Mr.
Martinez was President of the Company.
Russell I. Orr (Class I) has been a certified public accountant
practicing in Houston, Texas with his own firm, Orr & Co., since 1976.
Christian A. Rasch (Class I) has been a Director of Sucsova Investments
Corp., an investment company with interests primarily in agricultural, trading
and financial enterprises, for the past five years.
Steven F. Retzloff (Class III Nominee) has been President of Retzloff
Industries, Inc., a manufacturer of trailers based in Houston, Texas, for the
past five years.
Raimundo Riojas (Class II) has been the CEO of Westrade, Inc., a joint
venture with E. I. Dupont de Nemours, engaged in the distribution of
agricultural chemical products, for the past five years.
Cuba Wadlington, Jr. (Class II) has been Senior Vice President, General
Manager and Director of Transcontinental Gas Pipe Line Corporation since 1995.
From 1988 to 1995, he served as Senior Vice President and General Manager of
Williams Western Pipeline Company and Executive Vice President of Kern River Gas
Transmission Company.
ADVISORY DIRECTORS. Thomas B. McDade, who has handled personal
investments since retiring from his position as Vice Chairman and a director of
Texas Commerce Bancshares, Inc., and George D. Francklow, Jr., who has been a
partner in the oil and gas firm of Harris County Oil Company since 1986, serve
as advisory
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<PAGE> 8
directors of the Company. The appointment of advisory directors, if any, will be
considered at the annual organizational meeting of the Board that immediately
follows the Meeting.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND
COMMITTEES OF THE BOARD
COMPENSATION OF DIRECTORS. For the 1997-1998 Board year, which ends on
April 23, 1998, non-employee directors and advisory directors of the Company
received an annual retainer fee paid as 675 shares of Common Stock (with no
additional per-meeting fees), pursuant to the Company's 1995 Non-Employee
Director Stock Compensation Plan (the "Director Stock Plan") that was approved
by shareholders on April 17, 1995. In addition, directors and advisory directors
who are members of committees of the Board received an annual committee fee in
the form of an additional 1,012 shares of Common Stock, with no additional
per-meeting fees and with no additional fee for serving on more than one
committee. The Company also reimburses the directors' travel expenses for
attending meetings.
For the 1998-1999 Board year, the number of shares of Common Stock
issuable to non-employee directors and advisory directors will be based on an
annual retainer fee of $10,000 for service on the Board and $15,000 for serving
on any committees of the Board. The amount of the annual retainer fees to be
used in calculating the number of shares issuable to directors as compensation
for their 1998-1999 board and committee service has been determined by the
Director Compensation Committee based upon a number of factors, including
available information for comparable public companies and banking organizations,
the amounts that have been paid in prior years to directors of the Company, the
duties and responsibilities of the directors, and the Company's financial and
stock performance. There are no additional per-meeting fees and no additional
fee for serving on more than one committee. The actual number of shares to be
issued to the directors for their board and committee service will be determined
based upon the closing price of the Common Stock on April 23, 1998, the date
when the 1998-1999 Board year commences. Directors of the Company who are also
employees of the Company do not receive fees for attending meetings of the
Board.
BOARD OF DIRECTORS. During 1997, the Board met five times. All
directors attended 75 percent or more of the meetings of the Board and of the
Committees of the Board on which they served during 1997.
EXECUTIVE COMMITTEE. The directors who serve on the Executive Committee
are John H. Buck, Walter P. Gibbs, Jr., J. Downey Bridgwater, George Martinez,
and Steven F. Retzloff. In addition, Thomas McDade, an advisory director of the
Company, and Howard Tellepsen, a member of the board of directors of Sterling
Bank, serve on the Executive Committee. The primary function of the Executive
Committee is to review the Company's performance and condition between board
meetings, approve mergers and acquisitions, and policies, and evaluate
management. The Executive Committee met eight times during 1997.
AUDIT COMMITTEE. The directors who serve on the Audit Committee are
Bruce J. Harper, Glenn H. Johnson and Russell I. Orr. The primary function of
the Audit Committee is to direct and monitor the internal audit function and to
make recommendations regarding the selection the Company's auditing firm. The
Audit Committee met eight times during 1997.
COMPENSATION COMMITTEE. The directors who serve on the Compensation
Committee are John H. Buck and Steven F. Retzloff. In addition, Thomas McDade
and Howard Tellepsen also serve on the Compensation Committee. The primary
function of the Compensation Committee is to develop, review, and make
recommendations to the full Board with respect to the Company's executive
compensation policies and to make awards under the 1994 Stock Incentive Plan.
The Compensation Committee met 6 times during 1997.
ASSET/LIABILITY MANAGEMENT COMMITTEE. The directors who serve on the
Asset/Liability Management Committee are J. Downey Bridgwater, C. P. Bryan, Jr.,
James M. Clepper, James J. Kearney, George Martinez and
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<PAGE> 9
Cuba Wadlington, Jr.. In addition, Daryl D. Bohls, Chief Credit Officer of the
Company, as well as George D. Francklow, Jr., an advisory director of the
Company, and Jack H. Herndon, an advisory director of Sterling Bank, are members
of the Asset/Liability Management Committee. The primary function of the
Asset/Liability Management Committee is to plan and oversee the process for
matching the mix and maturities of assets and liabilities in ways that will
provide a favorable and even flow of net interest income while assuming
reasonable business risk. The Asset/Liability Management Committee met seven
times during 1997.
DIRECTOR COMPENSATION COMMITTEE. The directors who serve on the
Director Compensation Committee are J. Downey Bridgwater and George Martinez.
The primary function of the Director Compensation Committee is the
administration of the Company's Director Stock Plan. The Director Compensation
Committee met once during 1997.
EMPLOYEE SAVINGS PLAN ADMINISTRATION COMMITTEE. The sole director who
serves on the Employee Savings Plan Administration Committee is J. Downey
Bridgwater. In addition, Daryl D. Bohls, James E. Froehlich, Bambi McCullough
and Glenn W. Rust, officers of the Company and/or Sterling Bank, are members of
the Employee Savings Plan Administration Committee. The primary function of the
Employee Savings Plan Administration Committee is oversight of the Company's
Employee Savings Plan. The Employee Savings Plan Administration Committee met
four times during 1997.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
The following is a report from the Compensation Committee of the Board
of Directors describing the policies pursuant to which compensation was paid to
executive officers of the Company during 1997.
The Compensation Committee of the Board of Directors is responsible for
developing and making recommendations to the Board with respect to the Company's
executive compensation policies. John H. Buck, Thomas McDade (advisory
director), Steven F. Retzloff and Howard Tellepsen (a director of Sterling Bank)
serve on the Compensation Committee. Annually, the Compensation Committee
prepares a report which sets forth the components of the Company's executive
officer compensation program and describes the basis on which compensation
determinations for the prior year were made by the Compensation Committee with
respect to the executive officers of the Company.
The Company believes that compensation of its executive officers should
reflect and support the Company's strategic goals, the primary goal being the
creation of long-term value for the Company's shareholders while protecting the
interests of the depositors of the Company's subsidiary bank. The Compensation
Committee believes that these goals are best served by compensating its
executive officers competitively with similarly situated executive officers in
the banking industry and rewarding individuals for outstanding contributions to
the Company's success.
Under the guidance of the Compensation Committee, the Company currently
employs a base salary structure in concert with an incentive compensation
program which closely aligns compensation with the Company's financial
performance. The base salary levels are determined through comparisons of salary
levels of executive officers of banking organizations of similar size. In
addition, the Compensation Committee takes into account individual experience
and performance and specific issues particular to the Company.
The Company, following the recommendation of the Compensation
Committee, has adopted an incentive compensation program (the "Incentive
Program") for officers of its subsidiary bank, including the named executive
officers of the Company. The Incentive Program, the components of which are
reviewed annually by the Compensation Committee, provides that officers will
receive incentive compensation equal to a designated
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<PAGE> 10
percentage of the Company's earnings in excess of earnings needed to provide a
minimum specified return on equity ("ROE"). Since 1995, this minimum threshold
of earnings has been a 12% ROE, with 27% of earnings above the 12% ROE threshold
being used to fund the Incentive Program. The entire incentive compensation fund
is allocated among all of the officers based on a point system relating to
salary, level of responsibility, individual performance and, where applicable,
bank office and departmental performance.
In addition, each of the named executive officers participates in the
Company-wide employee savings plan (the "Savings Plan"), which includes matching
of employee contributions and profit sharing contributions by the Company.
Quarterly, the Company matches with Common Stock of the Company one-half of each
employee's contributions to the Savings Plan up to 6% of the employee's salary.
Profit sharing contributions are allocated to participant accounts based on the
ratio which the compensation of each participant bears to the compensation of
all participants eligible to participate in the Savings Plan. In 1996, the
Company adopted the Sterling Bancshares, Inc. Deferred Compensation Plan (the
"Deferred Compensation Plan") to enable eligible participants, including the
named executive officers of the Company, to make and receive contributions on a
tax deferred basis which are otherwise precluded from being credited to their
Savings Plan accounts under applicable regulations of the Internal Revenue
Service. The Board of Directors determines the amount, presently set at 10% of
current or accumulated profits before taxes, to be contributed to the Savings
Plan and Deferred Compensation Plan on behalf of the participants with respect
to a given taxable year.
Finally, each of the named executive officers may be selected to
participate in the Company's 1994 Stock Incentive Plan. During 1997, pursuant to
the Stock Incentive Plan, options for the purchase of shares of the Company's
Common Stock were granted to the following executive officers: (1) J. Downey
Bridgwater received options to purchase 4,041 shares of Common Stock; and (2)
Glenn W. Rust received options to purchase 2,932 shares of Common Stock. Option
share amounts noted above have been adjusted to reflect the three-for-two stock
split (effected as a stock dividend) that was distributed in February 1998.
Compensation for each of the named executive officers, as well as other
senior executives, consists of a base salary and incentive compensation. The
Committee will continue to monitor the salary levels of the named executive
officers to ensure that the components of compensation are consistent with the
Company's objectives. Generally, the amounts received by the named executive
officers from the Incentive Program exceeded 20% of their 1997 compensation. The
amounts contributed by the Company to the Savings Plan and the Deferred
Compensation Plan accounts of the named executive officers for fiscal year 1997
totaled $149,236.
In reviewing the 1997 compensation of Mr. Martinez, the Company's
Chairman, the Compensation Committee reviewed his compensation history,
executive compensation survey data, and comparative performance information.
Based upon such information, the Compensation Committee determined that a base
salary adjustment was warranted and set Mr. Martinez' salary for 1997 at
$195,000, a 13.4% increase over 1996. Mr. Martinez participates in the Incentive
Program along with all other officers. From the Incentive Program in 1997, Mr.
Martinez earned a bonus of $87,782 resulting in 31% of his 1997 compensation
being dependent on the financial performance of the Company. The amount
contributed by the Company to the Savings Plan and Deferred Compensation Plan
accounts of Mr. Martinez in fiscal year 1997 was $33,761. The Compensation
Committee believes that Mr. Martinez' total compensation is reasonable and
competitive based upon compensation survey data and comparative performance
information.
Date: March 1, 1998 Compensation Committee:
John H. Buck
Thomas McDade
Steven F. Retzloff
Howard Tellepsen
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<PAGE> 11
COMPENSATION COMMITTEE INTERLOCKS
During 1997, no executive officer of the Company served as (i) a member
of the compensation committee (or other board committee performing equivalent
functions) of another entity, one of whose executive officers served on the
Compensation Committee of the Company, (ii) a director of another entity, one of
whose executive officers served on the Compensation Committee of the Company, or
(iii) a member of the compensation committee (or other board committee
performing equivalent functions) of another entity, one of whose executive
officers served as a director of the Company.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly percentage change
in the cumulative total shareholder return on the Company's Common Stock against
the cumulative total return indices of the NASDAQ Composite Index and the NASDAQ
Bank Index for the period between December 31, 1992 and December 31, 1997. The
historical stock price performance for the Company's stock shown on the graph
below is not necessarily indicative of future stock performance. The information
on the Company's Common Stock has been adjusted to reflect the three-for-two
stock splits (effected as stock dividends) that were implemented in 1995, 1996
and 1997.
COMPOSITE OF CUMULATIVE TOTAL RETURN *
THE NASDAQ COMPOSITE INDEX, THE NASDAQ BANK INDEX
AND
STERLING BANCSHARES, INC.
[CHART]
<TABLE>
<CAPTION>
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Sterling Bancshares $100.00 $124.28 $125.32 $188.91 $309.29 $503.54
NASDAQ Composite Index 100.00 114.75 111.08 155.42 190.71 202.15
NASDAQ Bank Index 100.00 129.37 130.80 189.41 238.95 302.17
</TABLE>
* Assumes that the value of the investment in Sterling Bancshares, Inc.
and each index, was $100 on December 31, 1992 and that all dividends were
reinvested.
8
<PAGE> 12
SUMMARY COMPENSATION TABLE
The following table sets forth for 1997, 1996 and 1995 the compensation
of (i) the Chief Executive Officer of the Company, (ii) the other four most
highly compensated executive officers of the Company or its bank subsidiary who
were serving as executive officers at the end of 1997, and (iii) an additional
individual, Mark T. Giles, who although not serving as executive officer at the
end of 1997 was one of the four most highly compensated officers of the Company
during 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Name and Annual Compensation (1) Compensation All Other
Principal Position Year Salary Bonus Stock Options (2) Compensation (3)
------------------ ---- ------ ----- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
George Martinez 1997 $195,000 $87,782 0 $33,762
Chairman and Chief 1996 172,000 64,745 0 32,051
Financial Officer 1995 156,000 56,789 90,261 17,591
Mark T. Giles (4) 1997 $190,000 $87,402 0 $35,088
Former President 1996 165,000 62,187 33,750 32,087
1995 150,000 23,519 50,625 23,073
C. P. Bryan, Jr. (5) 1997 $132,600 $54,513 0 $23,421
Former CEO, Champions 1996 130,000 45,994 0 25,254
Office, Sterling Bank 1995 125,000 45,458 57,861 22,687
Daryl D. Bohls 1997 $114,400 $49,987 0 $21,003
CEO, Westheimer Office, 1996 110,500 37,756 2,250 19,767
Sterling Bank 1995 106,900 39,072 0 16,980
Glenn W. Rust (6) 1997 $106,000 $45,865 2,933 $17,977
Executive Vice President 1996 100,000 40,714 1,110 18,421
Sterling Bank 1995 50,000 5,000 25,313 0
J. Downey Bridgwater (7) 1997 $106,000 $38,908 4,041 $17,986
President 1996 100,000 15,630 25,313 16,097
</TABLE>
- ----------------
(1) Other annual compensation provided to the named executive officers during
1997, 1996, or 1995 did not exceed the disclosure requirements of the rules
promulgated by the Securities and Exchange Commission.
(2) Adjusted to reflect the three-for-two stock split that was effected on
February 20, 1998.
(3) The amounts in this column reflect the Company's contribution to the
Employee Savings Plan of the named executive officers during 1997, 1996 and
1995, together with the Company's contribution for 1997 to their 401(k)
plan matching accounts and for 1997 and 1996 to their Deferred Compensation
Plan accounts. Such amounts, however, do not include (i) trust forfeitures
occurring under the terms of the Employee Savings Plan, (ii) earnings on
the undistributed balances held pursuant to the Employee Savings Plan for
the benefit of participants, or (iii) term life insurance premiums paid by
the Company for the benefit of the named executive officers. The amount of
such life insurance premiums for 1997 were as follows, with comparable
amounts having been paid in prior reported periods: Martinez ($400), Giles
($400), Bryan ($398), Bohls ($344), Rust ($318), and Bridgwater ($318).
(4) Mr. Giles resigned his positions as President of the Company and Sterling
Bank effective December 29, 1997, to join an investment group that is in
the process of forming a national bank in Charlottesville, Virginia. To
assist in the transition following his resignation, Mr. Giles continued to
be employed by the Company in an advisory capacity until February 28, 1998.
9
<PAGE> 13
(5) Mr. Bryan left the employment of Sterling Bank after the end of 1997.
(6) Mr. Rust was not an officer, director or employee of the Company prior to
joining Sterling Bank on June 26, 1995.
(7) Mr. Bridgwater was appointed President of the Company and Sterling Bank on
December 29, 1997. He was not an officer, director or employee of the
Company prior to joining Sterling Bank on January 1, 1996.
STOCK OPTION PLANS
The Company currently maintains the 1994 Stock Incentive Plan (the
"Stock Incentive Plan") for all of its officers and key employees which is
administered by the Compensation Committee. The Board has recommended that the
Stock Incentive Plan be amended and restated to conform to current legal
requirements and to modify certain provisions so that the Stock Incentive Plan
better serves its original intent. The proposal to amend and restate the Stock
Incentive Plan (the "Amended Plan") is discussed below at page 15. An aggregate
of 1,771,875 shares (adjusted for the three-for-two stock split effected on
February 20, 1998) are issuable under the Stock Incentive Plan prior to its
termination in April 2004; however, the proposal to approve and adopt the
Amended Plan contemplates increasing the total number of options issuable under
the Stock Incentive Plan to 2,000,000 shares. During 1997, stock options
covering approximately 167,175 shares of the Company's stock were issued to
44 officers.
OPTION GRANTS TABLE
The following table sets forth information concerning the grant of
stock options during 1997 to the Company's Chief Executive Officer and the named
executive officers in the Summary Compensation Table, adjusted to reflect the
stock split that was effected on February 20, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------- Potential Realizable
Number of Percentage Value at Assumed Annual
Securities of Total Rate of Stock Price
Underlying Options Appreciation for
Options Granted to Exercise Option Term($)(3)
Granted Employees in Price Expiration ----------------------
Name (Shares)(1) 1997(2) ($/Share) Date 5% 10%
- ---- ----------- ------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
George Martinez 0 - - - - -
Mark T. Giles 0 - - - - -
C. P. Bryan, Jr. 0 - - - - -
Daryl D. Bohls 0 - - - - -
Glenn W. Rust 2,933 1.8% $8.78 1/23/07 $16,195 $41,042
J. Downey Bridgwater 4,041 2.4% $8.78 1/23/07 $22,313 $56,546
</TABLE>
- -----------
(1) The options granted in 1997 vest over four years at the rate of 25% per
year on each anniversary of the date of grant.
(2) The Company granted options representing approximately 167,000 shares to
employees in 1997, as adjusted for the three-for-two stock split
distributed on February 20, 1998.
(3) These amounts represent certain assumed rates of appreciation based on
actual option term and annual compounding from the date of grant. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the future performance of the Common Stock and overall stock
market conditions. There can be no assurance that the stock appreciation
amounts reflected in this table will be achieved.
10
<PAGE> 14
OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table sets forth information concerning the exercise of
stock options during 1997 by the Company's Chief Executive Officer and the named
executive officers set forth in the Summary Compensation Table, and the fiscal
year-end value of unexercised options.
OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options at In-the-Money Options at
Shares December 31, 1997 (2) December 31, 1997 (2)(3)
Acquired on Value --------------------------- ---------------------------
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
George Martinez 0 0 45,131 45,130 $453,115 $453,205
Mark T. Giles 0 0 33,749 59,063 317,916 509,293
C. P. Bryan, Jr. 0 0 28,930 28,931 290,457 290,467
Daryl D. Bohls 0 0 9,343 1,688 114,362 12,761
Glenn W. Rust 0 0 12,933 16,423 124,225 142,281
J. Downey Bridgwater (1) 6,327 $41,885 0 23,027 0 174,759
</TABLE>
- -----------------
(1) In accordance with the terms of the Stock Incentive Plan, Mr. Bridgwater
exercised options in a cashless brokered transaction and received the value
of the option shares in lieu of acquiring the shares underlying the options
which he exercised.
(2) Adjusted to reflect the three-for-two stock split that was effected on
February 20, 1998.
(3) An option is "in the money" if the market value of the Common Stock
underlying the option (based on the NASDAQ closing price of $13.50 on
December 31, 1997, as adjusted for the stock split referred to in Note 2
above) exceeds the exercise price of the option.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information known to the Company
concerning persons who beneficially owned more than 5% of the outstanding Common
Stock of the Company as of the Record Date. The table also shows information
concerning beneficial ownership by all directors and board nominees, by each of
the executive officers named in the Summary Compensation Table and by all
directors and officers as a group. The number of shares beneficially owned by
each director or officer is determined under the rules of the Securities and
Exchange Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which an individual has the sole or shared
voting power or investment power and also shares that the individual has the
sole right to acquire within 60 days through the exercise of any stock option or
right. Unless otherwise noted, each person listed below has sole voting and
investment power (or shares such powers with his or her spouse) with respect to
the shares listed.
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Class
------------------------ -------------------- ----------
<S> <C> <C>
A. F. Retzloff 1,273,729 (1) 6.0%
13955 FM 529
Houston, Texas 77041
Steven F. Retzloff 1,071,357 (2) 5.0%
13955 FM 529
Houston, Texas 77041
Retzloff Industries, Inc. 1,067,589 5.0%
13955 FM 529
Houston, Texas 77041
</TABLE>
11
<PAGE> 15
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Class
------------------------ -------------------- ----------
<S> <C> <C>
Daryl D. Bohls 61,868 (3) *
J. Downey Bridgwater 7,339 (4) *
C. P. Bryan, Jr. 12 *
John H. Buck 5,061 *
John B. Carter, Jr. 339,841 (5) 2.0%
James M. Clepper 2,530 *
Walter P. Gibbs, Jr. 315,786 1.5%
Mark T. Giles 81,342 (6) *
Bruce J. Harper 2,530 *
Glenn H. Johnson 201,993 (7) *
James J. Kearney 22,780 *
George Martinez 740,122 (8) 3.5%
Russell I. Orr 27,675 *
Christian A. Rasch 809,012 (9) 3.8%
Raimundo Riojas 231,395 (10) 1.1%
Glenn W. Rust 16,194 (11) *
Cuba Wadlington, Jr. 2,530 *
All directors and executive
officers as a group
(19 persons) 4,145,507 19.4%
</TABLE>
- ----------------
* Indicates less than one percent.
(1) Includes 1,067,589 shares owned of record by Retzloff Industries, Inc., of
which A.F. Retzloff is the Chairman of the Board, and 128,742 shares owned
of record by the Georgia Rainey Retzloff Testamentary Trust, of which Mr.
Retzloff is the trustee.
(2) Includes 1,067,589 shares owned of record by Retzloff Industries, Inc., of
which Steven F. Retzloff is the controlling shareholder, President and CEO.
(3) Includes 3,619 shares held in an individual retirement account by Mr.
Bohls' spouse and 9,906 shares that can be acquired pursuant to exercise of
fully vested outstanding stock options (563 of which vested after December
31, 1997).
(4) Represents shares that could be acquired pursuant to exercise of fully
vested outstanding stock options (all of which vested after December 31,
1997).
(5) Includes 119,025 shares that are owned of record by Carter Interests Ltd.,
of which Mr. Carter is the managing partner.
(6) Includes 20,814 shares held in an individual retirement account by Mr.
Giles' spouse.
(7) Includes 30,375 shares owned of record by the Elliott A. Johnson --
Grandchildren Trust, Glenn H. Johnson, Trustee; 30,375 shares owned of
record by the Katherine M. Johnson Marital Trust, Glenn H. Johnson,
Trustee; 121,500 shares owned of record by Katherine M. Johnson, Mr.
Johnson's mother, and managed by Mr. Johnson under a power of attorney; and
7,595 held of record by Johnson & Wurzer, P.C., of which Mr. Johnson is the
controlling shareholder.
(8) Includes 67,695 shares that can be acquired pursuant to the exercise of
fully vested outstanding stock options (22,565 of which vested after
December 31, 1997).
(9) Represents shares owned of record by either Sucsova Investments Corp. or
Multiflora International, Inc., companies owned by Mr. Rasch and other
members of his family.
(10) Includes 228,358 shares owned by Glencox Investments, Inc., which is
principally owned and controlled by Mr. Riojas.
(11) Includes 13,944 shares that can be acquired pursuant to the exercise of
fully vested outstanding stock options (1,011 of which vested after
December 31, 1997).
12
<PAGE> 16
CERTAIN TRANSACTIONS
Certain of the Company's officers and directors are, or have been in
the past, customers of the Company's subsidiary bank and its predecessor banks,
and some of the Company's officers and directors are directors, officers or
shareholders of entities which are, or have been in the past, customers of such
banks. As such customers, they have had transactions in the ordinary course of
business with such banks, including outstanding loans. All such loans were on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than a normal risk of collectability or present any other
unfavorable or preferential features. All credit transactions involving officers
and directors, either of the Company or of Sterling Bank, are reviewed and
approved by the Loan Committee of Sterling Bank and are disclosed and reviewed
monthly in the meetings of the Board of Directors of Sterling Bank.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company has selected Deloitte & Touche LLP as its independent audit
firm for fiscal year 1998. Deloitte & Touche LLP has served as the Company's
independent audit firm since 1988. Representatives of Deloitte & Touche LLP will
be present at the Meeting and will have an opportunity to make a statement at
the Meeting if they desire to do so. They will also be available to respond to
appropriate questions of shareholders at the Meeting.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange
Act") requires the Company's officers and directors, and persons who own more
than 10% of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission (the "SEC"). Officers, directors and holders of more than 10% of the
Company's outstanding Common Stock are required to furnish the Company with
copies of all forms they file pursuant to Section 16(a) of the Exchange Act.
Due to inadvertence in connection with small transactions involving the
Company's Common Stock, two directors, Messrs. Bohls and Orr, did not timely
file reports on Form 4 to reflect changes in their beneficial ownership during
1997. Upon discovery of such inadvertent omission, all such transactions have
been reported to the SEC. Based solely upon the information provided to the
Company by its directors, executive officers and ten percent beneficial owners,
the Company believes that all other filings required under Section 16(a) of the
Exchange Act have been made.
PROPOSAL TO INCREASE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
The Board of Directors is seeking shareholder approval to amend Article
4 of the Company's Restated and Amended Articles of Incorporation (the "Articles
of Incorporation") to increase the number of authorized shares of Common Stock
of the Company from 30,000,000 to 50,000,000 shares. This proposal has been
unanimously approved by the Board of Directors subject to approval by the
shareholders of the Company. If the proposed amendment is authorized, the text
of the first paragraph of Article 4 of the Articles of Incorporation would be
amended to read as follows:
13
<PAGE> 17
"The total number of shares of all classes of stock which the Corporation
shall be authorized to issue is 51,000,000 shares, divided into the
following: (i) 1,000,000 shares of Preferred Stock, par value $1.00 per
share (Preferred Stock); and (ii) 50,000,000 shares of Common Stock, par
value $1.00 per share (Common Stock)."
As of the Record Date, 49,500 shares of Series A Convertible Preferred
Stock, 38,880 shares of Series B Convertible Preferred Stock, 38,500 shares of
Series C Convertible Preferred Stock, 50,233 shares of Series D Convertible
Preferred Stock and 20,799,863 shares of Common Stock were outstanding, after
giving effect to the three-for-two stock split of the Company's Common Stock
(effected as a stock dividend) distributed on February 20, 1998 to holders of
record on February 6, 1998. The outstanding shares of Convertible Preferred
Stock are convertible into a maximum of 459,494 shares of Common Stock. The
Board has also designated 50,000 shares of Series E Convertible Preferred Stock
for issuance in connection with the opening of the Spencer Highway office, which
will be convertible into a maximum of 62,500 shares of Common Stock. Also, as of
the Record Date and after giving effect to the three-for-two split, (i) 840,904
shares of Common Stock were reserved for issuance under the Company's stock
option plans, (ii) 36,141 shares were reserved for issuance under the 1994
Employee Stock Purchase Plan, and (iv) 420,000 shares were reserved for issuance
under the Director Stock Plan. On September 30, 1997, the Company completed the
acquisition of First Houston and its subsidiary, Houston National Bank, in a
stock-for-stock merger, pursuant to which the shareholders of First Houston were
issued 1,686,074 shares of Common Stock. On February 17, 1998, the Company
entered into an Agreement and Plan of Consolidation to acquire Humble National
Bank in a stock-for-stock merger that, upon consummation, would require the
issuance of 855,000 shares of Common Stock. On February 13, 1998, the Company
filed a shelf registration statement on Form S-4 with the SEC for purposes of
registering 4,000,000 shares of Common Stock which the Company intends to use
for future stock acquisitions. The registration statement was declared effective
on March 3, 1998, and the shares registered under the shelf registration are
available for issuance in potential future acquisitions. As a result of the
foregoing events and transactions, the Company will have less than three million
unreserved and otherwise uncommitted shares of Common Stock available for future
issuance.
REASONS FOR THE PROPOSED AMENDMENT
The proposed increase in the authorized shares of Common Stock has been
recommended by the Board to ensure that an adequate supply of authorized and
unissued shares is available for general corporate needs, such as employee
benefit plans, the conversion of other securities (such as warrants and
preferred stock) that may be issued by the Company, future stock splits, stock
dividends and other distributions to shareholders, raising additional capital,
financing arrangements, and acquisitions by the Company of other banks or
businesses if favorable opportunities become available. Except for issuances of
shares of Common Stock (i) pursuant to the Company's stock option and stock
compensation plans, (ii) upon conversion of the designated series of Convertible
Preferred Stock, and (iii) in connection with the proposed acquisition of Humble
National Bank, the Company has no present plans, arrangements or understandings
to issue any additional shares of Common Stock or Preferred Stock.
POSSIBLE EFFECTS OF THE PROPOSED AMENDMENT
If approved by the shareholders, the additional authorized shares of
Common Stock would be available for issuance at the discretion of the Board
without further shareholder approval (subject to applicable rules of the
National Association of Securities Dealers, Inc.), without the delay and expense
incident to holding a special meeting of shareholders to consider any specific
issuance. However, the rules of the National Association of Securities Dealers,
Inc. (applicable to NASDAQ National Market System issuers) generally require
shareholder approval in the following situations: (i) in connection with the
acquisition of certain stock or assets, including another business, from a
director, officer or substantial shareholder, or from an entity in which one of
such persons has a substantial direct or indirect interest, and the stock
issuable in such transaction could result in an increase in the number of shares
or voting power of the outstanding shares by 5% or more, (ii) in a transaction
or a series of transactions (except for a public offering of Common Stock for
cash) that would result in an increase in the number
14
<PAGE> 18
of shares or voting power of the outstanding shares by 20% or more, (iii) where
the issuance of Common Stock would result in a change of control of the Company,
or (iv) in connection with a stock option or purchase plan under which stock may
be acquired by officers or directors.
Current holders of Common Stock have no preemptive rights, which means
that current shareholders do not have a prior right to purchase any new issue of
capital stock of the Company in order to maintain their proportionate ownership
thereof. The effects of the authorization of additional shares of Common Stock
may also include dilution of the voting power of currently outstanding shares
and reduction of the portion of dividends and of liquidation proceeds payable to
the holders of currently outstanding Common Stock.
In addition, the Board could use the authorized but unissued shares of
Common Stock to create impediments to a takeover or a change of control of the
Company. Under certain circumstances, such shares could be used to create voting
impediments or to frustrate persons seeking to effect a takeover or otherwise
gain control of the Company. For example, the Company might seek to frustrate a
takeover attempt by making a private sale of a large block of shares to a third
party who was opposed to such an attempt. The increase in authorized stock might
also be considered as having the effect of discouraging an attempt by a third
party to acquire control of the Company, through the acquisition of a
substantial number of shares, since the issuance of any shares could be used to
dilute the stock ownership of shares of the Company's voting stock held by such
third party. Accordingly, an effect of the increase in the number of authorized
shares of Common Stock may be to deter a future takeover attempt. The Board is
not presently aware of any plans to acquire control of the Company. The Board
has not proposed the amendment to the Articles of Incorporation as an
anti-takeover measure.
REQUIRED VOTE AND RECOMMENDATION
The affirmative vote of holders of two-thirds of the outstanding shares
of Common Stock as of the Record Date is required to approve the proposed
amendment to the Company's Articles of Incorporation. Abstentions and broker
non-votes have the same legal effect as a vote against this proposal.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE "FOR"
THE APPROVAL OF THE PROPOSED AMENDMENT OF THE COMPANY'S ARTICLES OF
INCORPORATION.
PROPOSAL TO APPROVE AMENDMENT AND RESTATEMENT OF
THE 1994 STOCK INCENTIVE PLAN
The Board is seeking shareholder approval to amend and restate the 1994
Stock Incentive Plan. Proxies will be so voted unless the shareholders specify
otherwise in their proxies. This proposal will be adopted by the affirmative
vote of a majority of the shares present in person or by proxy at the meeting
and entitled to vote.
The Board recommends the approval of the amendment and restatement of
the 1994 Stock Incentive Plan (the "Amended Plan"). The Amended Plan was adopted
by the Executive and Compensation Committees of the Board of Directors on March
16, 1998, contingent upon its ratification by the Board and approval by the
shareholders. The Board believes the Company's success and long-term progress
are dependent upon attracting and retaining officers and employees of the
Company and its subsidiaries. The Amended Plan gives the Compensation Committee
maximum flexibility to use various forms of incentive awards as part of the
Company's overall compensation program.
15
<PAGE> 19
The primary changes being proposed in the Amended Plan are: (i) to
increase the number of shares of the Common Stock of the Company available for
awards thereunder from 1,771,875 to 2,000,000 shares in order to generally
maintain the 10% ratio of available awards to issued and outstanding shares of
Common Stock as was the case when the Stock Incentive Plan was originally
adopted; (ii) to provide greater flexibility in the types of awards that may be
made; (iii) to conform the provisions of the Stock Incentive Plan to certain
provisions of the Internal Revenue Code of 1986, as amended (the "Code"); and
(iv) to accelerate vesting of all awards that have been made in the event of a
"Change in Control" (as described below).
The Amended Plan is intended to encourage employees of the Company and
its subsidiaries to acquire or increase their equity interest in the Company.
Additionally, the Amended Plan is intended to provide a means whereby employees
may develop a sense of proprietorship and personal involvement in the
development and financial success of the Company and to encourage them to remain
with and devote their best efforts to the business of the Company, thereby
advancing the interests of the Company and its shareholders. The Amended Plan is
also contemplated to enhance the ability of the Company and its subsidiaries to
attract and retain the services of individuals who can contribute to the growth
and profitability of the Company.
The full text of the Amended Plan is set forth in Appendix A to this
Proxy Statement. The essential features of the Amended Plan are summarized
below, but such summary is qualified in its entirety by reference to the full
text of the Amended Plan. All capitalized terms not defined herein shall have
the meaning as defined in the Amended Plan.
TYPES OF AWARDS
The Amended Plan would permit the granting of any or all of the
following types of awards ("Awards"): (i) stock options, including incentive
stock options ("ISOs"); (ii) restricted stock; (iii) performance awards; (iv)
phantom shares; (v) bonus shares; and (vi) other stock-based awards.
Substantially all the Awards that have been made under the 1994 Stock Incentive
Plan have been in the form of ISOs; however, greater flexibility in the types of
awards that may be made will enhance the Company's ability to meet the
objectives of the Company's compensation program.
ELIGIBILITY FOR PARTICIPATION
All employees, including officers, of the Company or any subsidiary
will be eligible to receive Awards under the Amended Plan; however, the
Compensation Committee of the Board (the "Committee") will have the discretion
to determine those employees who participate and receive Awards under the
Amended Plan. At the present time, the Committee has elected to limit
participation and make Awards only to officers of the Company.
ADMINISTRATION
The Amended Plan, in general, will be administered by the Committee,
which is composed of directors appointed by the Board who are not also employees
of the Company or an affiliate. The Committee will select the participants who
will receive Awards, determine the type and terms of Awards to be granted, and
interpret and administer the Amended Plan.
AMENDMENT AND TERMINATION
The Board may terminate or amend the Amended Plan without shareholder
approval, except that shareholder approval is required for any amendment that
would increase the number of shares available for grant.
16
<PAGE> 20
TERM OF THE PLAN
The Amended Plan will terminate on April 18, 2004, after which time no
additional Awards may be made under the Amended Plan.
SHARES SUBJECT TO THE PLAN
Subject to adjustment as described more fully below, 2,000,000 shares
of Common Stock may be awarded under the Amended Plan.
STOCK OPTIONS
Stock options granted under the Amended Plan will be subject to the
terms and conditions determined by the Committee, except that: (i) the option
exercise price cannot be less than 100% of the fair market value of a share of
Common Stock at the time the option is granted; and (ii) no option may be
exercised more than ten years after it is granted. ISOs may be granted to
employees of the Company and its subsidiaries in accordance with the
requirements of the Code.
The Committee will determine the form in which payment of the exercise
price may be made, which may include cash, shares of Common Stock owned for more
than six months, checks, loans, "cashless" broker procedures, other securities
or other property, or any combinations thereof, having a fair market value on
the exercise date equal to the exercise price.
RESTRICTED STOCK
The Committee shall determine the employees to whom Restricted Stock
will be granted, the number of shares of Restricted Stock to be granted to each
participant, the duration of the restriction period, the conditions under which
the Restricted Stock may be forfeited to the Company and other terms and
conditions of Awards of Restricted Stock. Restricted Stock may not be disposed
of by the participant until the restrictions specified in the Award expire. The
participant will have, with respect to Restricted Stock, the right to vote the
shares and, unless otherwise determined by the Committee, the right to receive
any cash dividends. Except as otherwise determined by the Committee, upon
termination of a participant's employment for any reason during the restriction
period, all Restricted Stock will be forfeited by the participant.
PERFORMANCE AWARDS
Performance Awards, which consist of a right payable in cash, shares of
Common Stock, other securities or other property, may be granted upon the
achievement of specific performance goals. Performance goals will include, but
are not limited to, the attainment of target levels of financial performance.
The Committee shall determine the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any
Performance Award and the amount of any payment or transfer to be made pursuant
to any Performance Award. The Committee shall establish performance criteria
associated with grants of Performance Awards.
BONUS SHARES
The Committee may deliver shares of Common Shock to any eligible
employee as additional compensation for the employee's services to the Company.
17
<PAGE> 21
PHANTOM SHARES
An Award of Phantom Shares constitutes an agreement by the Company to
deliver shares of Common Stock to the participant in the future in consideration
of the fulfillment of such conditions, including the achievement of performance
of goals and/or the performance of services, as the Committee may specify. Prior
to the delivery of the Phantom Shares, the participant has no right to transfer
any rights under his or her Award and no rights as a shareholder with respect to
the shares covered by the Award, except as to phantom dividends that the
Committee may elect to credit in a bookkeeping account.
OTHER STOCK-BASED AWARDS
In its discretion, the Committee may grant other forms of Awards based
on, payable in, or otherwise related in whole or in part to the Common Stock.
Subject to the terms of the Amended Plan, the Committee shall determine the
terms and conditions of any such other stock-based awards.
CHANGE IN CONTROL
In the event of a "Change in Control," as defined in the Amended Plan,
the exercise or vesting date of all Awards shall automatically accelerate in
full and the Committee may, subject to certain provisions, cause any outstanding
Award to be assumed, or a new right substituted therefor, by the acquiring or
surviving corporation.
A Change in Control is deemed to occur under the Amended Plan when
either (a) any person other than the Company or a benefit plan of the Company
acquires voting securities representing 35% or more of the total voting power of
all outstanding voting securities of the Company; (b) the shareholders of the
Company approve a merger, consolidation, recapitalization or reorganization of
the Company or a reverse stock split unless at least 75% of the holders of the
Company's voting securities prior to the transaction own 75% of the total voting
power of the surviving entity upon consummation of the transaction; (c) the
shareholders shall approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition of 50% or more of the total assets of the
Company; or (d) the individuals who constitute the Board of Directors following
the 1998 Annual Meeting of Shareholders (the "Incumbent Board") constitute less
than a majority of the members of the Board; provided, however, that any person
becoming a director after the effective date of the Amended Plan whose election
or nomination for election is approved by a vote of a majority of the directors
than comprising the Incumbent Board shall for purposes of the Amended Plan be
considered as though such person was a member of the Incumbent Board.
ADJUSTMENTS
In the event the Committee determines that any dividend or other
distribution, recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of shares of Common Stock or other similar corporate
transaction or event affects the Common Stock so that an adjustment is
determined by the Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended under the Amended
Plan, then the Committee shall adjust any or all of the Awards.
WITHHOLDING TAXES
In general, a participant will be required to pay the Company the
applicable withholding taxes with respect to the compensation income realized or
make other arrangements satisfactory to the Company for the payment of such
taxes.
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TAX CONSEQUENCES TO THE COMPANY OR SUBSIDIARY
To the extent that a participant recognizes ordinary income with
respect to the grant or exercise of an Award, the Company or subsidiary for
which the participant performs services will be entitled to a corresponding
deduction for federal income tax purposes provided that, among other things, (i)
the income meets the test of reasonableness, is an ordinary and necessary
business expense and is not an "excess parachute payment" within the meaning of
Section 280G of the Code, (ii) the applicable reporting requirements of the
Internal Revenue Service with respect to the compensation are timely satisfied
by the Company or subsidiary, and (iii) the $1 million limitation of Section
162(m) of the Code is not exceeded.
The $1 million limitation of Section 162(m) of the Code applies only
with respect to compensation paid to "covered employees," i.e., the Company's
Chief Executive Officer and the four highest compensated executive officers of
the Company or those individuals deemed to be executive officers of the Company
(other than the Chief Executive Officer) and who are officers on the last day of
the year in question. Any Award under the Amended Plan expressly intended by the
Committee to qualify as "performance based compensation" will not be paid unless
it so qualifies. Awards that either are not intended to qualify or which cannot
qualify as performance based will be paid without regard to the limitation on
deductibility under Section 162 of the Code.
PERFORMANCE GOALS AND INDIVIDUAL LIMITATIONS
The performance goals applicable to Awards intended to qualify for the
exemption from the $1 million deduction limitation of Section 162(m) of the Code
for non-performance based compensation will be based upon the attainment of a
such target levels of net income, cash flow, return on equity, deposits, loans,
profits, earnings per share, stock price and/or non-performing or classified
loans as may be specified by the Committee with respect to the Company, a
subsidiary or a bank office. Which factor or factors, the weighting of the same,
and the use of peer group comparisons will be determined by the Committee with
respect to each Award.
The maximum amount of Performance Awards that may be granted to any
individual in any year is limited to $1,000,000 and the maximum number of
Options, shares of Restricted Stock, Phantom Shares or Other Stock-Based Awards
that any individual may be granted in any year, with respect to each type of
Award, is limited to 100,000 shares.
THE BOARD RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY VOTE "FOR"
THE APPROVAL OF AMENDMENT AND RESTATEMENT OF THE 1994 STOCK INCENTIVE PLAN.
SHAREHOLDER PROPOSALS AT THE NEXT ANNUAL MEETING OF SHAREHOLDERS
Shareholders of the Company who intend to submit proposals to the
Company's shareholders at the next Annual Meeting of Shareholders must submit
such proposals to the Company no later than December 23, 1998. Shareholder
proposals should be submitted to the Secretary of the Company at 15000 Northwest
Freeway, Houston, Texas 77040.
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OTHER MATTERS
The management of the Company knows of no other matters which may come
before the Meeting. However, if any matters other than those referred to above
should properly come before the Meeting, it is the intention of the persons
named in the enclosed proxy to vote all proxies in accordance with their best
judgment.
By order of the Board of Directors,
/s/ MICHAEL A. ROY
Michael A. Roy
Secretary
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APPENDIX A
STERLING BANCSHARES, INC.
1994 STOCK INCENTIVE PLAN
(AS AMENDED AND RESTATED)
SECTION 1. Purpose of the Plan.
The Sterling Bancshares, Inc. 1994 Stock Incentive Plan, as hereby
amended and restated (the "Plan"), is intended to promote the interests of
Sterling Bancshares, Inc., a Texas corporation (the "Company"), by encouraging
officers and other employees of the Company and its Subsidiaries to acquire or
increase their equity interest in the Company and to provide a means whereby
they may develop a sense of proprietorship and personal involvement in the
development and financial success of the Company, and to encourage them to
remain with and devote their best efforts to the business of the Company thereby
advancing the interests of the Company and its stockholders. The Plan is also
contemplated to enhance the ability of the Company and its Subsidiaries to
attract and retain the services of individuals who are essential for the growth
and profitability of the Company.
SECTION 2. Definitions.
As used in the Plan, the following terms shall have the meanings set
forth below:
"Award" shall mean an Option, Restricted Stock, Performance Award,
Phantom Shares, Bonus Shares, or Other Stock-Based Award.
"Award Agreement" shall mean any written agreement, contract, or other
instrument or document evidencing any Award, which may, but need not, be
executed or acknowledged by a Participant.
"Board" shall mean the Board of Directors of the Company.
"Bonus Shares" shall mean an award of Shares granted pursuant to
Section 6(d) of the Plan.
"Change in Control" shall mean, and shall be deemed to have occurred
if:
(i) any person, other than the Company or any benefit plan of the
Company, acquires, directly or indirectly, the beneficial ownership (as
defined in Section 13(d) of the Exchange Act) 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 35% or more of the total voting power of all of the
then-outstanding voting securities of the Company;
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(ii) the stockholders of the Company shall approve a merger,
consolidation, recapitalization or reorganization of the Company, or a
reverse stock split of outstanding voting securities, or consummation
of any such transaction if stockholder approval is not 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 at least 75% of the holders of outstanding voting
securities of the Company immediately prior to the transactions with
the voting power of each such continuing holder relative to other such
continuing holders not substantially altered in the transaction; or
(iii) the stockholders of the Company shall approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of 50% or more of the total assets of the Company; or
(iv) the individuals who constitute the Board as of April 23, 1998 (the
"Incumbent Board") shall cease for any reason to constitute at least a
majority of the members of the Board, provided that any person becoming
a director the effective date of the Plan whose election, or nomination
for election by the Company's stockholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent
Board (other than any individual whose nomination for election to Board
membership was not endorsed by the Company's management prior to, or at
the time of, such individual's initial nomination for election) shall
be, for purposes of this Plan, considered as though such person were a
member of the Incumbent Board.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the rules and regulations thereunder.
"Committee" shall mean the Compensation Committee of the Board or any
other committee of the Board designated, from time to time, by the Board to act
as the Committee under the Plan.
"Employee" shall mean any employee of the Company or a Subsidiary.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" shall mean, as of any applicable date, the average
between the high and low sales price for a Share on the Nasdaq Stock Market as
reported by Bloomberg Financial Markets, or any successor reporting system then
in use, unless the Shares are listed on a national securities exchange, in which
case it shall mean the closing sales price on such exchange as reported by
Bloomberg Financial Markets; provided, however, that if Shares shall not have
been quoted or traded on such date, Fair Market Value shall be determined based
on the next preceding date on which they were quoted or traded, or, if deemed
appropriate by the Committee, in such other manner as it may deem
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appropriate. In no event shall the fair market value of any Share be less than
its par value. In the event the Shares are not publicly traded at the time a
determination of its fair market value is required to be made hereunder, the
determination of fair market value shall be made in good faith by the Committee.
"Incentive Stock Option" or "ISO" shall mean an option granted under
Section 6(a) of the Plan that is intended to qualify as an "incentive stock
option" under Section 422 of the Code or any successor provision thereto.
"Non-Qualified Stock Option" or "NQO" shall mean an option granted
under Section 6(a) of the Plan that is not intended to be an Incentive Stock
Option.
"Option" shall mean an Incentive Stock Option or a Non-Qualified Stock
Option.
"Other Stock-Based Award" shall mean an award granted pursuant to
Section 6(f) of the Plan that is not otherwise specifically provided for, the
value of which is based in whole or in part upon the value of a Share.
"Participant" shall mean any Employee granted an Award under the Plan.
"Performance Award" shall mean any right granted under Section 6(c) of
the Plan.
"Person" shall mean individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, government or political
subdivision thereof or other entity.
"Phantom Shares" shall mean an Award of the right to receive Shares
issued at the end of a Restricted Period which is granted pursuant to Section
6(e) of the Plan.
"Restricted Period" shall mean the period established by the Committee
with respect to an Award during which the Award either remains subject to
forfeiture or is not exercisable by the Participant.
"Restricted Stock" shall mean any Share, prior to the lapse of
restrictions thereon, granted under Section 6(b) of the Plan.
"Rule 16b-3" shall mean Rule 16b-3 promulgated by the SEC under the
Exchange Act, or any successor rule or regulation thereto as in effect from time
to time.
"SEC" shall mean the Securities and Exchange Commission, or any
successor thereto.
"Shares" or "Common Shares" or "Common Stock" shall mean the common
stock of the Company, $1.00 par value, and such other securities or property as
may become the subject of Awards of the Plan.
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"Subsidiary" shall mean any "subsidiary corporation" of the Company as
defined in Section 424 of the Code.
SECTION 3. Administration.
The Plan shall be administered by the Committee. A majority of the
Committee shall constitute a quorum, and the acts of the members of the
Committee who are present at any meeting thereof at which a quorum is present,
or acts unanimously approved by the members of the Committee in writing, shall
be the acts of the Committee. Subject to the terms of the Plan and applicable
law, and in addition to other express powers and authorizations conferred on the
Committee by the Plan, the Committee shall have full power and authority to: (i)
designate Participants; (ii) determine the type or types of Awards to be granted
to a Participant; (iii) determine the number of Shares to be covered by, or with
respect to which payments, rights, or other matters are to be calculated in
connection with, Awards; (iv) determine the terms and conditions of any Award;
(v) determine whether, to what extent, and under what circumstances Awards may
be settled or exercised in cash, Shares, other securities, other Awards or other
property, or canceled, forfeited, or suspended and the method or methods by
which Awards may be settled, exercised canceled, forfeited, or suspended; (vi)
determine whether, to what extent, and under what circumstances cash, Shares,
other securities, other Awards, other property, and other amounts payable with
respect to an Award shall be deferred either automatically or at the election of
the holder thereof or of the Committee; (vii) interpret and administer the Plan
and any instrument or agreement relating to an Award made under the Plan; (viii)
establish, amend, suspend, or waive such rules and regulations and appoint such
agents as it shall deem appropriate for the proper administration of the Plan;
and (ix) make any other determination and take any other action that the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations, and other decisions under or with respect to
the Plan or any Award shall be within the sole discretion of the Committee, may
be made at any time and shall be final, conclusive, and binding upon all
Persons, including the Company, any Subsidiary, any Participant, any holder or
beneficiary of any Award, any stockholder and any Employee.
SECTION 4. Shares Available for Awards.
(a) Shares Available. Subject to adjustment as provided in Section
4(c), the number of Shares with respect to which Awards may be granted under the
Plan shall be 2,000,000. If any Award is forfeited or otherwise terminates or is
canceled without the delivery of Shares or other consideration, then the Shares
covered by such Award, to the extent of such forfeiture, termination or
cancellation, shall again be Shares with respect to which Awards may be granted.
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(b) Sources of Shares Deliverable Under Awards. Any Shares delivered
pursuant to an Award may consist, in whole or in part, of authorized and
unissued Shares or of treasury Shares.
(c) Adjustments. In the event that the Committee determines that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that an adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner as
it may deem equitable, adjust any or all of (i) the number and type of Shares
(or other securities or property) with respect to which Awards may be granted,
(ii) the number and type of Shares (or other securities or property) subject to
outstanding Awards, and (iii) the grant or exercise price with respect to any
Award or, if deemed appropriate, make provision for a cash payment to the holder
of an outstanding Award; provided, that the number of Shares subject to any
Award denominated in Shares shall always be a whole number. If the Company is
about to (i) be merged into, acquired by or consolidated with another
corporation or other entity under circumstances where the Company will not be
the surviving corporation or will survive as a subsidiary, or (ii) to sell or
otherwise dispose of substantially all of its assets to another corporation or
other entity, then the Committee may direct, if the successor entity is willing
to assume the obligation to deliver shares of stock or other securities after
the effective date of the merger, acquisition, consolidation or sale of assets,
as the case may be, that each holder of an outstanding Award shall be entitled
to receive, upon the exercise or payment thereof, in lieu of Shares, such shares
of stock or other securities as the holder of such Award would have been
entitled to receive had such Award been exercised or paid immediately prior to
the consummation of such merger, acquisition, consolidation or sale, and, with
respect to an option, the terms of such assumed or replacement option shall
apply as nearly as practicable to the shares of stock or other securities
purchasable upon exercise of the option following such merger, acquisition
consolidation or sale of assets.
SECTION 5. Eligibility.
Any Employee shall be eligible to be designated a Participant by the
Committee.
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SECTION 6. Awards.
(a) Options. Subject to the provisions of the Plan, the Committee shall
have the authority to determine the Employees to whom Options shall be granted,
the number of Shares to be covered by each Option (no Employee may receive
Options with respect to more than 100,000 Shares during any calendar year), the
purchase price therefor and the conditions and limitations applicable to the
exercise of the Option, including the following terms and conditions and such
additional terms and conditions, as the Committee shall determine, that are not
inconsistent with the provisions of the Plan.
(i) Exercise Price. The purchase price per Share purchasable under an
Option shall be determined by the Committee at the time the Option is
granted, but shall not be less than the Fair Market Value per Share on
such date.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part,
and the method or methods by which, and the form or forms (which may
include, without limitation, cash, check acceptable to the Company,
Shares already-owned for more than six months, a "cashless-broker"
exercise (through procedures approved by the Company), other securities
or other property, a note, or any combination thereof, having a Fair
Market Value on the exercise date equal to the relevant exercise price)
in which payment of the exercise price with respect thereto may be made
or deemed to have been made.
(iii) Incentive Stock Options. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the provisions
of Section 422 of the Code, or any successor provision, and any
regulations promulgated thereunder.
(b) Restricted Stock. Subject to the provisions of the Plan, the
Committee shall have the authority to determine the Employees to whom Restricted
Stock shall be granted, the number of Shares of Restricted Stock to be granted
to each such Participant, the duration of the Restricted Period during which,
and the conditions, including the performance criteria, if any, under which, the
Restricted Stock may be forfeited to the Company, and the other terms and
conditions of such Awards.
(i) Dividends. Dividends paid on Restricted Stock may be paid directly
to the Participant, may be subject to risk of forfeiture and/or
transfer restrictions during any period established by the Committee or
sequestered and held in a bookkeeping cash account (with or without
interest) or reinvested on an immediate or deferred basis in additional
shares of Common Stock, which credit or shares may be subject to the
same restrictions as the underlying Award or such other restrictions,
all as determined by the Committee in its discretion.
(ii) Registration. Any Restricted Stock may be evidenced in such manner
as the Committee shall deem appropriate, including, without limitation,
book-entry
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registration or issuance of a stock certificate or certificates. In the
event any stock certificate is issued in respect of Restricted Stock
granted under the Plan, such certificate shall be registered in the
name of the Participant and shall bear an appropriate legend referring
to the terms, conditions, and restrictions applicable to such
Restricted Stock.
(iii) Forfeiture and Restrictions Lapse. Except as otherwise determined
by the Committee or the terms of the Award Agreement that granted the
Restricted Stock, upon termination of a Participant's employment (as
determined under criteria established by the Committee) for any reason
(other than a Change in Control) during the applicable Restricted
Period, all Restricted Stock shall be forfeited by the Participant and
re-acquired by the Company. The Committee may, when it finds that a
waiver would be in the best interests of the Company and not cause such
Award, if it is intended to qualify as performance based compensation
under Section 162(m) of the Code, to fail to so qualify under Section
162(m) of the Code, waive in whole or in part any or all remaining
restrictions with respect to such Participant's Restricted Stock.
Unrestricted Shares, evidenced in such manner as the Committee shall
deem appropriate, shall be issued to the holder of Restricted Stock
promptly after the applicable restrictions have lapsed or otherwise
been satisfied.
(iv) Transfer Restrictions. During the Restricted Period, Restricted
Stock will be subject to the limitations on transfer as provided in
Section 6(g)(ii).
(v) Limit. The maximum number of Shares of Restricted Stock that may be
granted to any Participant during any year shall not exceed 100,000
Shares.
(c) Performance Awards. The Committee shall have the authority to
determine the Employees who shall receive a Performance Award, which shall be
denominated as a cash amount at the time of grant and confer on the Participant
the right to receive payment of such Award, in whole or in part, upon the
achievement of such performance goals during such performance periods as the
Committee shall establish with respect to the Award.
(i) Terms and Conditions. Subject to the terms of the Plan and any
applicable Award Agreement, the Committee shall determine the
performance goals to be achieved during any performance period, the
length of any performance period, the amount of any Performance Award
and the amount of any payment or transfer to be made pursuant to any
Performance Award.
(ii) Payment of Performance Awards. Performance Awards may be paid (in
cash and/or in Shares, in the sole discretion of the Committee) in a
lump sum or in installments following the close of the performance
period, in accordance with procedures established by the Committee with
respect to such Award.
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(iii) Limit. The maximum number of Performance Awards that may be
granted to any Participant during any year shall not exceed $1 million.
(d) Bonus Shares. The Committee shall have the authority, in its
discretion, to grant Bonus Shares to Employees. Each Bonus Share shall
constitute a transfer of an unrestricted Share to the Participant, without other
payment therefor.
(e) Phantom Shares. The Committee shall have the authority to grant
Awards of Phantom Shares to Employees upon such terms and conditions as the
Committee may determine.
(i) Terms and Conditions. Each Phantom Share Award shall constitute an
agreement by the Company to issue or transfer a specified number of
Shares or pay an amount of cash equal to a specified number of Shares,
or a combination thereof to the Participant in the future, subject to
the fulfillment during the Restricted Period of such conditions,
including performance objectives, if any, as the Committee may specify
at the date of grant. During the Restricted Period, the Participant
shall not have any right to transfer any rights under the subject
Award, shall not have any rights of ownership in the Phantom Shares and
shall not have any right to vote such shares.
(ii) Dividends. Any Phantom Share award may provide, in the discretion
of the Committee, that any or all dividends or other distributions paid
on Shares during the Restricted Period be credited in a cash
bookkeeping account (without interest) or that equivalent additional
Phantom Shares be awarded, which account or shares may be subject to
the same restrictions as the underlying Award or such other
restrictions as the Committee may determine.
(iii) Limit. The maximum number of Phantom Shares that may be awarded
to any Participant during any year shall not exceed 100,000 Phantom
Shares.
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(f) Other Stock-Based Awards. The Committee may also grant to Employees
an Other Stock-Based Award, which shall consist of a right which is an Award
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, Shares as is deemed by the Committee to be
consistent with the purposes of the Plan. Subject to the terms of the Plan, the
Committee shall determine the terms and conditions of any such Other Stock-Based
Award. The maximum number of Shares with respect to which an Employee may be
granted an Other Stock-Based Award during any year shall not exceed 100,000
Shares.
(g) General.
(i) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to,
in tandem with, or in substitution for any other Award granted under
the Plan or any award granted under any other plan of the Company or
any Subsidiary. Awards granted in addition to or in tandem with other
Awards or awards granted under any other plan of the Company or any
Subsidiary may be granted either at the same time as or at a different
time from the grant of such other Awards or awards.
(ii) Limits on Transfer of Awards.
(A) Except as provided in (C) below, each Award, and each
right under any Award, shall be exercisable only by the
Participant during the Participant's lifetime, or, if
permissible under applicable law, by the Participant's
guardian or legal representative as determined by the
Committee.
(B) Except as provided in (C) below, no Award and no right
under any such Award may be assigned, alienated, pledged,
attached, sold or otherwise transferred or encumbered by a
Participant otherwise than (i) by will or by the laws of
descent and distribution or (ii) pursuant to a qualified
domestic relations order, and any such purported prohibited
assignment, alienation, pledge, attachment, sale, transfer or
encumbrance shall be void and unenforceable against the
Company or any Subsidiary.
(C) To the extent specifically provided by the Committee with
respect to a grant, a Nonqualified Stock Option may be
transferred to immediate family members or related family
trusts, limited partnerships or similar entities or Persons on
such terms and conditions as the Committee may establish.
(iii) Term of Awards. The term of each Award shall be for such period
as may be determined by the Committee; provided, that in no event shall
the term of any Award exceed a period of 10 years from the date of its
grant.
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(iv) Share Certificates. All certificates for Shares or other
securities of the Company or any Subsidiary delivered under the Plan
pursuant to any Award or the exercise thereof shall be subject to such
stop transfer orders and other restrictions as the Committee may deem
advisable under the Plan or the rules, regulations, and other
requirements of the SEC, any stock exchange upon which such Shares or
other securities are then listed, and any applicable federal or state
laws, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
(v) Consideration for Grants. Awards may be granted for no cash
consideration or for such consideration as the Committee determines
including, without limitation, such minimal cash consideration as may
be required by applicable law.
(vi) Delivery of Shares or other Securities and Payment by Participant
of Consideration. No Shares or other securities shall be delivered
pursuant to any Award until payment in full of any amount required to
be paid pursuant to the Plan or the applicable Award Agreement
(including, without limitation, any exercise price, or tax withholding)
is received by the Company. Such payment may be made by such method or
methods and in such form or forms as the Committee shall determine,
including, without limitation, cash, Shares, other securities, other
Awards or other property, withholding of Shares, cashless exercise with
simultaneous sale, or any combination thereof, provided that the
combined value, as determined by the Committee, of all cash and cash
equivalents and the Fair Market Value of any such Shares or other
property so tendered to the Company, as of the date of such tender, is
at least equal to the full amount required to be paid pursuant to the
Plan or the applicable Award Agreement to the Company.
(vii) Performance Criteria. The Committee shall establish performance
goals applicable to those Awards (other than Options) the payment of
which is intended by the Committee to qualify as "performance-based
compensation" as described in Section 162(m)(4)(C) of the Code. The
performance goals shall be based upon the attainment of such target
levels of net income, cash flows, return on equity, profits, stock
price, return on assets, loans, deposits, earnings per Share and
classified or nonperforming loans as may be specified by the Committee.
Such targets (other than stock price and earnings per Share) may be
expressed in terms of the Company, a Subsidiary, or a bank office, as
determined by the Committee. Which factor or factors to be used with
respect to any grant, and the weight to be accorded thereto if more
than one factor is used, shall be determined by the Committee, in its
sole discretion, at the time of grant.
SECTION 7. Amendment and Termination.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
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(i) Amendments to the Plan. The Board or the Committee may amend,
alter, suspend, discontinue, or terminate the Plan without the consent
of any stockholder, Participant, other holder or beneficiary of an
Award, or other Person; provided, however, notwithstanding any other
provision of the Plan or any Award Agreement, without the approval of
the stockholders of the Company no such amendment, alteration,
suspension, discontinuation, or termination shall be made that would
increase the total number of Shares available for Awards under the
Plan, except as provided in Section 4(c) of the Plan.
(ii) Amendments to Awards. The Committee may waive any conditions or
rights under, amend any terms of, or alter any Award theretofore
granted, provided no change in any Award shall reduce the benefit to
Participant without the consent of such Participant. Notwithstanding
the foregoing, with respect to any Award intended to qualify as
performance-based compensation under Section 162(m) of the Code, no
adjustment shall be authorized to the extent such adjustment would
cause the Award to fail to so qualify.
SECTION 8. Change in Control.
Notwithstanding any other provision of this Plan to the contrary, in
the event of a Change in Control all outstanding Awards automatically shall
become fully vested immediately prior to such Change in Control (or such earlier
time as set by the Committee), all restrictions, if any, with respect to such
Awards shall lapse, including, without limitation, any service, longevity or
year-end employment requirements, and all performance criteria, if any, with
respect to such Awards shall be deemed to have been met in full to the maximum
extent without regard to any proration provisions in such Award or Award
Agreement.
SECTION 9. General Provisions.
(a) No Rights to Awards. No Participant or other Person shall have any
claim to be granted any Award, there is no obligation for uniformity of
treatment of Participants, or holders or beneficiaries of Awards and the terms
and conditions of Awards need not be the same with respect to each recipient.
(b) Tax Withholding. The Company or any Subsidiary is authorized to
withhold from any Award, from any payment due or transfer made under any Award
or under the Plan or from any compensation or other amount owing to a
Participant the amount (in cash, Shares, other securities, Shares that would
otherwise be issued pursuant to such Award, other Awards or other property) of
any applicable taxes payable in respect of an Award, its exercise, the lapse of
restrictions thereon, or any payment or transfer under an Award or under the
Plan and to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for the payment of such taxes. In addition,
the Committee may provide, in an Award Agreement, that the Participant may
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<PAGE> 35
direct the Company to satisfy such Participant's tax obligation through the
withholding of Shares otherwise to be acquired upon the exercise or payment of
such Award.
(c) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or any Subsidiary. Further, the Company or a Subsidiary may at any time
dismiss a Participant from employment, free from any liability or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement.
(d) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Texas and applicable federal law.
(e) Severability. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction or as to any Person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to the applicable laws, or if it cannot
be construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provision shall be
stricken as to such jurisdiction, Person or Award and the remainder of the Plan
and any such Award shall remain in full force and effect.
(f) Other Laws. The Committee may refuse to issue or transfer any
Shares or other consideration under an Award if, acting in its sole discretion,
it determines that the issuance of transfer or such Shares or such other
consideration might violate any applicable law or regulation or entitle the
Company to recover the same under Section 16(b) of the Exchange Act, and any
payment tendered to the Company by a Participant, other holder or beneficiary in
connection with the exercise of such Award shall be promptly refunded to the
relevant Participant, holder or beneficiary.
(g) No Trust or Fund Created. Neither the Plan nor the Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Subsidiary and a Participant
or any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Subsidiary pursuant to an Award, such right
shall be no greater than the right of any general unsecured creditor of the
Company or any Subsidiary.
(h) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares or whether such fractional Shares or any rights
thereto shall be canceled, terminated, or otherwise eliminated.
(i) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any
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<PAGE> 36
way material or relevant to the construction or interpretation of the Plan or
any provision thereof.
(j) Tax Gross-Ups. To the extent that the grant, payment, or
acceleration of vesting or payment, whether in cash, Shares or other property,
of any Award made to a Participant under the Plan (a "Benefit") is subject to an
excise tax under Section 4999(a) of the Code (a "Parachute Tax"), the Company
shall pay such person an amount of cash (the "Gross-up Amount") such that the
"net after-tax" Benefit received by the person under this Plan, after paying all
applicable Parachute Taxes (including those on the Gross-up Amount) and any
other taxes on the Gross-up Amount, shall be equal to the net after-tax Benefit
that such person would have received if such Parachute Tax had not been
applicable.
SECTION 10. Effective Date of Plan Amendment and Restatement.
This amendment and restatement of the Plan shall be effective as of the
date of its approval by the stockholders of the Company. All previously granted
Awards outstanding on the effective date of this amendment and restatement of
the Plan shall thereafter be subject to the terms of the amended and restated
Plan as if such Award had been directly amended, except where such "deemed"
amendment would cause any outstanding Incentive Stock Option to cease to qualify
as such.
SECTION 11. Term of the Plan.
No Award shall be granted under the Plan after April 18, 2004. However,
unless otherwise expressly provided in the Plan or in an applicable Award
Agreement, any Award granted prior to such termination, and the authority of the
Board or the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Award or to waive any conditions or rights under such Award,
shall extend beyond such termination date.
A-13
<PAGE> 37
STERLING BANCSHARES, INC.
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
<TABLE>
<S> <C> <C> <C>
WITHHOLD
AUTHORITY
1. ELECTION OF ONE CLASS I DIRECTOR for a FOR all to vote for FOR all nominees, except vote
one year term ending at the 1999 Annual nominees all nominees withheld for those named below:
Meeting of Shareholders. Nominee: John [ ] [ ] [ ]
B. Carter, Jr.
--------------------------
Nominee Exceptions
2. ELECTION OF FIVE CLASS III DIRECTORS for
a three year term ending at the 2001 FOR WITHHELD
Annual Meeting of Shareholders. [ ] [ ]
Nominees: J. Downey Bridgwater, John H.
Buck, Bruce J. Harper, George Martinez,
Steven F. Retzloff.
3. Proposal to Amend the Articles of
Incorporation to increase the Authorized
Shares of Common Stock from 30,000,000 FOR AGAINST ABSTAIN
to 50,000,000 shares. [ ] [ ] [ ]
4. Proposal to Amend the Sterling
Bancshares, Inc. 1994 Incentive Stock
Option Plan as more fully described in FOR AGAINST ABSTAIN
the Proxy Statement. [ ] [ ] [ ]
5. In their discretion, the proxies are authorized to vote upon any other
business as may properly come before the meeting or any adjournment
thereof. Either of the proxies of their respective substitutes, who shall
be present and acting, shall have and may exercise all the powers hereby
granted.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1 THROUGH 4 AND UNLESS A
CONTRARY CHOICE IS SPECIFIED, THIS PROXY WILL BE VOTED FOR EACH OF THE
PROPOSALS.
- -------------------------------------------------------------------------------
Signature Date
- -------------------------------------------------------------------------------
Signature Date
(Please sign exactly as your name appears at left. For joint accounts, each
joint owner should sign. Executors, administrators, trustees, etc., should also
so indicate when signing.)
<PAGE> 38
STERLING BANCSHARES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR THE ANNUAL SHAREHOLDER'S MEETING APRIL 23, 1998
The undersigned, hereby revoking all prior proxies, hereby appoints George
Martinez and Michael A. Roy, and each of them, his true and lawful agents
P and proxies, with full and several power of substitution, to represent and
R to vote all the shares of Common Stock of STERLING BANCSHARES, INC.
O standing in the name of the undersigned, and with respect to which the
X undersigned would be entitled to vote if personally present, at the Annual
Y Meeting of Shareholders of STERLING BANCSHARES, INC. to be held on April
23, 1998 at Sterling Bank's Mangum Office, 2201 Mangum Road, Houston, Texas
77092, and at any adjournment(s) thereof, on all matters coming before said
meeting.
(change of address)
-----------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
(If you have written in the above space,
please mark the corresponding box on the
reverse side of this card.)
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
BY USING THE ENCLOSED ENVELOPE
SEE REVERSE
SIDE
