Exhibit 10.1

 

AMENDED AND RESTATED

EMPLOYMENT AGREEMENT

 

This Amended and Restated Employment Agreement (“Agreement”), dated as of
January 1, 1998 (the “Effective Date”) and amended and restated on January 18,
2005 is by and between Prosperity Bank (formerly known as First Prosperity
Bank), a Texas banking association (the “Bank”), and David Zalman, an individual
residing in El Campo, Wharton County, Texas (the “Employee”). This Agreement
amends and restates the Employment Agreement dated as of January 1, 1998 by and
between the Bank and Employee (the “Original Agreement”).

 

W I T N E S S E T H:

 

WHEREAS, the Board of Directors of the Bank and the Board of Directors of
Prosperity Bancshares, Inc. (the “Company”), upon recommendation of the
Compensation Committee of the Board of Directors of the Company, desires to
modify the Original Agreement to (i) clarify the payments Employee is entitled
to receive in the event of Employee’s death or Disability (as defined in Section
8.3 hereof), (ii) clarify the provisions related to certain benefits paid to the
Employee upon a Change in Control (as defined in Section 8.6 of the hereof),
specifically with respect to the amount of “parachute payments” Employee may
receive and (iii) revise certain benefit amounts and the age of Employee at
which this Agreement shall not extend beyond; and

 

WHEREAS, Section 11 of the Original Agreement provides that it may be amended by
a written agreement signed by the parties thereto; and

 

WHEREAS, the Board of Directors of the Bank and the Company believe it to be
advisable and in the best interests of the Bank and of the Employee to clarify
the Original Agreement and to ensure that the Employee receives all of the
payments to which he is entitled under the Agreement and any other contracts,
agreements or plans sponsored by the Company or any of its affiliates in the
event of Employee’s death, Employee’s disability or a Change in Control, subject
to the limitations set forth herein;

 

NOW THEREFORE, to assure the Bank of the Employee’s continued service, the
availability of his full attention and dedication to the Bank currently and in
the event of any threatened or pending Change in Control and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Bank and the Employee hereby agree as follows:

 

1. Employment. On the terms and subject to the conditions set forth in this
Agreement, the Bank hereby employs Employee, and engages the services of the
Employee to serve as President of the Bank, and Employee hereby accepts
employment with the Bank according to the terms set forth in this Agreement.

 

2. Duties. Employee is hereby employed and shall work at the location of the
Bank or at such other place or places as may be directed by the Bank. The
Employee shall have the position (including status, offices, titles and
reporting requirements), authority, duties, and responsibilities usually
associated with the president of a bank having assets similar in nature and
value to the assets of the Bank.

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3. Term. The term of this Agreement shall be as follows:

 

3.1 Term. The term (“Term”) of this Agreement shall commence on the Effective
Date and continue for a period of three years.

 

3.2 Extensions. At the conclusion of each anniversary of the execution date of
this Agreement or any extensions thereof, the Term of this Agreement shall
automatically be extended for an additional year, unless this Agreement is
terminated in accordance with Section 7 hereof; provided however, that the
Agreement shall not extend beyond the year in which Employee turns sixty-seven
(67) years of age.

 

4. Compensation and Benefits. The compensation and other benefits payable to
Employee under this Agreement shall constitute the full consideration to be paid
to Employee for all services to be rendered by Employee to the Bank.

 

4.1 Base Salary. During the first year of the Term of this Agreement, the Bank
shall pay Employee a base salary (“Base Salary”) of $180,000 per annum,
commencing on the date of execution of this Agreement. The Employee’s Base
Salary shall be payable in accordance with the Bank’s customary policies,
subject to payroll and withholding deductions as may be required by law and
other deductions applied generally to employees of the Bank for insurance or
other employee benefit plans.

 

4.2 Annual Review. The Employee’s Base Salary shall be reviewed annually by the
Executive Committee of the Board of Directors of the Bank and may be increased
from time to time at the discretion of the Board of Directors.

 

4.3 Reimbursement of Expenses. Employee shall be reimbursed for any and all
reasonable costs and expenses incurred by Employee in performance of his
services and duties as specified in this Agreement or incurred by Employee on
behalf of, or in furtherance of the business of, the Bank, including, but not
limited to business expenses incurred in connection with travel and
entertainment; provided, however, that Employee shall submit to the Bank
supporting receipts and information satisfactory to the Bank with respect to
such reasonable costs and expenses. The Employee shall also be provided with the
use of an automobile of Employee’s selection with a purchase cost not exceeding
$65,000, and the Bank will reimburse all operating expenses incurred by Employee
for use of such automobile in carrying out Employee’s duties for the Bank. Upon
termination of this Agreement, Employee shall be entitled to purchase the
automobile from the Bank by payment of the NADA trade-in value of such
automobile.

 

4.4 Benefits. During the term of Employee’s employment, he shall be entitled (i)
to receive health insurance benefits with the same coverages and deductibles as
are currently in effect with respect to Employee and his spouse (subject to the
availability of such benefits at a reasonable cost), (ii) to participate in the
Bank’s other benefit plans to such extent as determined by the Board of
Directors of the Bank, (iii) to participate in the Bank’s other policies,
including vacation and sick leave.

 

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5. Conflicts of Interests; Covenant Not to Compete.

 

5.1 Employee shall, during the term of this Agreement, devote his time,
attention, energies and business efforts to his duties as an employee of the
Bank and to the business of the Bank. Employee shall not, during the term of
this Agreement, directly or indirectly, for and on behalf of himself or any
person, firm, partnership, corporation or other legal entity, own, manage,
operate, control, invest in, make loans on advances to, guarantee the
obligations of or participate in the ownership or management or operations of or
be employed by or otherwise engage in the operation of any business that is in
competition in any manner whatsoever with the business of the Bank.

 

6. Confidential Information.

 

6.1 As used herein, “Confidential Information” means all technical and business
information (including financial statements and related books and records,
personnel records, customer lists, arrangements with customers and suppliers,
manuals and reports) of the Bank and its affiliates which is of a confidential
and/or proprietary character and which is either developed by Employee (alone or
with others) or to which Employee has had access during his employment. Employee
shall, both during and after his employment with the Bank, protect and maintain
the confidential and/or proprietary character of all Confidential Information.
Employee shall not, during or after termination of his employment, directly or
indirectly, use (for himself or another) or disclose any Confidential
Information, for so long as it shall remain proprietary or protectible as
confidential, except as may be necessary for the performance of his duties under
this Agreement.

 

7. Termination.

 

7.1 Termination of Agreement. Except as may otherwise be provided herein, this
Agreement may terminate prior to the end of the Term upon the occurrence of:

 

(a) Thirty (30) days after written notice of termination is given by either
party to the other; or

 

(b) Employees’s death or, at the Bank’s option, upon Employee’s becoming
Disabled (as defined in Section 8.3 hereof).

 

Any notice of termination given by Employee to the Bank under Section 7.1(a)
above shall specify whether such termination is made with or without Good
Reason-Change in Control (as defined in Section 8.5 hereof). Any notice of
termination given by the Bank to Employee under Section 7.1(a) above shall
specify whether such termination is with or without Cause (as defined in Section
8.4 hereof.

 

8. Obligations of the Bank Upon Termination.

 

8.1 Cause and Other than for Good Reason-Change in Control. If the Bank
terminates this Agreement with Cause (as defined in Section 8.4) pursuant to
Section 7.1(a) above, or if Employee terminates this Agreement without Good
Reason-Change in Control pursuant to Section 7.1(a) hereof, this Agreement shall
terminate without further obligations to

 

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Employee, other than those obligations owing or accrued to, vested in, or earned
by Employee through the date of termination, including, but not limited to:

 

(a) to the extent not theretofore paid, Employee’s Base Salary in effect at the
time of such termination through the date of termination; and

 

(b) in the case of compensation previously deferred by Employee, all amounts
previously deferred (together with any accrued interest thereon) and not yet
paid by the Bank and any accrued vacation pay not yet paid by the Bank; and

 

(c) all other amounts or benefits owing or accrued to, vested in, earned by
Employee through the date of termination under the then existing or applicable
plans, programs, arrangements, and policies of Bank.

 

The aggregate amount of such obligations owing or accrued to, vested in, or
earned by Employee through the date of termination shall be paid by the Bank to
Employee in cash in one lump sum within thirty (30) days after the date of
termination.

 

8.2 Good Reason-Change in Control; Other than for Cause Before or After a Change
in Control. If Employee terminates this Agreement with Good Reason-Change in
Control pursuant to Section 7.1(a) hereof, or if the Bank terminates this
Agreement without Cause before or after the occurrence of a Change in Control
pursuant to Section 7.1(a) hereof, the Bank shall pay to Employee cash in one
lump sum within thirty (30) days after the date of termination the aggregate of
the following amounts (the “Change in Control-Lump Sum Payment”):

 

(i) to the extent not theretofore paid, Employee’s Base Salary at the annual
rate in effect at the time of such termination through the date of termination;
and

 

(ii) to the extent not theretofore paid, any bonus through the date of
termination; and

 

(iii) in the case of compensation previously deferred by Employee, all amounts
previously deferred (together with any accrued interest thereon) and not yet
paid by the Bank, and any accrued vacation pay not yet paid by the Bank; and

 

(iv) all other amounts or benefits owing or accrued to, vested in, or earned by
Employee through the date of termination under the then existing or applicable
plans, programs, arrangements, and policies of the Bank; and

 

(v) an amount equal to three (3) times the Employee’s Base Salary in effect at
the time of such termination.

 

8.3 Death or Disability.

 

(a) If Employee’s employment is terminated under Section 7.1(b) hereof by reason
of Employee’s death, the Bank shall pay to Employee’s legal representatives,

 

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within thirty (30) days after the date of Employee’s death, cash in one lump sum
equal to aggregate of the following amounts:

 

(i) to the extent not theretofore paid, Employee’s Base Salary at the annual
rate in effect at the time of death through the date of death; and

 

(ii) in the case of compensation previously deferred by Employee, all amounts
previously deferred (together with any accrued interest thereon) and not yet
paid by the Bank, and any accrued vacation pay not yet paid by the Bank; and

 

(iii) all other amounts or benefits owing or accrued to, vested in, or earned by
Employee through the date of death under the then existing or applicable plans,
programs, arrangements, and policies of the Bank; and

 

(iv) an amount equal to three (3) times the Employee’s Base Salary in effect at
the time of death.

 

Anything in this Agreement to the contrary notwithstanding, the Employee’s legal
representatives or beneficiaries shall be entitled to receive benefits provided
under the then existing or applicable plans, programs, or arrangements and
policies of the Bank relating to death.

 

(b) If Employee’s employment is terminated under Section 7.1(b) hereof by reason
of Employee’s Disability, the Bank shall pay to Employee, within thirty (30)
days after the date of termination by reason of Employee’s Disability, cash in
one lump sum equal to the aggregate of the following amounts (other than with
respect to clause (iv) if an annuity is purchased):

 

(i) to the extent not theretofore paid, Employee’s Base Salary at the annual
rate in effect at the time of such termination through the date of such
termination; and

 

(ii) in the case of compensation previously deferred by Employee, all amounts
previously deferred (together with any accrued interest thereon) and not yet
paid by the Bank, and any accrued vacation pay not yet paid by the Bank; and

 

(iii) all other amounts or benefits owing or accrued to, vested in, or earned by
Employee through the date of termination under the then existing or applicable
plans, programs, arrangements, and policies of the Bank; and

 

(iv) an amount equal to the higher of (a) three (3) times the Employee’s Base
Salary then in effect or (b) three (3) times Employee’s average base salary over
the preceding five calendar years to be paid, at the Employee’s option, in a
lump sum cash payment or through the purchase of an annuity, with a purchase
price equal to such amount, of a type to be selected by Employee, subject to
approval by the Company’s Compensation Committee, which approval shall not be
unreasonably withheld.

 

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Anything in this Agreement to the contrary notwithstanding, the Employee or the
Employee’s legal representatives or beneficiaries shall be entitled to receive
benefits provided under the then existing or applicable plans, programs, or
arrangements and policies of the Bank relating to disability. As used herein,
“Disabled” shall mean total disability as determined pursuant to the Bank’s long
term disability plan or, if no such plan shall be in effect, by the Board of
Directors of the Bank in accordance with their reasonable business judgment and
the normal personnel practices of the Bank.

 

8.4 Cause. As used in this Agreement, the term “Cause” means (i) willful
misconduct by Employee, (ii) the gross neglect by Employee of his duties as an
employee, officer or director of the Bank which continues for more than thirty
(30) days after written notice from the Bank to Employee specifically
identifying the gross negligence of Employee and directing Employee to
discontinue same, (iii) the commission by Employee of an act, other than an act
taken in good faith within the course and scope of Employee’s employment, which
is directly detrimental to the Bank and which act exposes the Bank to material
liability, (iv) the Employee having been indicted for or convicted of any felony
or other crime involving moral turpitude, or (v) current illegal use of
narcotics, illegal drugs or controlled substances by Employee, or the current
use of alcohol by the Employee to an extent which materially impairs the
performance of Employee’s duties.

 

8.5 Good Reason-Change in Control. As used in this Agreement, the term “Good
Reason-Change in Control” means after the occurrence of a Change in Control (as
defined in Section 8.6) and a determination by Employee that any one or more of
the following events has occurred:

 

(a) the assignment by the Bank to Employee of duties that are inconsistent with
the position of President at the time of such assignment, or the removal by the
Bank from Employee of those duties usually appertaining to the position of
President at the time of such removal; or

 

(b) a change by the Bank, without Employee’s prior written consent, in
Employee’s responsibilities to the Bank as such responsibilities existed at the
time of the occurrence of such Change in Control (or as such responsibilities
may thereafter exist from time to time as a result of changes in such
responsibilities made with Employee’s prior written consent); or

 

(c) the failure of the Bank to continue to provide Employee with office space,
related facilities and support personnel (including, but not limited to,
administrative and secretarial assistance) that are both commensurate with the
position of President and Employee’s responsibilities to and position with the
Bank at the time of the occurrence of such Change in Control and not materially
dissimilar to the office space, related facilities and support personnel
provided to other key executive officers of the Bank; or

 

(d) a reduction by the Bank in the amount of Employee’s Base Salary specified in
Section 4.1(a) (or as subsequently increased) and as in effect at the time of
the occurrence of such Change in Control, or a failure of the Bank to pay such
Base Salary to the Employee at the time and in the manner specified in Section
4.1(a) of this Agreement; or

 

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(e) the relocation, without Employee’s prior written consent, of the Bank’s
principal executive offices to a location outside the county in which such
offices are located at the time of the occurrence of such Change in Control; or

 

(f) the failure of the Bank to obtain the assumption by any successor to the
Bank of the obligations imposed upon the Bank under this Agreement, as required
by Section 15 of this Agreement; or

 

(g) the employment of Employee under this Agreement is terminated by the Bank
without Cause; or

 

(h) the Bank notifies Employee of the Bank’s intention not to observe or perform
one or more of the obligations of the Bank under this Agreement; or

 

(i) the Bank breaches any provision of this Agreement.

 

8.6 Change in Control. As used herein, the term “Change in Control” shall mean
the occurrence with respect to Prosperity Bancshares, Inc. (“Bancshares”) or the
Bank of any of the following events: (a) the acquisition of all or substantially
all of the assets of Bancshares or the Bank, (b) the acquisition of securities
representing 25% or more of the issued and outstanding voting securities of
Bancshares or the Bank or (c) Bancshares or the Bank is acquired pursuant to a
merger, consolidation or other corporate reorganization.

 

8.7 Limitation of Payments. Notwithstanding anything in this Agreement to the
contrary, if Employee is a “disqualified individual” (as defined in Section
280G(c) of the Internal Revenue Code of 1986, as amended (the “Code”)) and the
payments provided for in this Agreement, together with any other payments which
Employee has the right to receive from the Company or the Bank, would constitute
a “parachute payment” (as defined in Section 280G(b)(2) of the Code), and
Employee is not subject to any agreement providing for “gross-up” payments to
Employee of such amounts as may be necessary to pay any applicable excise tax
under Section 4999 of the Code and any applicable income tax relating thereto,
the total amount of all such payments that constitute “parachute payments” shall
be reduced to an amount that is one dollar ($1.00) less than three (3) times
Employee’s “base amount” (as defined in Section 280G(b)(3) of the Code) so that
no portion of such payments to Employee shall be subject to the excise tax
imposed by Section 4999 of the Code; provided, however, that such reduction
shall occur only if such reduction will result in a greater net after-tax
payment to Employee than would the payment of all such amounts without reduction
(taking into account any applicable excise tax under Section 4999 of the Code
and any applicable income tax).

 

9. Notices. Any notice under this Agreement must be in writing and may be given
by certified or registered mail, postage prepaid, addressed to the party or
parties to be notified with return receipt requested, or by delivering the
notice in person. For purposes of notice, the address of Employee or any
administrator, executor or legal representative of Employee or his estate, as
the case may be, shall be the last address of the Employee on the records of the
Bank. The address of the Bank shall be its principal business address.

 

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10. Controlling Law. This Agreement shall be governed by the laws of the State
of Texas.

 

11. Entire Agreement. This Agreement contains the entire agreement of the
parties and may only be amended in writing signed by both parties; provided,
that no amendment to this Agreement shall be effective unless authorized by
resolution of the Board of Directors and signed on behalf of the Bank by a duly
authorized officer of the Bank other than Employee.

 

12. Remedies, Modification and Separability. Employee and the Bank agree that
Employee’s breach of Sections 5 and 6 of this Agreement will result in
irreparable harm to the Bank, that no adequate remedy at law is available, and
that the Bank shall be entitled to injunctive relief; however, nothing herein
shall prevent the Bank from pursuing any other remedies at law or at equity
available to the Bank. Should a court of competent jurisdiction declare any of
the covenants set forth in Sections 5 or 6 unenforceable, the court shall be
empowered to modify or reform such covenants so as to provide relief reasonably
necessary to protect the interests of the Bank and Employee and to award
injunctive relief, or damages, or both, to which the Bank may be entitled. If
any provision of this Agreement is declared by a court of last resort to be
invalid, the Bank and Employee agree that such declaration shall not affect the
validity of the other provisions of this Agreement. If any provision of this
Agreement is capable to two constructions, one of which would render the
provision void and the other of which would render the provision valid, then the
provision shall have the construction which renders it valid.

 

13. Preservation of Business; Fiduciary Responsibility. Employee shall use his
best efforts to preserve the business and organization of the Bank, to keep
available to the Bank the services of its present employees and to preserve the
business relations of the Bank with suppliers, distributors, customers and
others. Employee shall not commit any act which would injure the Bank. Employee
shall observe and fulfill proper standards of fiduciary responsibility attendant
upon his Office.

 

14. Assignments. This Agreement is personal to Employee and without the prior
written consent of the Bank shall not be assignable by Employee other than by
will or the laws of descent and distribution. This Agreement shall inure to the
benefit of and be enforceable by Employee’s legal representatives and heirs.
This Agreement shall inure to the benefit of and be binding upon the Bank and
its successors and assigns. The Bank shall require any corporation, entity,
individual or other person who is the successor (whether direct or indirect, by
purchase, merger, consolidation, reorganization, or otherwise) to all or
substantially all of the business or assets of the Bank to expressly assume and
agree to perform, by a written agreement in form and substance satisfactory to
Employee, all of the obligations of the Bank under this Agreement. As used in
this Agreement, the term “Bank” shall mean the Bank as hereinbefore defined and
any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, written agreement, or
otherwise.

 

15. Waiver of Breach. The waiver by the Bank of a breach of any provision of
this Agreement by Employee shall not operate or be construed as a waiver by the
Bank of any subsequent breach of Employee.

 

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16. Revocation of Previous Employment Agreements. Any and all previous
employment agreements existing between the Bank and Employee are revoked and
canceled.

 

17. Headings. The section headings in this Agreement are for convenience of
reference and shall not be used in the interpretation or construction of this
Agreement.

 

18. Attorney’s Fees. In the event Bank or Employee breaches any term or
provision of this Agreement and the other party employs an attorney or attorneys
to enforce the terms of this Agreement, then the breaching or defaulting party
agrees to pay the other party the reasonable attorney’s fees and costs incurred
to enforce this Agreement.

 

19. Execution. This Agreement may be executed in multiple counterparts each of
which shall be deemed an original and all of which shall constitute one
instrument.

 

[SIGNATURE PAGE FOLLOWS]

 

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Employee acknowledges that he has read this Agreement and understands that
signing this Agreement is a condition of employment.

 

IN WITNESS WHEREOF, this Agreement is executed as of the 18th day of January,
2005.

 

“EMPLOYEE”       “BANK”         Prosperity Bank

/s/ David Zalman

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      By:  

/s/ James D. Rollins III

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David Zalman       Name:   James D. Rollins III         Title:   Vice Chairman  
      By:  

/s/ Peter Fisher

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        Name:   Peter Fisher         Title:   Vice Chairman and General Counsel

 

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