##### 



Exhibit
10.1
 AGREEMENT AND PLAN OF MERGER
 by and among
 STERLING BANCSHARES, INC.,
 SBPB, INC.
 and
 PRESTONWOOD BANCSHARES, INC.
 Dated as of July 7, 2005




---



##### 



TABLE OF CONTENTS
 ARTICLE I CERTAIN DEFINITIONS
    
    
    2Section 1.1 Certain Definitions
    
    
    2ARTICLE II THE MERGER AND RELATED TRANSACTIONS
    
    
    7Section 2.1 Merger
    
    
    7Section 2.2 Time and Place of Closing
    
    
    8Section 2.3 Effective Time
    
    
    8Section 2.4 Reservation of Right to Revise Transaction; Further Actions
    
    
    8ARTICLE III MERGER CONSIDERATION; EXCHANGE PROCEDURES
    
    
    9Section 3.1 Merger Consideration
    
    
    9Section 3.2 Determination of Merger Consideration
    
    
    10Section 3.3 Escrow
    
    
    10ARTICLE IV EXCHANGE OF SHARES
    
    
    11Section 4.1 Exchange Agent
    
    
    11Section 4.2 Exchange Procedures
    
    
    11Section 4.3 No Further Ownership Rights in Company Common Stock
    
    
    12Section 4.4 Termination of Exchange Fund
    
    
    12Section 4.5 Escheat of Exchange Fund
    
    
    12Section 4.6 Lost Certificates
    
    
    12ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY
    
    
    13Section 5.1 Organization, Standing and Authority
    
    
    13Section 5.2 Company Common Stock
    
    
    13Section 5.3 Subsidiaries
    
    
    14Section 5.4 Authorization of Merger and Related Transactions
    
    
    15Section 5.5 Financial Statements and Regulatory Reports
    
    
    16Section 5.6 Absence of Undisclosed Liabilities
    
    
    17Section 5.7 Tax Matters
    
    
    17Section 5.8 Allowance for Credit Losses
    
    
    18Section 5.9 Other Regulatory Matters
    
    
    19Section 5.10 Properties
    
    
    19Section 5.11 Compliance with Laws
    
    
    19Section 5.12 Employee Benefit Plans
    
    
    20Section 5.13 Commitments and Contracts
    
    
    22Section 5.14 Material Contract Defaults
    
    
    23Section 5.15 Legal Proceedings
    
    
    23Section 5.16 Absence of Certain Changes or Events
    
    
    23Section 5.17 Reports
    
    
    25Section 5.18 Insurance
    
    
    25Section 5.19 Labor
    
    
    25Section 5.20 Material Interests of Certain Persons
    
    
    25Section 5.21 Registration Obligations
    
    
    26




---



##### 



Section 5.22 Brokers and Finders and Executive Bonus
    
    
    26Section 5.23 State Takeover Laws
    
    
    26Section 5.24 Environmental Matters
    
    
    26Section 5.25 Loans
    
    
    27Section 5.26 Fiduciary Responsibilities
    
    
    27Section 5.27 Patents, Trademarks and Copyrights
    
    
    28Section 5.28 Company Action
    
    
    29Section 5.29 Dissenting Shareholders
    
    
    29Section 5.30 Company Indebtedness
    
    
    29Section 5.31 Statements True and Correct
    
    
    29Section 5.32 Representations Not Misleading
    
    
    30ARTICLE VI REPRESENTATIONS AND WARRANTIES OF STERLING
    
    
    30Section 6.1 Organization, Standing and Authority
    
    
    30Section 6.2 Authorization of Merger and Related Transactions
    
    
    30Section 6.3 Financial Statements
    
    
    31Section 6.4 Regulatory Matters
    
    
    31Section 6.5 Legal Proceedings
    
    
    31Section 6.6 Representations Not Misleading
    
    
    32Section 6.7 Brokers and Finders
    
    
    32ARTICLE VII CONDUCT OF THE COMPANYS BUSINESS
    
    
    32Section 7.1 Conduct of Business Prior to the Effective Time
    
    
    32Section 7.2 Forbearances
    
    
    33ARTICLE VIII ADDITIONAL AGREEMENTS
    
    
    36Section 8.1 Access and Information
    
    
    36Section 8.2 Proxy Statement
    
    
    37Section 8.3 Company Shareholders Meeting
    
    
    38Section 8.4 Filing of Regulatory Approvals
    
    
    38Section 8.5 Press Releases
    
    
    39Section 8.6 Miscellaneous Agreements and Consents
    
    
    39Section 8.7 Indemnification
    
    
    39Section 8.8 Certain Change of Control Matters
    
    
    41Section 8.9 Employee Benefits
    
    
    41Section 8.10 Certain Actions
    
    
    41Section 8.11 No Solicitation
    
    
    42Section 8.12 Termination Fee
    
    
    43Section 8.13 Accruals
    
    
    44Section 8.14 Certain Agreements
    
    
    44Section 8.15 Release Agreements
    
    
    44Section 8.16 Bankers and Finders Fees
    
    
    45Section 8.17 Notification; Updated Disclosure Memorandums
    
    
    45Section 8.18 Closing Date
    
    
    45Section 8.19 Transaction Payments
    
    
    45ARTICLE IX CONDITIONS TO MERGER
    
    
    45




---



##### 



Section 9.1 Conditions to Each Partys Obligation to Effect the Merger
    
    
    45Section 9.2 Conditions to Obligations of the Company to Effect the Merger
    
    
    46Section 9.3 Conditions to Obligations of Sterling and Merger Sub to Effect the Merger
    
    
    47ARTICLE X TERMINATION
    
    
    48Section 10.1 Termination
    
    
    48Section 10.2 Effect of Termination
    
    
    49Section 10.3 Non-Survival of Representations, Warranties and Covenants
    
    
    50ARTICLE XI GENERAL PROVISIONS
    
    
    50Section 11.1 Expenses
    
    
    50Section 11.2 Entire Agreement; Parties in Interest
    
    
    50Section 11.3 Amendments
    
    
    50Section 11.4 Waivers
    
    
    50Section 11.5 No Assignment
    
    
    51Section 11.6 Notices
    
    
    51Section 11.7 Specific Performance
    
    
    52Section 11.8 Governing Law
    
    
    52Section 11.9 Counterparts
    
    
    53Section 11.10 Captions
    
    
    53Section 11.11 Severability
    
    
    53
  Annex A.
    
    Form of Agreement and Irrevocable Proxy.Annex B.
    
    Company Specified Shareholders.Annex C(1-4).
    
    Form of Non-Compete Agreement.Annex D.
    
    Form of Escrow Agreement.Annex E.
    
    Form of Release Agreement.Annex F.
    
    Form of Release of Claims.




---



##### 



AGREEMENT AND PLAN OF MERGER
 Agreement Sterling BHCA Merger Sub Company
 w i t n e s s e t h:
 Merger
    Delaware
Merger Bancorporation
 Bank Merger Bank Sterling Bank




---



##### 



ARTICLE I
CERTAIN DEFINITIONS
 Certain Definitions.
 Acquisition Proposal
 Acquisition Transaction
 Affiliate
 Agreement
 Approvals
 Authorizations
 BHCA
 Merger Sub
 Bancorporation
 Bank
 Bank Merger
 Business Day
 Certificates
 - 2 -




---



##### 



Class A Common Stock
 Class B Common Stock
 Class C Common Stock
 Closing
 Closing Date
 COBRA
 Code
 Commissioner
 Company
 Company Benefit Plans
 Company Board
 Company Common Stock
 Company Disclosure Memorandum
 Company Financial Statements
 Company Indebtedness
 Company Material Adverse Effect
 - 3 -




---



##### 



Company Shareholders Meeting
 Company Shares Number
 Company Specified Shareholders
 Company Stock Plan
 Company Termination Fee
 Condition
 Delaware Merger
 Dissenting Share
 Effective Time
 Employee
 Environmental Law
 ERISA
 Escrow Agreement
 Escrow Fund
 Exchange Act
 Exchange Agent
 - 4 -




---



##### 



Exchange Fund
 FDIC
 Federal Reserve Board
 GAAP
 Hazardous Substances
 Indemnified Party
 Insurance Agency
 Key Company Officials
 Law
 Liens
 Maximum Amount
 Merger
 Merger Consideration
 Merger Sub
 Nasdaq
 Non-Compete Agreements
 Order
 PB Nevada
 - 5 -




---



##### 



Permitted Liens
 Person person
 Proxy Statement
 Registration Statement
 Regulatory Agreement
 Regulatory Authorities
 Regulatory Reporting Document
 Remedies Exception
 Reports
 Retained Employees
 SEC
 Securities Act
 Sterling
 Sterling Bank
 Sterling Financial Statements
 Sterling Material Adverse Effect
 Subsidiary
 - 6 -




---



##### 



Superior Proposal
 Surviving Corporation
 Tax Taxes
 Taxable Period
 Tax Return
 TBCA
 Termination Fee
 ARTICLE II
THE MERGER AND RELATED TRANSACTIONS
 Merger
 Surviving Corporation
 - 7 -




---



##### 



Time and Place of Closing.
 Closing Closing Date
 Effective Time.
 Effective Time
 Reservation of Right to Revise Transaction; Further Actions.
   - 8 -




---



##### 



ARTICLE III
MERGER CONSIDERATION; EXCHANGE PROCEDURES
 Merger Consideration.
  Merger
Consideration
   Dissenting Share
 - 9 -




---



##### 



Determination of Merger Consideration.
  Escrow.
 Escrow
Agreement Escrow Fund
   - 10 -




---



##### 



ARTICLE IV
EXCHANGE OF SHARES
 Exchange Agent.
 Exchange Agent Exchange Fund
 Exchange Procedures.
 Certificates
 - 11 -




---



##### 



No Further Ownership Rights in Company Common Stock.
  Termination of Exchange Fund.
  Escheat of Exchange Fund.
  Lost Certificates.
  - 12 -




---



##### 



ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
  Organization, Standing and Authority.
 Condition Company Material Adverse Effect Authorizations
 Company Common Stock.
   - 13 -




---



##### 



Subsidiaries.
  - 14 -




---



##### 



Liens
 Authorization of Merger and Related Transactions.
   - 15 -




---



##### 



Financial Statements and Regulatory Reports.
 Company Financial Statements Regulatory Reporting Document
   - 16 -




---



##### 



Absence of Undisclosed Liabilities.
  Tax Matters.
    - 17 -




---



##### 



Allowance for Credit Losses
  - 18 -




---



##### 



Other Regulatory Matters.
  Properties.
  Compliance with Laws.
   Regulatory Authorities
 - 19 -




---



##### 



Regulatory Agreement
   Employee Benefit Plans.
  employee benefit plans ERISA Company Benefit Plans Company Stock Plan
 - 20 -




---



##### 



prohibited transaction
   - 21 -




---



##### 



Commitments and Contracts.
       change of control change
of control
 - 22 -




---



##### 



Material Contract Defaults.
  Legal Proceedings.
  Absence of Certain Changes or Events.
  - 23 -




---



##### 



- 24 -




---



##### 



Reports.
 Reports
 Insurance.
  Labor.
  Material Interests of Certain Persons.
 associate
 - 25 -




---



##### 



Registration Obligations.
  Brokers and Finders and Executive Bonus.
  State Takeover Laws.
  Environmental Matters.
     - 26 -




---



##### 



ACM
  Property Controlled Property Collateral Property
 Loans.
  Fiduciary Responsibilities.
  - 27 -




---



##### 



trusts now
or heretofore held de bonis non de bonis non
 Patents, Trademarks and Copyrights.
    - 28 -




---



##### 



Company Action.
  Dissenting Shareholders.
  Company Indebtedness.
 Company Loan Documents
 Statements True and Correct.
 Proxy Statement Company Shareholders Meeting
 - 29 -




---



##### 



Representations Not Misleading.
  ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF STERLING
  Organization, Standing and Authority.
 Sterling Material Adverse Effect
 Authorization of Merger and Related Transactions.
   - 30 -




---



##### 



Financial Statements.
 Sterling Financial Statements
 Regulatory Matters.
  Legal Proceedings.
  - 31 -




---



##### 



Representations Not Misleading.
  Brokers and Finders.
  ARTICLE VII
CONDUCT OF THE COMPANYS BUSINESS
 Conduct of Business Prior to the Effective Time.
      - 32 -




---



##### 



Forbearances.
  - 33 -




---



##### 



- 34 -




---



##### 



- 35 -




---



##### 



ARTICLE VIII
ADDITIONAL AGREEMENTS
 Access and Information.
      - 36 -




---



##### 



Proxy Statement.
 Proxy Statement
   - 37 -




---



##### 



Company Shareholders Meeting.
  Filing of Regulatory Approvals.
  - 38 -




---



##### 



Press Releases.
  Miscellaneous Agreements and Consents.
  Indemnification.
 Indemnified Party
 - 39 -




---



##### 



Maximum Amount
    - 40 -




---



##### 



Certain Change of Control Matters.
  Employee Benefits.
  Certain Actions.
  - 41 -




---



##### 



No Solicitation.
 Acquisition Proposal
 - 42 -




---



##### 



Acquisition Transaction
  Termination Fee.
    - 43 -




---



##### 



The Wall Street Journal
 Accruals.
  Certain Agreements.
  Release Agreements.
 Release Agreements
 - 44 -




---



##### 



Bankers and Finders Fees.
  Notification; Updated Disclosure Memorandums.
  Closing Date.
  Transaction Payments.
  ARTICLE IX
CONDITIONS TO MERGER
 Conditions to Each Partys Obligation to Effect the Merger.
   - 45 -




---



##### 



Conditions to Obligations of the Company to Effect the Merger.
  Representations and Warranties
 Performance of Obligations
 Opinion of Counsel
 Release Agreements
 - 46 -




---



##### 



Conditions to Obligations of Sterling and Merger Sub to Effect the Merger.
  Representations and Warranties
 Performance of Obligations
 Material Adverse Change
 Opinion of Counsel
 Dissenting Shares
 Release Agreements
 Company Options
 - 47 -




---



##### 



Non-Compete Agreements
 Brokers and Finders Fees and Expenses
 Consents Obtained
 Mortage Company and Insurance Agency
 Escrow Agreement
 ARTICLE X
TERMINATION
 Termination.
     - 48 -




---



##### 



Superior Proposal
     Effect of Termination.
  - 49 -




---



##### 



Non-Survival of Representations, Warranties and Covenants.
  ARTICLE XI
GENERAL PROVISIONS
 Expenses.
  Entire Agreement; Parties in Interest.
  Amendments.
  Waivers.
  - 50 -




---



##### 



No Assignment.
  Notices.
  Company:
    
    Prestonwood Bancshares, Inc.4849 Greenville Ave.Dallas, Texas 75206Attention: Max W. WellsFacsimile: (214) 363-7806With a copy to:
    
    Larry Temple400 West 15th Street, Suite 1510Austin, Texas 78701Facsimile: (512) 477-4478Sterling:
    
    Sterling Bancshares, Inc.2550 North Loop West, Suite 600Houston, Texas 77092Attention: J. Downey Bridgwater, President and ChiefExecutive OfficerJames W. Goolsby, Jr., General CounselFacsimile: (713) 849-5498With a copy to:
    
    Locke Liddell & Sapp LLP3400 JPMorgan Chase Tower600 Travis StreetHouston, Texas 77002Attention: Annette L. TrippFacsimile: (713) 223-3717
 - 51 -




---



##### 



Specific Performance.
  Company Termination Fee
 The
Wall Street Journal
 Governing Law.
  - 52 -




---



##### 



Counterparts.
  Captions.
  Severability.
  Remainder of Page Intentionally Left Blank]




---



##### 



STERLING BANCSHARES, INC.By:
    
    /s/ J. Downey BridgwaterJ. Downey Bridgwater, President and ChiefExecutive OfficerSBPB, INC.By:
    
    /s/ James W. Goolsby

James W. Goolsby. President and SecretaryPRESTONWOOD BANCSHARES, INC.By:
    
    /s/ Max W. Wells

Name: Max W. WellsTitle: President