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STERLING CONSTRUCTION COMPANY, INC.
EXHIBIT 10.3

James H. Allen, Jr. Employment Agreement
 

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THIS EMPLOYMENT AGREEMENT (this "Agreement") is made to be effective as of  July
16, 2007 (the "Effective Date") by and between James H. Allen, Jr. (hereinafter
referred to as "Mr. Allen") and Sterling Construction Company, Inc. (hereinafter
referred to as the "Company.")

Background

Mr. Allen became an employee of the Company on July 16, 2007, and Mr. Allen and
the Company wish to enter into a written employment agreement in order to
memorialize the terms and conditions of his employment, as hereinafter set
forth.

THEREFORE, for and in consideration of the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is hereby agreed as follows:

1.
Term & Transition.

1.1.
Mr. Allen's employment under this Agreement shall commence on the Effective Date
and shall expire on the earlier to occur of (a) a termination of his employment
pursuant to Section 8 (Termination by the Company) or Section 9 (Termination by
Mr. Allen) below; or (b) 5:00 p.m. Central Time on December 31, 2010.

2.
Title, Reporting Relationship, Responsibilities & Place of Employment.

2.1.
So long as Mr. Allen is an employee of the Company under this Agreement —

 
2.1.1.
He shall be elected to the position or positions set forth on Exhibit A;

 
2.1.2.
He shall have the reporting relationship set forth on Exhibit A;

2.1.3.
He shall devote his full working time to diligently carrying out the duties and
responsibilities set forth in Exhibit A to the best of  abilities; and

 
2.1.4.
His place of employment shall be based in Houston, Texas except for required
travel on the Company's business.

2.2.
Mr. Allen's reporting relationship and his duties and responsibilities within
his general area of expertise shall be subject to change by the Company in
consultation with him as is reasonably required to meet the needs of the
Company's business from time to time.

3.
Compensation.

3.1.
Cash Compensation.  So long as Mr. Allen is an employee of the Company under
this Agreement, he shall be paid the Base Payroll Salary and shall be eligible
to earn the Base Deferred Salary and the Incentive Bonus set forth in Exhibit A
in accordance with the terms thereof.

 
3.1.1.
Base Deferred Salary and Incentive Bonus if and to the extent either is earned
in a given year shall be paid after January 1 and before March 15 of the
calendar year immediately following such year.

 
3.1.2.
All cash compensation shall be subject to legally-required and any voluntary
withholdings and deductions.

3.2.
Stock Incentive Compensation.  Mr. Allen shall be entitled to the stock
incentive compensation set forth on Exhibit A.

3.3.
Benefits.  Mr. Allen shall be entitled to the same life insurance, disability
and other like benefits as are made available to the Company's senior managers
generally, and on the same terms and conditions; however, Mr. Allen shall
maintain his own health insurance plan, and the Company shall reimburse him for
up to one thousand dollars of the monthly premiums thereof.  Mr. Allen shall
also be entitled to paid vacation time as set forth on Exhibit A.

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James H. Allen, Jr. Employment Agreement — continued

4.
Business Expense Reimbursement.  Mr. Allen shall be reimbursed in accordance
with the Company's business expense reimbursement policy from time to time in
effect for all reasonable business expenses incurred by him in the performance
of his duties.

5.
Indemnification.

5.1.
Mr. Allen shall be indemnified by the Company with respect to claims made
against him as a director, officer and/or employee of the Company and of any
affiliate of the Company to the fullest extent permitted by the Company's
charter, by-laws and the laws of the State of Delaware.

5.2.
The Company shall ensure that Mr. Allen is covered by a standard form directors
and officers liability insurance policy obtained and maintained at no cost to
Mr. Allen.

6.
Confidential Information.

6.1.
During his employment by the Company and thereafter, Mr. Allen shall not
disclose to any person or entity Confidential Information (as defined below)
except in the proper performance of his duties and responsibilities under this
Agreement, or except as may be expressly authorized by the Board of Directors of
the Company.

6.2.
For purposes of this Agreement, "Confidential Information" is defined as any
information of the Company or its affiliates that derives independent economic
value from not being generally known or readily ascertainable by proper means
and includes, but is not limited to trade secrets, customer names and lists,
vendor names and lists, business plans, marketing plans, non-public financial
data, product specifications and designs, inventions, discoveries, processes,
drawings, documents, records, software, or any information of a third party that
is held by the Company or its affiliates under an obligation of confidentiality.

7.
Non-Compete Obligations.  For purposes of this Section 7 only, the term "the
Company" shall include the Company's affiliates.  Mr. Allen's obligations with
respect to competing with the Company and soliciting its employees shall be as
follows (the "Non-Compete Obligations"):

7.1.
Mr. Allen shall not render services or advice, whether for compensation or
without compensation and whether as an employee, officer, director, principal or
otherwise, to any person or organization with respect to any product or service
that is competitive with a product or service of the Company in which he was
actively engaged during his employment by the Company or of which he has
detailed knowledge; or with any planned business in which he had an active part
in the planning or of which he has detailed knowledge.

7.2.
Mr. Allen shall not either directly or indirectly as agent or otherwise in any
manner solicit, influence or encourage any customer of the Company to take away
or to divert or direct its business to himself or to any person or entity by or
with which he is employed, associated, affiliated or otherwise related (other
than the Company.)

7.3.
Mr. Allen shall not recruit or otherwise solicit or induce any employee of the
Company to terminate his or her employment with or otherwise cease his or her
relationship with the Company.

7.4.
The Non-Compete Obligations apply to the state of Texas and any other state in
which the Company and its affiliates taken as a whole receives more than 10% of
its annual revenues.

7.5.
Mr. Allen's obligations under this Section 7 shall continue (a) so long as he is
an employee of the Company; and (b) after his employment terminates (whether by
reason of the expiration of this Agreement or pursuant to Section 8 (Termination
by the Company) or Section 9 (Termination by Mr. Allen)) below, or otherwise)
for a period of twelve months; or for the period, if any, during which he is
entitled to be paid his Base Payroll Salary, whichever period is longer.

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James H. Allen, Jr. Employment Agreement — continued

8.
Termination bythe Company.  Prior to the expiration of this Agreement, the
Company may terminate Mr. Allen's employment only pursuant to the following
terms and on the following conditions:

8.1.
Without Cause.  The Company may terminate Mr. Allen's employment Without Cause
(as defined below) by giving him ninety days' prior written notice thereof, in
which event —

 
8.1.1.
The Company shall continue to pay him his Base Payroll Salary then in effect
through December 31, 2010 or for twelve full calendar months, whichever period
is longer (the "Severance Period;")

 
8.1.2.
During the Severance Period, the Company shall continue to make the
reimbursements to Mr. Allen described in Section 3.3, above.  To the extent that
any medical or dental expense or in-kind benefits provided for under this
Section 8.1.2 are taxable to Mr. Allen in a given year, any such expense shall
be reimbursed to Mr. Allen by the Company within thirty days of such expense
being incurred by him, and any expenses reimbursed or in-kind benefits provided
hereunder shall not affect the expenses eligible for reimbursement or in-kind
benefits provided in any other year.

 
8.1.3.
The Company shall pay Mr. Allen in the manner and at the time set forth in
Exhibit A, a portion of any Base Deferred Salary and of any Incentive Bonus that
he would have earned had he remained an employee of the Company through the end
of the calendar year in which his employment terminated, such portion to be
based on the number of days during such year that he was an employee of the
Company; and

 
8.1.4.
The Company shall permit him to purchase any insurance maintained by the Company
for its own benefit on his life at its then cash surrender value.

 
The foregoing severance benefits are the only benefits and payments to which
Mr. Allen is entitled that arise out of the termination of his employment under
this Section 8.1.

8.2.
Definition of Without Cause.  Mr. Allen's employment shall be deemed to have
been terminated by the Company Without Cause unless termination is for one of
the reasons set forth in Section 8.5, below, by reason of his death or pursuant
to Section 9.1, below.

8.3.
Termination for Permanent Disability.  The Company may terminate Mr. Allen's
employment if he shall become permanently disabled.  Mr. Allen shall be
considered to have become permanently disabled if during any consecutive
twelve-month period, because of ill health, or physical or mental disability, he
shall have been continuously unable to perform his duties under this Agreement,
in whole or in substantial part, for one hundred eighty consecutive days.  The
phrase "substantial part" means the inability of Mr. Allen to perform and devote
at least eight hours per work day to the performance of his duties and
responsibilities.

8.4.
Upon the Death of Mr. Allen.  In the event of Mr. Allen's death during the term
of this Agreement, his employment shall thereupon terminate and the Company
shall pay his estate —

 
8.4.1.
His Base Payroll Salary then in effect through the date of his death to the
extent not already paid;

 
8.4.2.
For any unused vacation time that had accrued in accordance with the Company's
policies at the date of his death; and

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James H. Allen, Jr. Employment Agreement — continued

 
8.4.3.
In the manner and at the time provided in Exhibit A, a portion of any Base
Deferred Salary and any Incentive Bonus that he would have earned had he
remained an employee through the end of the calendar year in which his death
occurred, such portion to be based on the number of days during such year that
he was an employee.

8.5.
Termination for Cause.  The Company may terminate Mr. Allen's employment for
Cause (as defined below) by giving him written notice of termination.  In the
event of the termination of Mr. Allen's employment for Cause, the Company shall
pay him any accrued but unpaid Base Payroll Salary through the date of
termination and any other legally-required payments through that date.  For the
avoidance of doubt, no Base Deferred Salary and no Incentive Bonus shall be
payable to him for the year in which his employment is terminated for Cause.

 
8.5.1.
Definition of Cause.  For purposes of Section 8.5, "Cause" for termination of
Mr. Allen's employment shall mean any one or more of the following:

 
 
(a)
Mr. Allen’s gross neglect of his duties, gross negligence in the performance of
his duties, or his refusal to perform his duties.

 
(b)
Mr. Allen’s unsatisfactory performance of his duties that is not cured within
thirty working days after written notice is given to him specifically
identifying each reason why Mr. Allen’s performance is unsatisfactory and what
he can do to cure such unsatisfactory performance.

 
(c)
Any act of theft or other dishonesty by Mr. Allen, including, but not limited to
any intentional misapplication of the Company's or its affiliates' funds or
other property.

 
(d)
Mr. Allen’s conviction of any criminal activity not described in Subsection (c),
above, or participation in an activity involving moral turpitude that is or
could reasonably be expected to be injurious to the business or reputation of
the Company.

 
(e)
Mr. Allen’s immoderate use of alcohol and/or the use of non-prescribed narcotics
that adversely and materially affects the performance of his duties.

 
9.
Termination by Mr. Allen.

9.1.
Voluntary Resignation.  Mr. Allen may resign his employment with the Company on
ninety days' prior written notice to the Company (the "90-Day Notice
Period.")  Upon receipt of a notice of resignation, the Company —

 
9.1.1.
May accelerate the effective date of Mr. Allen's resignation to any date within
the 90-Day Notice Period; and/or

 
9.1.2.
May deem his notice of resignation a resignation by him of any one or more of
the directorships and offices then held by him in the Company or its affiliates
to be effective on any date or dates within the 90-Day Notice Period.

9.2.
In the event Mr. Allen's resignation becomes effective before the end of a
calendar year, a portion of any Base Deferred Salary that he would have earned
had he remained an employee through the end of such calendar year shall be paid
to him in the manner and at the time set forth in Exhibit A, such portion to be
based on the number of days during such year that he was an employee, but no
Incentive Bonus shall be payable to him for such year.

9.3.
In the event that Mr. Allen's resignation becomes effective at or after the end
of the calendar year in which he gave notice of his resignation, he shall be
entitled to Base Deferred Salary and Incentive Bonus for the year in which he
gave notice of his resignation to the same extent as if he had not given notice
of his resignation.

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James H. Allen, Jr. Employment Agreement — continued

9.4.
No Incentive Bonus shall be payable to Mr. Allen with respect to the calendar
year following the calendar year in which he gives notice of his resignation.

9.5.
Constructive Termination.  Mr. Allen may terminate his employment if (a) the
Company commits a Breach (as defined below) of this Agreement; (b) Mr. Allen
gives the Company detailed written notice of the Breach within thirty days after
the occurrence thereof; and (c) the Company shall fail to cure the Breach within
thirty days after the receipt of such notice or, if the nature of the Breach is
such that it cannot practicably be cured in thirty days, if the Company shall
fail to diligently and in good faith commence a cure of the Breach within such
thirty-day period.

9.6.
In the event of the termination by Mr. Allen of his employment by reason of a
Breach by the Company, the termination shall be deemed for purposes of this
Agreement to be a termination by the Company Without Cause, and the Company
shall be required to perform all of its obligations described in Section 8.1,
above.

9.7.
For purposes of Section 9.5, above, "Breach" shall mean a material breach by the
Company of any one or more of the material terms or conditions of this
Agreement.

10.
Notices.  All notices required or permitted under this Agreement shall be in
writing and shall be deemed given by a party when hand delivered to the other
party against a receipt therefor or when deposited with a delivery service that
provides next-business-day delivery and proof of delivery, in either case
addressed to the other party as follows:

If to the Company at:
Sterling Construction Company, Inc.
20810 Fernbush Lane
Houston, Texas 77073
Attention:  Board of Directors
With a copy to:
Roger M. Barzun
60 Hubbard Street
Concord, Massachusetts 01742
   
If to Mr. Allen, at his most recent home address as shown in the Company's
employment records.
 

or to such other persons or addresses as may be designated in writing by the
party to receive such notice.

11.
Severability.  If any provision or part of a provision of this Agreement is
finally declared to be invalid by any tribunal of competent jurisdiction, such
part shall be deemed automatically adjusted, if possible, to conform to the
requirements for validity, but, if such adjustment is not possible, it shall be
deemed deleted from this Agreement as though it had never been included
herein.  In either case, the balance of any such provision and of this Agreement
shall remain in full force and effect.  Notwithstanding the foregoing, however,
no provision shall be deleted if it is clearly apparent under the circumstances
that either or both of the parties would not have entered into this Agreement
without such provision.

12.
Survival.  Notwithstanding the expiration or earlier termination of this
Agreement or of Mr. Allen's employment for any reason, the terms and conditions
of Section 6 (Confidential Information) and Section 7 (Non-Compete Obligations)
above, and any other obligation of a party that by its terms is to be performed
or is to have continued effect after such termination shall survive such
expiration or termination.

13.
Proration.  Any amount payable to Mr. Allen hereunder for a period shorter than
the period for which it is provided herein shall be pro-rated on a daily basis
using a 365-day year.

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James H. Allen, Jr. Employment Agreement — continued
 
14.
Miscellaneous

14.1.
Entire Agreement.  This Agreement together with Exhibit A contains the entire
understanding of the parties on the subject matter hereof; shall not be amended,
except by written agreement of the parties signed by each of them; shall be
binding upon, and inure to the benefit of, the parties and their successors,
personal representatives and permitted assigns; and shall not be assignable by
either party without the prior written consent of the other party, except that
the Company may assign this Agreement to any entity acquiring all of the stock,
business or assets of the Company, provided that the acquiror assumes all of the
Company 's obligations hereunder.

14.2.
Construction.

 
14.2.1.
Each party has read and understood this Agreement and each party has had an
opportunity to review this agreement with its or his counsel. Accordingly, each
provision of this Agreement shall be interpreted and enforced without the aid of
any canon, custom or rule of law requiring or suggesting construction against
the party drafting or causing the drafting of such provision.

 
14.2.2.
The words "herein," "hereof," "hereunder," "hereby," "herewith" and words of
similar import when used in this Agreement shall be construed to refer to this
Agreement as a whole.

 
14.2.3.
An "affiliate" of the Company is any entity controlling, controlled by, or under
common control with the Company.

14.3.
Prior Agreements.  No representation, affirmation of fact, course of prior
dealings, promise or condition in connection herewith or usage of the trade not
expressly incorporated herein shall be binding on the parties.

14.4.
Waiver.  The failure to insist upon strict compliance with any term, covenant or
condition contained herein shall not be deemed a waiver of such term, nor shall
any waiver or relinquishment of any right at any one or more times be deemed a
waiver or relinquishment of such right at any other time or times.  No term or
condition hereof shall be waived unless in writing by the party to be bound by
such waiver;

14.5.
Captions.  The captions of the paragraphs herein are for convenience only and
shall not be used to construe or interpret this Agreement.

14.6.
Counterparts & Execution.  This Agreement may be executed in multiple
counterparts, each of which may be considered an original, but all of which
together shall constitute but one and the same instrument.  This Agreement when
signed by a party may be delivered by telecopier or other facsimile transmission
with the same force and effect as if the same were an executed and delivered
original manually-signed counterpart.

15.
Governing Law.  This Agreement shall be governed by, and construed in accordance
with, the domestic laws of the State of Texas without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of
Texas or of any other jurisdiction) that would cause the application hereto of
the laws of any jurisdiction other than the State of Texas.

 
16.
Compliance with Section 409A of the Code.

 
16.1.
To the extent that any payment to Mr. Allen under this Agreement is deemed to be
deferred compensation subject to the requirements of Section 409A of the
Internal Revenue Code of 1986 (the "Code") this Agreement shall be operated in
compliance with the applicable requirements of Section 409A of the Code
("Section 409A") and its corresponding regulations and related guidance with
respect to the payment in question.  Notwithstanding anything in this Agreement
to the contrary, any payment under this Agreement that is subject to the
requirements of Section 409A may only be made in a manner and upon an event
permitted by Section 409A.  To the extent that any provision of this Agreement
would cause a conflict with the requirements of Section 409A, or would cause the
administration of this Agreement to fail to satisfy the requirements of
Section 409A, such provision shall be deemed null and void to the extent
permitted by applicable law, and the Company may modify this Agreement in such a
manner as to comply with such requirements without Mr. Allen's consent.

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James H. Allen, Jr. Employment Agreement — continued

16.2.
If Mr. Allen is a key employee (as defined in Section 416(i) of the Code
(without regard to paragraph 5 thereof)) except to the extent permitted under
Section 409A, no benefit or payment that is subject to Section 409A (after
taking into account all applicable exceptions to Section 409A, including but not
limited to the exceptions for short-term deferrals and for separation pay only
upon an involuntary separation from service) shall be made under this Agreement
on account of Mr. Allen's separation from service (as defined in Section 409A)
with the Company until the later of —

 
16.2.1.
The date prescribed for payment in this Agreement; and

 
16.2.2.
The first day of the seventh calendar month that begins after the date of
Mr. Allen's separation from service (or, if earlier, the date of his death.)

16.3.
All payments that were delayed by reason of the application of the date
prescribed by Section 16.2.2, above (the "Section 16.2.2 Date") shall be
aggregated and paid to Mr. Allen on the Section 16.2.2 Date in a lump sum
together with interest computed from the date each such payment would have first
been paid to him absent the application of the Section 16.2.2 Date until paid
using the Non-LIBOR rate of interest the Company would have paid had it borrowed
the amount of the payment under its revolving line of credit.  After the Section
16.2.2 Date, the Company shall pay any other amounts provided for herein to the
extent and in the manner provided in this Agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.

Sterling Construction Company, Inc.                    
By:
       
Patrick T. Manning
 
James H. Allen, Jr.
 
Chairman & Chief Executive Officer
   

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James H. Allen, Jr. Employment Agreement — continued

EXHIBIT A

For purposes of this Exhibit A, "SCC" means the Company.
Title
Mr. Allen shall be elected annually Senior Vice President and Chief Financial
Officer of the Company.
Duties and Responsibilities
Mr. Allen shall carry out the customary duties and responsibilities of a chief
financial and accounting officer of a publicly-traded company.
Reporting Relationship
In carrying out those duties and responsibilities, Mr. Allen shall report to the
Chief Executive Officer of SCC and the Audit Committee of the Board of Directors
of SCC.
Base Payroll Salary
Mr. Allen's annualized Base Payroll Salary shall be $250,000, which shall be
paid to him commencing as of July 16, 2007 in bi-weekly installments at the same
time and in the same manner as other senior managers of the Company are paid
their Base Payroll Salaries.
Base Deferred Salary
Mr. Allen's annualized Base Deferred Salary shall be $75,000 and shall be paid
to him if in a given calendar year SCC achieves seventy-five percent of the
EBITDA budgeted for such year provided that the budget was approved by the Board
of Directors of SCC.
Incentive Bonus
Each calendar year including calendar year 2007, Mr. Allen shall be eligible to
earn an Incentive Bonus of up to $75,000.

Of that amount —
 
·     Sixty percent shall be paid to Mr. Allen if SCC achieves the fully-diluted
earnings per share budgeted for such year provided that the budget was approved
by the Board of Directors of SCC ("Budgeted EPS"); and
 
·     Forty percent will be based upon the extent to which, if at all, Mr. Allen
has achieved the personal goals and objectives established for him for such
year, provided however, that for calendar year 2007, the forty percent  portion
of the Incentive bonus shall be awarded, if at all, in the sole discretion of
the Compensation Committee.
 
The foregoing is in lieu of any "Additional Bonus" that might otherwise be
payable under the Prior Agreement.
 

In determining whether Budgeted EPS has been achieved in a given year, any
shares of common stock of SCC issued during such year otherwise than out of a
reserve therefor that had been established at or before the approval of the
budget shall be ignored.
 

Mr. Allen's personal goals and objectives for a given year shall be established
in consultation with, shall be subject to final approval by, and the extent of
their achievement shall be determined by the Chief Executive Officer of SCC and
the Audit Committee of the Board of Directors of SCC.

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James H. Allen, Jr. Employment Agreement — continued

EBITDA
For purposes of this Agreement, EBITDA means the net income of SCC on a
consolidated basis determined in accordance with generally accepted accounting
principles for a given calendar year —
 

Plus   Interest expense for the period;

Plus   Depreciation and amortization expense for the period;

Plus   Federal and state income tax expense incurred for the period;

Plus   Extraordinary Items (to the extent negative) if any, for the period;

Minus       Extraordinary Items (to the extent positive) if any;

Minus       Interest income for the period;

Minus       Any fees paid to non-employee directors; and
 

in calculating EBITDA for a given year, appropriate and equitable adjustment
shall be made for any material changes in the Company’s business that occur
during such year, such as an acquisition of a business or the sale of a part of
the business.
Stock Incentive
A five-year stock option having a Black-Scholes valuation of $150,000,
exercisable in three substantially equal installments on the first three
anniversaries of the grant date.
Vacation
Mr. Allen shall be eligible to take five weeks of paid vacation time per year in
accordance with the Company 's vacation policy from time to time in effect.

 
 
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