Document:

exv10w3

Exhibit 10.3

EMPLOYMENT AGREEMENT

     THIS AGREEMENT is made as of the 29th day of July, 2010, by and between PARK STERLING BANK, a
state bank organized and existing under the laws of the State of North Carolina (the “Bank”), and
David Gaines, a resident of the State of North Carolina (the “Executive”).

BACKGROUND:

     The Bank desires to employ the Executive as the Chief Financial Officer of the Bank and
Executive desires to accept such employment.

     The Employer and the Executive desire to enter into an employment agreement to set forth the
terms and conditions of the Executive’s employment.

AGREEMENT:

     In consideration of the above premises and the mutual agreements hereinafter set forth, the
parties hereby agree as follows:

1. Duties.

     1.1 Positions. The Executive shall be employed as the Chief Financial Officer of
the Bank and, subject to the direction of the Chief Executive Officer of the Bank, shall perform
and discharge faithfully the duties and responsibilities which may be assigned to the Executive
from time to time in connection with the conduct of its business. In the event the Company becomes
a party to this Agreement, the Executive shall be employed as the Chief Financial Officer of the
Company and, subject to the direction of the Chief Executive Officer of the Bank, shall perform and
discharge well and faithfully the duties and responsibilities which may be assigned to the
Executive from time to time in connection with the conduct of its business. The duties and
responsibilities of the Executive shall be commensurate with the position of chief financial
officer of a bank and, to the extent applicable, the position of chief financial officer of a bank
holding company.

     1.2 Full-Time Status. In addition to the duties and responsibilities specifically
assigned to the Executive pursuant to Section 1.1 hereof, the Executive shall:

     (a) subject to Section 1.3, devote all of the Executive’s time, energy and skill
during regular business hours to the performance of the duties of the Executive’s employment
(reasonable vacations and reasonable absences due to illness excepted) and faithfully and
industriously perform such duties;

     (b) diligently follow and implement all reasonable and lawful management policies
and decisions communicated to the Executive by the Chief Executive Officer of the Employer;
and

     (c) timely prepare and forward to the Chief Executive Officer of the Employer all
reports and accountings as may be requested of the Executive.

 

 

     1.3 Permitted Activities. The Executive shall devote the Executive’s entire
business time, attention and energies to the business of the Employer and shall not during the Term
be engaged (whether or not during normal business hours) in any other business or professional
activity, whether or not such activity is pursued for gain, profit or other pecuniary advantage,
but as long as the following activities do not interfere with the Executive’s obligations to the
Employer, this shall not be construed as preventing the Executive from:

     (a) investing the Executive’s personal assets in any manner which will not require
any services on the part of the Executive in the operation or affairs of the entity and in
which the Executive’s participation is solely that of an investor; provided that such
investment activity following the Effective Date shall not result in his owning beneficially
at any time one percent (1%) or more of the equity securities of any Competing Business;

     (b) investing the Executive’s personal assets in any manner which will not require
any substantial services on the part of the Executive in the operation or affairs of an
entity that is not a Competing Business and in which the Executive’s participation is
principally that of an investor; or

     (c) participating in civic and professional affairs and organizations and
conferences, preparing or publishing papers or books, teaching or serving on the board of
directors of an entity so long as any such participation does not interfere with the ability
of the Executive to effectively discharge his duties hereunder; provided further, that the
Chief Executive Officer of the Employer may direct the Executive in writing to resign from
any such organization and/or cease such activities should the Chief Executive Officer of the
Employer reasonably conclude that continued membership and/or activities of the type
identified would not be in the best interests of the Employer.

2. Term. This Agreement shall remain in effect for the Term. If the Agreement is in
effect at the end of the Initial Term, the Term shall be renewed automatically for successive
twelve-month periods unless and until one party gives written notice to the other of its or his
intent not to extend this Agreement with such written notice to be given not less than one hundred
eighty (180) days prior to the end of the Initial Term or any such twelve-month period. In the
event such notice of non-extension is properly given, this Agreement shall terminate at the end of
the remaining Term then in effect, subject to earlier termination in connection with the
termination of the Executive’s employment pursuant to Section 4 hereof. If the Effective Date does
not fall on or before December 31, 2010, this Agreement shall become null and void as of December
31, 2010.

3. Compensation. The Employer shall pay the Executive the following during the Term,
except as otherwise provided below:

     3.1 Annual Base Salary. The Executive shall be compensated at an annual base rate
of Three Hundred Thirty-Five Thousand Dollars ($335,000) (the “Annual Base Salary”). The
Executive’s Annual Base Salary shall be reviewed by the Board of Directors at least annually
for adjustments, as determined by the Board of Directors based on its evaluation of the Executive’s

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performance. The Executive’s Annual Base Salary shall be payable in accordance with the Employer’s
normal payroll practices.

     3.2 Annual Incentive Compensation. The Executive shall be eligible to receive
annual bonus compensation, if any, as may be determined by the Compensation and Development
Committee of the Board of Directors of the Bank based on performance measures established by the
Compensation and Development Committee of the Board of Directors of the Bank consistent with the
Employer’s strategic planning process and in consultation with the Executive, pursuant to any
incentive compensation program as may be adopted from time to time by the Compensation and
Development Committee of the Board of Directors of the Bank. The maximum annual bonus opportunity
for any annual period shall be no less than one hundred percent (100%) of the Executive’s Annual
Base Salary and a minimum annual bonus of Fifty Thousand Dollars ($50,000) shall be payable for the
2010 fiscal year. Any annual bonus earned shall be payable, in cash or in securities of the Bank
or the Company, or any combination thereof, in the year following the year in which the bonus is
earned in accordance with the Employer’s normal practices for the payment of short-term incentives.
To be entitled to any payment of incentive compensation from the Employer, the Executive must be
employed by the Employer on the date such payment is made. The parties anticipate the granting of
equity incentives of a type and nature preliminarily outlined in the attached Schedule A.

     3.3 Equity Compensation. The Executive shall be entitled to long-term equity
incentive awards in the discretion of the Compensation and Development Committee of the Board of
Directors of the Bank (or any committee thereof) based upon and/or subject to any performance
measures as may be established by the granting entity; provided, however, that, in general, awards
shall be made at such times and shall be subject to such terms and conditions that are no less
favorable than awards granted to similarly situated executives. In the event of the formation of
the Company, the Bank shall cause the Board of Directors of the Company (or any committee thereof)
to consider grants of long-term incentives awards to the Executive in accordance with the intent
expressed in the immediately preceding sentence. The granting of any and all forms of long-term
equity compensation to the Executive is subject to applicable restrictions imposed by federal and
state banking laws.

     3.4 Business and Professional Education Expenses; Memberships. The Employer
specifically agrees to reimburse the Executive, in accordance with the reimbursement policies from
time to time adopted by the Board of Directors, for reasonable and necessary business expenses
incurred by the Executive in the performance of his duties hereunder; provided, however, that the
Executive shall, as a condition of any such reimbursement, submit verification of the nature and
amount of such expenses in accordance with such reimbursement policies and in sufficient detail to
comply with rules and regulations promulgated by the United States Treasury Department. In
addition, the Employer shall reimburse the Executive for educational expenses related to the
Executive’s professional development and for membership in professional and civic organizations to
the extent such activities are consistent with the Employer’s strategic objectives, subject in each
instance to advance approval by the Board of Directors. The Executive acknowledges that the
Employer makes no representation with respect to the taxability or nontaxability of the benefits
provided under this Section 3.4.

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     3.5 Paid Leave. The Executive shall be entitled to thirty (30) days of paid leave
per calendar year, prorated for partial calendar years. A maximum of ten (10) days of accrued paid
leave may be carried over to an immediately succeeding calendar year. The provisions of this
Section 3.5 shall apply notwithstanding any more or less generous paid leave policy then maintained
by the Employer.

     3.6 Benefits. In addition to the benefits specifically described in this
Agreement, the Executive shall be entitled to such benefits as may be available from time to time
to similarly situated employees. All such benefits shall be awarded and administered in accordance
with the Employer’s standard policies and practices.

     3.7 Withholding. The Employer may deduct from each payment of compensation
hereunder all amounts required to be deducted and withheld in accordance with applicable federal
and state income, FICA and other withholding requirements.

     3.8 Apportionment of Obligations. In the event the Company becomes a party to
this Agreement, the obligations for the payment of the amounts otherwise payable pursuant to this
Section 3 and in Section 4 shall be apportioned between the Company and the Bank as they may agree
from time to time in their sole discretion. The satisfaction of the obligations in this Section 3
and Section 4 shall be subject to any approvals or non-objections from, and any conditions or
restrictions imposed by, any regulator of the Employer.

     3.9 Reimbursement of Expenses; In-Kind Benefits. All expenses eligible for
reimbursements described in this Agreement must be incurred by the Executive during the Term of
this Agreement to be eligible for reimbursement. All in-kind benefits described in this Section 3
must be provided by the Employer during the Term of this Agreement. The amount of reimbursable
expenses incurred, and the amount of in-kind benefits provided, in one taxable year shall not
affect the expenses eligible for reimbursement, or in-kind benefits provided, in any other taxable
year. Each category of reimbursement shall be paid as soon as administratively practicable, but in
no event shall any such reimbursement be paid after the last day of the calendar year following the
calendar year in which the expense was incurred. Neither rights to reimbursement nor in-kind
benefits are subject to liquidation or exchanges for other benefits.

     3.10 Clawback of Incentive Compensation. The Executive agrees to repay any
incentive compensation previously paid or otherwise made available to him that is subject to
recovery under any applicable law (including any rule of any exchange or service through which the
securities of the Employer are then traded) where such incentive compensation was in excess of what
should have been paid or made available because the determination of the amount due was based, in
whole or in part, on materially inaccurate financial information of the Employer. The Executive
agrees to return promptly any such incentive compensation identified by the Employer. If the
Executive fails to return such incentive compensation promptly, the Executive agrees that the
amount of such incentive compensation may be deducted from any and all other compensation owed to
the Executive. The Executive acknowledges that the Employer may take appropriate disciplinary
action (up to, and including, Termination of Employment) if the Executive fails to return such
incentive compensation. The provisions of this Section 3.10 shall remain in effect for the period
required by applicable law.

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4. Termination; Suspension or Reduction of Benefits.

     4.1 Termination of Employment. During the Term, the Executive’s Termination of
Employment under this Agreement may only occur as follows:

     (a) By the Employer:

     (1) for Cause;

     (2) without Cause (other than pursuant to Section 4.1(a)(3) below) at any
time, provided that the Board of Directors of either the Company or the Bank shall
give the Executive thirty (30) days prior written notice of its intent; or

     (3) in the event that a regulator for the Employer requires the Executive’s
removal from service as the Chief Financial Officer of the Bank and/or the Company.

     (b) By the Executive:

     (1) for any reason (other than pursuant to Section 4.1(b)(2)), provided
that the Executive shall give the Employer thirty (30) days’ prior written notice of
the Executive’s intent to effect his Termination of Employment; or

     (2) for Good Reason, provided that the Executive shall give the Employer
the prior written notice described in Section 24(p).

     (c) Upon the Executive becoming subject to a Disability.

     (d) At any time upon mutual, written agreement of the parties.

     (e) Upon expiration of the Term.

     (f) Notwithstanding anything in this Agreement to the contrary, the Term shall end
automatically upon the Executive’s death.

If the Agreement becomes null and void pursuant to the last sentence of Section 2 because the Term
failed to commence on or before December 31, 2010, no party shall have any obligations to, or
rights against, any other party under this Agreement.

     4.2 Severance. If, during the Term, the Executive experiences a Termination of
Employment, either by the Employer without Cause pursuant to Section 4.1(a)(2) or by the Executive
for Good Reason pursuant to Section 4.1(b)(2), then, upon his Termination of Employment, the
Employer will pay severance to the Executive in an amount equal to two (2) times his Annual Base
Salary at the highest rate in effect in the twelve-month period immediately preceding the
Termination of Employment, with such amount payable in substantially equal cash installments not
less frequently than monthly over a period of twenty-four (24) months, commencing on the date
determined by the Employer but in no event later than sixty (60) days following the date of the
Executive’s Termination of Employment.

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     4.3 Change of Control. If, within six (6) months following a Change of Control,
the Executive voluntarily resigns, with or without Good Reason, the Executive shall receive, as
liquidated damages, in lieu of all other claims and payments, an amount equal to two (2) times his
Annual Base Salary at the highest rate in effect in the twelve-month period immediately preceding
the Termination of Employment, with such amount payable in substantially equal cash installments
not less frequently than monthly over a period of twenty-four (24) months, commencing on the date
determined by the Employer but in no event later than sixty (60) days following the date of the
Executive’s Termination of Employment.

     4.4 Parachute Payment Reduction. In no event shall any payment described in this
Agreement exceed the amount permitted by Code Section 280G. Therefore, if the aggregate present
value (determined in accordance with the provisions of Code Section 280G) of both the payments
under this Agreement and all other payments to the Executive in the nature of compensation (the
“Aggregate Payments”) would result in a “parachute payment,” as defined under Code Section 280G,
then the Aggregate Payments shall not be greater than an amount equal to 2.99 multiplied by
Executive’s “base amount” for the “base period”, as those terms are defined under Code Section
280G. In the event the Aggregate Payments are required to be reduced pursuant to this subsection,
the portions of the Aggregate Payments that would be paid latest in time will be reduced first and
if multiple portions of the Aggregate Payments to be reduced are paid at the same time, any
non-cash payments will be reduced before any cash payments, and any remaining cash payments will be
reduced pro rata.

     4.5 Effect of Termination of Employment.

     (a) Upon Executive’s Termination of Employment hereunder for any reason, the
Employer shall have no further obligations to the Executive or the Executive’s estate with
respect to this Agreement, except for the payment of any amount earned and owing under this
Agreement and payment set forth in Section 4.2 or 4.3, if applicable.

     (b) Notwithstanding any other provision of this Agreement to the contrary, as a
condition of the Employer’s payment of any amount in connection with the Executive’s
Termination of Employment, the Executive must execute within such period of time following
Termination of Employment as is permitted by the Employer (and not timely revoke during any
revocation period provided pursuant to such release) a release and non-disparagement
agreement in the form provided by the Employer. All payments of severance shall accrue from
the date of the Executive’s Termination of Employment and, notwithstanding the timing
provisions under Sections 4.2 and 4.3, shall be made or commence on the sixtieth
(60th) day following the Executive’s Termination of Employment, with any accrued
but unpaid severance being paid on the date of the first payment.

     (c) Notwithstanding any provision in the Agreement to the contrary, to the extent
necessary to avoid the imposition of tax on the Executive under Code Section 409A, any
payments that are otherwise payable to the Executive within the first six (6) months
following the effective date of Termination of Employment, shall be suspended and paid as
soon as practicable following the end of the six-month period following such effective date
if, immediately prior to the Executive’s Termination of Employment, the

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Executive is determined to be a “specified employee” (within the meaning of Code
Section 409A(a)(2)(B)(i)) of the Employer (or any related “service recipient” within the
meaning of Code Section 409A and the regulations thereunder). Any payments suspended by
operation of the foregoing sentence shall be paid as a lump sum within thirty (30) days
following the end of such six-month period. Payments (or portions thereof) that would be
paid latest in time during the six-month period will be suspended first.

     (d) Any purported termination of the Executive’s employment which does not rise to
the level of a Termination of Employment shall not entitle the Executive to any of the
payments or benefits described in Section 4.

     (e) If the Executive is a member of the Board of Directors of either the Company or
the Bank and the Executive’s employment is terminated by the Employer or by the Executive
pursuant to Section 4.1, the Executive shall immediately resign from his position(s) on the
Board(s) of Directors, effective as of the date his employment is terminated.

     (f) Notwithstanding anything contained in this Agreement to the contrary, no
payments shall be made pursuant to Section 4 or any other provision herein in contravention
of the requirements of Section 2[18(k)] of the Federal Deposit Insurance Act (12 U.S.C.
1828(k)).

     4.6 Regulatory Action.

     (a) If the Executive is removed and/or permanently prohibited from participating in
the conduct of the Employer’s affairs by an order issued under Section 8(e)(4) or 8(g)(1) of
the Federal Deposit Insurance Act (“FDIA”) (12 U.S.C. 1818(e)(4) and (g)(1)), all
obligations of the Employer under this Agreement shall terminate, as of the effective date
of such order, except for the payment of Annual Base Salary due and owing under Section 3.1
on the effective date of said order, and reimbursement under Section 3.4 of expenses
incurred as of the effective date of termination.

     (b) If the Executive is suspended and/or temporarily prohibited from participating
in the conduct of the Employer’s affairs by a notice served under Section 8(e)(3) or 8(g)(1)
of the FDIA (12 U.S.C. 1818(e)(3) and (g)(1)), all obligations of the Employer under this
Agreement shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Employer shall reinstate (in
whole or in part) any of its obligations which were suspended.

     (c) If the Employer is in default (as defined in Section 3(x)(1) of the FDIA), all
obligations under this Agreement shall terminate as of the date of default, but the vested
rights of the parties shall not be affected.

     (d) All obligations under this Agreement shall be terminated, except to the extent
a determination is made that continuation of the contract is necessary for the continued
operation of the Employer (1) by the director of the Federal Deposit Insurance

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Corporation (the “FDIC”) or his or her designee (the “Director”), at the time the FDIC
enters into an agreement to provide assistance to or on behalf of the Employer under the
authority contained in 13(c) of the FDIA; or (2) by the Director, at the time the Director
approves a supervisory merger to resolve problems related to operation of the Employer when
the Employer is determined by the Director to be in an unsafe and unsound condition. Any
rights of the Executive that have already vested, however, shall not be affected by such
action.

     (e) All obligations under this Agreement are further subject to such conditions,
restrictions, limitations and forfeiture provisions as may separately apply pursuant to any
applicable state banking laws.

5. Employer Information.

     5.1 Ownership of Employer Information. All Employer Information received or
developed by the Executive or by the Employer while the Executive is employed by the Employer will
remain the sole and exclusive property of the Employer.

     5.2 Obligations of the Executive. The Executive agrees:

     (a) to hold Employer Information in strictest confidence;

     (b) not to use, duplicate, reproduce, distribute, disclose or otherwise disseminate
Employer Information or any physical embodiments of Employer Information to any unauthorized
recipient; and

     (c) in any event, not to take any action causing or fail to take any action
necessary in order to prevent any Employer Information from losing its character or ceasing
to qualify as Confidential Information or a Trade Secret.

In the event that the Executive is required by law to disclose any Employer Information, the
Executive will not make such disclosure unless (and then only to the extent that) the Executive has
been advised by independent legal counsel (whose reasonable fees and expenses shall be paid by
Employer) that such disclosure is required by law and then only after prior written notice is given
to the Employer when the Executive becomes aware that such disclosure has been requested and is
required by law. This Section 5 shall survive for a period of two (2) years following termination
of this Agreement for any reason with respect to Confidential Information, and shall survive
termination of this Agreement for any reason for so long as is permitted by applicable law, with
respect to Trade Secrets.

     5.3 Delivery upon Request or Termination. Upon request by the Employer, and in
any event upon the Executive’s Termination of Employment with the Employer, the Executive will
promptly deliver to the Employer all property belonging to the Employer and its Affiliates,
including, without limitation, all Employer Information then in the Executive’s possession or
control.

6. Non-Competition. The Executive agrees that during the Executive’s employment by the
Employer hereunder, and in the event of the Executive’s Termination of Employment, regardless

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of the reason, for a period of one (1) year thereafter, the Executive will not (except on behalf of
or with the prior written consent of the Employer), within the Area, either directly or indirectly,
on the Executive’s own behalf or in the service or on behalf of others, perform for any Competing
Business any services which are the same as or essentially the same as the services the Executive
provided for the Employer.

7. Non-Solicitation of Customers. The Executive agrees that during the Executive’s
employment by the Employer hereunder, and in the event of the Executive’s Termination of
Employment, regardless of the reason, for a period of one (1) year thereafter, the Executive will
not (except on behalf of or with the prior written consent of the Employer) on the Executive’s own
behalf or in the service or on behalf of others, solicit, divert or appropriate or attempt to
solicit, divert or appropriate, any business from any of the Employer’s customers, including
prospective customers actively sought by the Employer, with whom the Executive has or had material
contact during the last two (2) years of the Executive’s employment with Employer, for purposes of
providing products or services that are competitive with those provided by the Employer.

8. Non-Solicitation of Employees. The Executive agrees that during the Executive’s
employment by the Employer hereunder, and in the event of the Executive’s Termination of
Employment, regardless of the reason, for a period of one (1) year thereafter, the Executive will
not (except on behalf of or with the prior written consent of the Employer) on the Executive’s own
behalf or in the service or on behalf of others, solicit, recruit or hire away or attempt to
solicit, recruit or hire away, any employee of the Employer with whom the Executive had material
contact during the last two (2) years of the Executive’s employment, whether or not such employee
is a full-time employee or a temporary employee of the Employer, such employment is pursuant to
written agreement, for a determined period, or at will.

9. Remedies. The Executive agrees that the covenants contained in Sections 5 through 8
of this Agreement are of the essence of this Agreement; that each of the covenants is reasonable
and necessary to protect the business, interests and properties of the Employer, and that
irreparable loss and damage will be suffered by the Employer should the Executive breach any of the
covenants. Therefore, the Executive agrees and consents that, in addition to all the remedies
provided by law or in equity, the Employer shall be entitled to a temporary restraining order and
temporary and permanent injunctions to prevent a breach or contemplated breach of any of the
covenants. Furthermore, in addition to any other remedies, the Executive agrees that any violation
of the covenants in Sections 5 through 8 will result in the immediate forfeiture of any remaining
payment that otherwise is or may become due under Section 4.2 or 4.3, if applicable. The Executive
further agrees that should he breach any of the covenants contained in Sections 5 through 8 of this
Agreement, he shall repay to the Employer a portion of any amounts previously received by the
Executive pursuant to Section 4. The amount to be repaid shall be equal to the aggregate amount
payable (whether or not paid) multiplied by a fraction the numerator of which shall be twenty-four
(24) minus the number of consecutive, full calendar months immediately following the Executive’s
termination of employment during which the Executive was not in breach of Sections 5 through 8 of
this Agreement and the denominator of which is twenty-four (24). The Employer and the Executive
agree that all remedies available to the Employer or the Executive, as applicable, shall be
cumulative.

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10. Severability. The parties agree that each of the provisions included in this
Agreement is separate, distinct and severable from the other provisions of this Agreement and that
the invalidity or unenforceability of any Agreement provision shall not affect the validity or
enforceability of any other provision of this Agreement. Further, if any provision of this
Agreement is ruled invalid or unenforceable by a court of competent jurisdiction because of a
conflict between the provision and any applicable law or public policy, the provision shall be
redrawn to make the provision consistent with, and valid and enforceable under, the law or public
policy.

11. No Set-Off by the Executive. The existence of any claim, demand, action or cause
of action by the Executive against the Employer whether predicated upon this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Employer of any of its rights
hereunder.

12. Notice. All notices, requests, waivers and other communications required or
permitted hereunder shall be in writing and shall be either personally delivered, sent by reputable
overnight courier service or mailed by first class mail, return receipt requested, to the recipient
at the address below indicated:

	 	 	 

	If to the Employer:

	 	Park Sterling Bank
	 

	 	Attn: Chairman
	 

	 	1043 E. Morehead Street, Suite 201
	 

	 	Charlotte, NC 28204
	 
	 	 
	If to the Executive:

	 	David Gaines
	 

	 	14835 Resolves Lane
	 

	 	Charlotte, NC 28277

or such other address or to the attention of such other person as the recipient party shall have
specified by prior written notice to the sending party. All such notices, requests, waivers and
other communications shall be deemed to have been effectively given: (a) when personally delivered
to the party to be notified; (b) when sent by confirmed facsimile to the party to be notified; (c)
five (5) business days after deposit in the United States Mail postage prepaid by certified or
registered mail with return receipt requested at any time other than during a general
discontinuance of postal service due to strike, lockout, or otherwise (in which case such notice,
request, waiver or other communication shall be effectively given upon receipt) and addressed to
the party to be notified as set forth above; or (d) two (2) business days after deposit with a
national overnight delivery service, postage prepaid, addressed to the party to be notified as set
forth above with next-business-day delivery guaranteed. A party may change its or his notice
address given above by giving the other party ten (10) days’ written notice of the new address in
the manner set forth above.

13. Assignment. The rights and obligations of the Employer under this Agreement shall
inure to the benefit of and shall be binding upon the successors and assigns of the Employer, as
applicable, including without limitation, a purchaser of all or substantially all the assets of the
Employer. If the Agreement is assigned pursuant to the foregoing sentence, the assignment shall be
by novation and the Employer shall have no further liability hereunder, and the successor or

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assign, as applicable, shall become the “Employer” hereunder, but the Executive will not be deemed
to have experienced a Termination of Employment by virtue of such assignment. The Agreement is a
personal contract and the rights and interest of the Executive may not be assigned by the
Executive. This Agreement shall inure to the benefit of and be enforceable by the Executive and
the Executive’s personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.

14. Waiver. A waiver by one party to this Agreement of any breach of this Agreement by
any other party to this Agreement shall not be effective unless in writing, and no waiver shall
operate or be construed as a waiver of the same or another breach on a subsequent occasion.

15. Mediation. Except as provided in Section 16 hereof, if any dispute arises out of
or relates to this Agreement, or a breach thereof, and if the dispute can not be settled through
direct discussions between the parties, the parties agree to first endeavor to settle the dispute
in an amicable manner by mediation under the Commercial Mediation Rules of the American Arbitration
Association before resorting to any other process for resolving the dispute.

16. Applicable Law and Choice of Forum. This Agreement shall be construed and enforced
under and in accordance with the laws of the State of North Carolina. The parties agree that any
appropriate state court located in Mecklenburg County, North Carolina or federal court for the
Western District of North Carolina shall have exclusive jurisdiction of any case or controversy
arising under or in connection with this Agreement shall be a proper forum in which to adjudicate
such case or controversy. The parties consent and waive any objection to the jurisdiction or venue
of such courts.

17. Interpretation. Words importing any gender include all genders. Words importing
the singular form shall include the plural and vice versa. The terms “herein,” “hereunder,”
“hereby,” “hereto,” “hereof” and any similar terms refer to this Agreement. Any captions, titles
or headings preceding the text of any article, section or subsection herein are solely for
convenience of reference and shall not constitute part of this Agreement or affect its meaning,
construction or effect.

18. Entire Agreement. This Agreement embodies the entire and final agreement of the
parties on the subject matter stated in this Agreement. No amendment or modification of this
Agreement shall be valid or binding upon the Employer or the Executive unless made in writing and
signed by all parties. All prior understandings and agreements relating to the subject matter of
this Agreement are hereby expressly terminated.

19. Mutual Non-disparagement. The Employer agrees that during the Term and for a
period of two years thereafter, each will not make any statement (written or oral) that could
reasonably be perceived as disparaging to the Executive. The Executive agrees that during the Term
and for a period of two years thereafter, he will not make any statement (written or oral) that
could reasonably be perceived as disparaging to the Employer or any person or entity that he
reasonably should know is an affiliate of the Employer.

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20. Rights of Third Parties. Nothing herein expressed is intended to or shall be
construed to confer upon or give to any person, firm or other entity, other than the parties hereto
and their permitted assigns, any rights or remedies under or by reason of this Agreement.

21. Survival. The obligations of the parties pursuant to Sections 3.10, 5 through 9,
15, 16 and 19, as applicable, shall survive the Executive’s Termination of Employment hereunder for
the period designated under each of those respective sections.

22. Representation Regarding Restrictive Covenants. The Executive represents that the
Executive is not and will not become a party to any non-competition or non-solicitation agreement
or any other agreement which would prohibit the Executive from entering into this Agreement or
providing the services for the Employer contemplated by this Agreement on or after the Effective
Date. In the event the Executive is subject to any such agreement, this Agreement shall be
rendered null and void and the Employer shall have no obligations to the Executive under this
Agreement.

23. Joinder of Company. In the event the Company is formed and desires to become a
party to this Agreement, the Executive and the Bank shall enter into such amendments to the
Agreement and execute such consents as may be necessary to reflect the addition of the Company as a
party to the Agreement. No such amendments to the Agreement shall materially alter the terms of
this Agreement without the consent of the affected party.

24. Definitions. Whenever used in this Agreement, the following terms and their
variant forms shall have the meanings set forth below:

     (a) “Affiliate” shall mean any entity which controls, is controlled by, or is
under common control with another entity. For this purpose, “control” means ownership of more than
fifty percent (50%) of the ordinary voting power of the outstanding equity securities of an entity.

     (b) “Agreement” shall mean this Agreement and any exhibits incorporated herein
together with any amendments hereto made in the manner described in this Agreement.

     (c) “Area” shall mean a radius of twenty-five (25) miles or, at the election of
the Employer upon written notice to the Executive, a radius of fifteen (15) miles, from each office
maintained by the Employer at the time a breach of Section 6 of the Agreement is alleged by the
Employer. It is the express intent of the parties that the Area as defined herein is the area
where the Executive performs services on behalf of the Employer under this Agreement.

     (d) “Board of Directors” shall mean the board of directors of the Bank or the
Company or both, as the context indicates, and includes any committee thereof or other designee.

     (e) “Business of the Employer” shall mean the business conducted by the Employer,
which is the business of commercial and consumer banking.

     (f) “Cause” shall mean:

     (1) A material breach of the terms of this Agreement by the Executive not cured by
the Executive within thirty (30) days after his receipt of Employer’s written

12

 

notice thereof, including, without limitation, failure by the Executive to perform the
Executive’s duties and responsibilities in the manner and to the extent required under this
Agreement;

     (2) Any act by the Executive of fraud against, material misappropriation from, or
material dishonesty to either the Company or the Bank;

     (3) Conviction of the Executive of a crime involving breach of trust or moral
turpitude or any felony;

     (4) Conduct by the Executive that amounts to willful misconduct, gross and willful
insubordination, gross neglect or inattention to or material failure to perform the
Executive’s duties and responsibilities hereunder, including prolonged absences without the
written consent of the Board of Directors; provided that the nature of such conduct shall be
set forth with reasonable particularity in a written notice to the Executive who shall have
ten (10) days following delivery of such notice to cure such alleged conduct, provided that
such conduct is, in the reasonable discretion of the Board of Directors, susceptible to a
cure;

     (5) the exhibition of a standard of behavior within the scope of or related to his
employment that is materially disruptive to the orderly conduct of the Employer’s business
operations (including, without limitation, substance abuse, sexual harassment or sexual
misconduct) in the reasonable opinion of the Board of Directors of the Company or the Bank
(with the Executive abstaining from participating in the consideration of, and vote on, such
matter);

     (6) Receipt of any form of notice, written or otherwise, that any regulatory agency
having jurisdiction over the Employer intends to institute any form of formal or informal
regulatory action against the Executive; or

     (7) Executive’s removal and/or permanent prohibition from participating in the
conduct of the Employer’s affairs by an order issued under Section 8(e)(4) or 8(g)(1) of the
Federal Deposit Insurance Act (12 U.S.C. 1818(e)(4) and (g)(1)).

     (g) “Change of Control” means a “change in the ownership or effective control of a
corporation, or a change in the ownership of a substantial portion of the assets of a corporation”
within the meaning of Code Section 409A, provided, however, that for purposes of determining an
“effective change of control, “ “50 percent” shall be used instead of “30 percent” and for purposes
of determining a “substantial portion of the assets of a corporation,” “85 percent” shall be used
instead of “40 percent.” For purposes of the preceding sentence, “a corporation” refers to the Bank
unless and until the Company is formed and thereafter shall refer to the Company. Notwithstanding
the foregoing, in the event of a merger, consolidation, reorganization, share exchange or other
transaction as to which the holders of the capital stock of the Bank or the Company before the
transaction continue after the transaction to hold, directly or indirectly through a holding
company or otherwise, shares of capital stock of the Bank or the Company (or other surviving
company) representing more than fifty percent (50%) of the value or ordinary

13

 

voting power to elect directors of the capital stock of the Bank or the Company (or other
surviving company), such transaction shall not constitute a Change of Control.

     (h) “Code” shall mean the Internal Revenue Code of 1986, as amended.

     (i) “Company” means the parent bank holding company of the Bank that may be formed
following the Effective Date.

     (j) “Competing Business” shall mean any entity (other than the Employer and its
Affiliates) that is conducting business that is the same or substantially the same as the Business
of the Employer.

     (k) “Confidential Information” means data and information relating to the business
of the Employer and its Affiliates (which does not rise to the status of a Trade Secret) which is
or has been disclosed to the Executive or of which the Executive became aware as a consequence of
or through the Executive’s relationship to the Employer and its Affiliates and which has value to
the Employer and its Affiliates and is not generally known to its competitors. Confidential
Information shall not include any data or information that has been voluntarily disclosed to the
public by the Employer or its Affiliates, provided that such public disclosure shall not be deemed
to be voluntary when made without authorization by the Executive or any other employee of Employer,
or that has been independently developed and disclosed by others, or that otherwise enters the
public domain through lawful means.

     (l) “Disability” shall mean that the Executive suffers from a physical or mental
disability or infirmity that qualifies him for disability benefits under any accident and health
plan maintained by the Employer that provides income replacement benefits due to disability or, if
the Employer does not maintain such a plan, the Executive’s inability to perform the essential
functions of the Executive’s job for a period of ninety (90) or more days, with or without
reasonable accommodation, as a result of a physical or mental disability or infirmity, as
reasonably determined by the Employer.

     (m) “Effective Date” shall mean the later of (i) date of the closing of a public
offering of the Bank’s common stock pursuant to a firm commitment underwriting; or (ii)
confirmation from federal and state banking regulators that each have no objection to the
employment of the Executive in the capacity(ies) indicated by this Agreement.

     (n) “Employer” means the Bank and, if the Company is formed and becomes a party to
this Agreement, the Company.

     (o) “Employer Information” means Confidential Information and Trade Secrets.

     (p) “Good Reason” shall mean any of the following which occurs on or after the
Effective Date:

     (1) a material reduction of the Executive’s Annual Base Salary from its then current
rate without the Executive’s consent, other than a reduction that also is applied to
substantially all other executive officers of the Employer if Executive’s reduction is
substantially proportionate to, or no greater than, the reduction applied to substantially
all other executive officers; or

14

 

     (2) a material diminution in the authority, responsibilities or duties of the
Executive hereunder without the Executive’s consent;

provided, however, that for a Termination of Employment by the Executive to be for Good Reason, the
Executive must notify the Employer in writing of the event giving rise to Good Reason within thirty
(30) days following the occurrence of the event (or, if later, thirty (30) days following the
Executive’s knowledge of occurrence of the event), the event must remain uncured after the
expiration of sixty (60) days following the delivery of written notice of such event to the
Employer by the Executive, and the Executive must resign effective no later than sixty (60) days
following the Employer’s failure to cure the event and must give at least thirty (30) days advance
written notice prior to the Executive’s effective date of resignation.

     (q) “Initial Term” shall mean that period of time commencing on the Effective Date
and running until the earlier of (1) the close of business on the last business day immediately
preceding the third anniversary of the Effective Date, or (2) any earlier termination of employment
of the Executive under this Agreement as provided for in Section 4.

     (r) “Term” shall mean the Initial Term and all subsequent extension periods.

     (s) “Termination of Employment” shall mean a termination of the Executive’s
employment where either (1) the Executive has ceased to perform any services for the Employer and
all affiliated companies that, together with the Employer, constitute the “service recipient”
within the meaning of Code Section 409A and the regulations thereunder (collectively, the “Service
Recipient”) or (2) the level of bona fide services the Executive performs for the Service Recipient
after a given date (whether as an employee or as an independent contractor) permanently decreases
(excluding a decrease as a result of military leave, sick leave, or other bona fide leave of
absence if the period of such leave does not exceed six months, or if longer, so long as the
Executive retains a right to reemployment with the Service Recipient under an applicable statute or
by contract) to no more than twenty percent (20%) of the average level of bona fide services
performed for the Service Recipient (whether as an employee or an independent contractor) over the
immediately preceding 36-month period (or the full period of service if the Executive has been
providing services to the Service Recipient for less than 36 months).

     (t) “Trade Secrets” means Employer or Affiliate information including, but not
limited to, technical or nontechnical data, formulas, patterns, compilations, programs, devices,
methods, techniques, drawings, processes, financial data, financial plans, product plans or lists
of actual or potential customers or suppliers which:

     (1) derives economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by, other persons who
can obtain economic value from its disclosure or use; and

     (2) is the subject of efforts that are reasonable under the circumstances
to maintain its secrecy.

[SIGNATURES ON NEXT PAGE]

15

 

     IN WITNESS WHEREOF, the Employer and the Executive have executed and delivered this Agreement
as of the date first shown above.

	 	 	 	 	 
	 	Bank:

Park Sterling Bank

 	 
	 	By:  	/s/ Larry Carroll
 	 
	 	 	Signature 	 
	 
	 	  	                       Larry Carroll
 	 
	 	 	Print Name 	 
	 
	 	  	  Chairman
 	 
	 	 	Title 	 
	 	 	 	 
	 
	 	Executive:
 	 
	 	/s/ David Gaines
 	 
	 	David Gaines 	 
	 	 	 

16

 

	 	 	 	 	 

Schedule A

to the

Employment Agreement for David Gaines

Type and Amount of Equity Grants. The parties contemplate initial equity grants respecting
shares of Company common stock, as follows:

	 	1)	 	a stock option respecting the right to purchase up to 1.190 percent of the
outstanding shares of Company common stock determined as of the effective date of the
reorganization of the Employer as a bank holding company with one or more wholly-owned
bank subsidiaries; and

	 	2)	 	a restricted stock award respecting up to .51 percent of the outstanding shares of Company common stock determined as of the effective date of the
reorganization of the Employer as a bank holding company with one or more wholly-owned
bank subsidiaries.

Vesting. The stock option shall vest in substantially equal annual increments over a
three-year period commencing with the option grant date. The shares subject to the restricted
stock award shall vest based upon increases in the value of Company common stock, i.e., one-third
of the restricted stock shall vest when the fair market value of the Company common stock first
equals or exceeds 125% of the Public Offering price for a period of thirty (30) consecutive days;
another one-third of the restricted stock shall vest when the fair market value of the Company
common stock first equals or exceeds 140% of the Public Offering price for a period of thirty (30)
consecutive days; and the remaining one-third of the restricted stock shall vest when the fair
market value of the Company common stock first equals or exceeds 160% of the Public Offering price
for a period of thirty (30) consecutive days. Any shares subject to the restricted stock award
that are not vested as of the earlier of August 18, 20__ or the Executive’s Termination of
Employment shall be forfeited. Notwithstanding the foregoing, vesting of the equity rights will
accelerate in the event of a Termination of Employment by the Employer without Cause or a
resignation by the Executive for Good Reason.

17exv10w4

Exhibit 10.4

PARK STERLING BANK

2006 EMPLOYEE STOCK OPTION PLAN

     1. Purpose.

     The purpose of this 2006 Employee Stock Option Plan (this “Plan”) is to promote the success
and enhance the value of Park Sterling Bank (the “Bank”) by linking the personal interests of
participants in this Plan to those of the Bank’s stockholders, and by providing participants with
an incentive for outstanding performance that contributes to the Bank’s growth and success. This
Plan is further intended to provide flexibility to the Bank in its ability to motivate, attract,
and retain the services of employees upon whose judgment, interest and special effort the
successful conduct of its operations largely is dependent. These purposes will be achieved through
the grant of stock options (“Options”) to purchase shares of common stock of the Bank (“Common
Stock”).

     2. Effective Date of Plan.

     The effective date (the “Effective Date”) of this Plan shall be the later to occur of the
following: (i) the adoption of this Plan by the Board of Directors of the Bank; (ii) the approval
of this Plan by the affirmative vote of two-thirds (2/3) of the outstanding shares of voting stock
of the Bank; and (iii) the approval of this Plan by the Commissioner of Banks of the State of North
Carolina (the “Commissioner”).

     3. Administration.

     This Plan shall be administered by the Bank’s Board of Directors (the “Board”) or by a
committee of the Board (the “Committee”) designated by the Board (in such capacity, the Board or
the Committee is referred to as the “Plan Administrator”). In appointing members to the Committee,
the Board is to consider the requirements of Section 162(m) of the Internal Revenue Code of 1986,
as amended, and the rules and regulations thereunder (the “Code”), which could result in the Bank
being unable to deduct certain option consideration amounts if the Committee is not composed solely
of “outside directors” (as defined in the Code). This Plan shall be interpreted, applied and
administered so that (a) the Options constitute qualified performance-based compensation under Code
§162(m) and the regulations promulgated thereunder and (b) the Options do not constitute the
deferral of compensation within the meaning of Code §409A and the regulations and rules promulgated
thereunder.

     The Plan Adminstrator shall have complete authority to: (i) interpret all terms and provisions
of this Plan consistent with law; (ii) select from the group of officers and key employees eligible
to participate in this Plan the officers and key employees eligible to whom Options shall be
granted; (iii) within the limits established herein, determine the number of shares to be subject
to, the exercise price of, and the term of each Option granted to each of such officers and key
employees; (iv) prescribe the form of instrument(s) evidencing Options granted under this Plan; (v)
determine the time or times at which Options shall be granted to officers or key employees; (vi)
make special grants of Options to officers or key employees when

 

 

determined to be appropriate; (vii) provide, if appropriate, for the exercisability of Options
granted to officers or key employees in installments or subject to specified conditions; (viii)
determine the method of exercise of Options granted to officers or key employees under this Plan;
(ix) adopt, amend, and rescind general and special rules and regulations for this Plan’s
administration; and (x) make all other determinations necessary or advisable for the administration
of this Plan.

     Any action that the Board or Committee is authorized to take may be taken without a meeting if
all the members of the Board or Committee sign a written document authorizing such action to be
taken, unless different provision is made by the Bylaws of the Bank.

     The Plan Administrator may designate selected Board or Committee members or certain employees
of the Bank to assist the Plan Administrator in the administration of this Plan and may grant
authority to such persons to execute documents, including Options, on behalf of the Plan
Administrator.

     No member or the Board or Committee or employee of the Bank assisting the Board or Committee
pursuant to the preceding paragraph shall be liable for any action taken or determination made in
good faith.

4. Stock Subject to Plan.

     The stock to be offered under this Plan shall be authorized but unissued shares of Common
Stock. An aggregate of 450,000 of the shares of Common Stock are reserved for grants under this
Plan. Any or all of the Options granted hereunder may, at the Plan Administrator’s discretion, be
intended to qualify as incentive stock options under Section 422 of the Code. The number of shares
that may be granted under this Plan may be adjusted to reflect any change in the capitalization of
the Bank as contemplated by Section 10 of this Plan and occurring after the adoption of this Plan.
The Plan Administrator will maintain records showing the cumulative total of all shares subject to
Options outstanding under this Plan.

     5. Options for Officers and Key Employees.

a. Eligibility and Factors to be Considered in Granting Options

     The grant of Options under this Section 5 shall be limited to those officers and key
employees of the Bank who are selected by the Plan Administrator. In making any
determination as to the officers and key employees to whom Options shall be granted under
this Plan and as to the number of shares to be subject thereto, the Plan Administrator shall
take into account, in each case, the level and responsibility of the person’s position, the
level of the person’s performance, the person’s level of compensation, the assessed
potential of the person and such additional factors as the Board or Committee shall deem
relevant to the accomplishment of the purposes of this Plan. Options may be granted under
this Plan only for a reason connected to an officer’s or key employee’s employment by the
Bank. As used herein, the term “Active Senior

2

 

Management” means the Bank’s Chief Executive Officer, Chief Operating Officer, Chief
Financial Officer and Chief Credit Officer.

b. Allotment of Shares

     The Plan Administrator may, in its sole discretion and subject to the provisions of
this Plan, grant to participants eligible under this Plan, on or after the date hereof,
Options to purchase shares of Common Stock. Options granted under this Plan may, at the
discretion of the Plan Administrator, be: (i) Options that are intended to qualify as
incentive stock options under Section 422 of the Code; (ii) Options that are not intended so
to qualify under Section 422 of the Code; or (iii) both of the foregoing, if granted
separately, and not in tandem. Each Option granted under this Plan must be clearly
identified as to its status as an incentive stock option.

     Options granted under this Plan may be allotted to participants in such amounts,
subject to the limitations specified in this Plan, as the Plan Administrator, in its sole
discretion, may from time to time determine. No single person may be granted options to
purchase forty percent (40%) or more of the shares of Common Stock reserved under this Plan.

     In the case of Options intended to be incentive stock options, the aggregate fair
market value (determined at the time of the Options’ respective grants) of the shares with
respect to which incentive stock options are exercisable for the first time by a participant
hereunder during any calendar year (under all plans taken into account pursuant to Section
422(d) of the Code) shall not exceed $100,000. Options under this Plan not intended to
qualify as incentive stock options under Section 422 of the Code may be granted to any Plan
participant without regard to the Section 422(d) limitations.

     c. Exercise Price

     The price per share at which each Option granted under this Plan may be exercised shall
be such price as shall be determined by the Plan Administrator at the time of grant based on
such criteria as may be adopted by the Plan Administrator at the time of grant in good
faith, taking into account, in each case, the market price of the Common Stock, the level
and responsibility of the person’s position, the level of the person’s performance, the
person’s level of compensation, the assessed potential of the person, and such additional
factor or factors as the Plan Administrator shall deem relevant to the accomplishment of the
purposes of this Plan; provided, however, that in no event shall the exercise price per
share of an Option be less than 100% of the fair market value of the Bank’s shares of Common
Stock on the date the Option is granted or less than the par value of the Common Stock. In
the case of an Option intended to qualify as an incentive stock option under Section 422 of
the Code, the price per share for owners of more than 10% of the total combined voting power
of all classes of stock of the Bank shall not be less than 110% of the fair market value of
the Common Stock at the time such Option is granted.

3

 

     If the Bank’s shares of Common Stock are:

     (1) actively traded on any national securities exchange that reports their sales
prices, fair market value shall be the average of the high and low sales prices per share on
the date the Plan Administrator grants the Option;

     (2) otherwise traded over the counter, fair market value shall be the average of
the final bid and asked prices for the shares of Common Stock as reported for the date the
Plan Administrator grants the Option; or

     (3) not traded, the Plan Administrator shall consider any factor or factors that it
believes affects fair market value, and shall determine fair market value without regard to
any restriction other than a restriction that by its terms will never lapse.

     d. Term of Option

     The term of each Option granted under this Plan shall be established by the Plan
Administrator, but shall not exceed ten years from the date of the grant.

e. Time of Granting Options

     The date of grant of an Option under this Plan shall, for all purposes, be the date on
which the Plan Administrator makes the determination of granting such Option. Notice of the
determination shall be given to each officer or key employee to whom an Option is so granted
promptly after the date of such grant.

f. Repricing Prohibited.

     The Plan Administrator may not reduce the exercise price of any Option after it is
awarded, except adjustments permitted by Section 10, nor may the Plan Administrator agree to
exchange a new lower-priced Option for an outstanding higher-priced Option.

6. Non-Transferability.

     An Option granted to a participant under this Plan shall not be transferable by him or her
except: (i) by will; (ii) by the laws of descent and distribution; or (iii) pursuant to a
qualified domestic relations order as defined by the Code or in Title I of the Employee Retirement
Income Security Act, or the rules thereunder. In the case of an Option intended to be an incentive
stock option, such Option shall not be transferable by a participant other than by will or the laws
of descent and distribution and during the optionee’s lifetime shall be exercisable only by him or
her.

7. Exercisability of Options.

     (a) Subject to the provisions of this Plan, an Option granted under this Plan shall be
exercisable at such time or times after the date of grant thereof, according to such schedule and

4

 

upon such conditions as may be determined by the Plan Administrator at the time of grant. Unless
otherwise specifically determined by the Plan Administrator at the time of grant and set forth in
any memorandum of Option or agreement evidencing the Option and with respect to any Option Awarded
to Active Senior Management, an Option shall not be exercisable immediately upon granting, and
shall become exercisable and vest in increments of one-third (1/3) of the number of shares under
such Option on each anniversary of the date of grant until the Option is fully exercisable and
vested (i.e., on the third anniversary of the date of grant).

     (b) Notwithstanding any provision herein to the contrary, unless otherwise specifically
determined by the Board at the time of grant and set forth in any memorandum of Option or agreement
evidencing the Option, in the event of a “change in control,” all Options outstanding as of the
date such change in control is determined to have occurred, and which are not then exercisable and
vested, shall become fully exercisable and vested to the full extent of the original grant.

     A “change in control” shall be deemed to occur upon the occurrence of any of the following
events:

(i) A tender offer or exchange offer is made whereby the effect of such offer is to take
over and control the affairs of the Bank and such offer is consummated for the ownership of
securities of the Bank representing 25% or more of the combined voting powers of the Bank’s
then outstanding voting securities.

(ii) The adoption by the Bank’s stockholders of a plan of merger or consolidation
providing for the merger or consolidation of the Bank with another corporation and, as a
result of such merger or consolidation, less than a majority of the outstanding voting
securities of the surviving or resulting corporation would then be owned in the aggregate by
the former stockholders of the Bank.

(iii) The Bank transfers substantially all of its assets to another corporation or
entity that is not a wholly owned subsidiary of the Bank.

(iv) Any “person” (as such term is used in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934, as amended) is or becomes the beneficial owner, directly or
indirectly, of securities of the Bank representing 25% or more of the combined voting power
of the Bank’s then outstanding securities, and the effect of such ownership is to take over
and control the affairs of the Bank; provided, however, that a change in control shall not
be deemed to occur as the result of the formation of a bank holding company in which the
stockholders of the Bank would immediately after such transaction own the capital stock of
the bank holding company in the same proportion as such stockholders owned the Common Stock
immediately prior to such transaction.

(v) As the result of a tender offer, merger, consolidation, sale of assets, or contested
election, or any combination of the foregoing in a series of related transactions, the
persons who were members of the Board of Directors of the Bank immediately before the
transaction, cease to constitute at least a majority thereof.

5

 

     (c) Unless otherwise determined by the Plan Administrator, upon consummation of a merger,
conversion or share exchange (a “Reorganization”) in which shares of Common Stock are converted
into the right to receive cash or other assets, the securities of another entity or a combination
of any of the foregoing (“Reorganization Consideration”), all outstanding Options, to the extent
not exercised, shall terminate and cease to be outstanding, except to the extent expressly assumed
by the surviving or acquiring entity (or parent thereof) in which event such Options shall become
exercisable into, on a per share basis, the amount of Reorganization Consideration into which one
share of Common Stock is converted in such Reorganization, subject to further adjustment pursuant
to Section 10 hereof in the event of any subsequent recapitalization, reclassification,
combination, stock dividend, stock split or other relative change with respect to the
Reorganization Consideration.

     Unless otherwise determined by the Plan Administrator and subject to Section 10 hereof, upon
consummation of a Reorganization in which shares of Common Stock are not converted into cash or
other assets, the securities of another entity or a combination of any of the foregoing, all Awards
shall remain outstanding in full force and effect on the same terms and conditions.

     (d) Except as may be otherwise determined by the Plan Administrator at or any time after
the award of the Option, an Option granted under this Plan shall terminate in full (whether or not
previously exercisable) prior to the expiration of its term on the date the optionee ceases to be
an employee of the Bank, unless the optionee shall:

	 	(i)	 	die while an employee of the Bank, in which case the participant’s
legatee(s) under his or her last will or the participant’s personal representative or
representatives may exercise all or part of the previously unexercised portion of such
Option at any time within one year after the participant’s death to the extent the
optionee could have exercised the Option immediately prior to his or her death or in
the amount purchasable under the Option immediately after the death of the optionee,
whichever is greater;

	 	(ii)	 	become permanently or totally disabled within the meaning of Section
22(e)(3) of the Code (or any successor provision) while an employee of the Bank, in
which case the participant or his or her personal representative may exercise the
previously unexercised portion of such Option at any time within one year after
termination of his or her employment to the extent the optionee could have exercised
the Option immediately prior to such termination;

	 	(iii)	 	resign with the consent of the Bank or have his or her employment with the
Bank terminated by the Bank for any reason other than an “Immediate Termination Reason”
(as defined below), in which case of resignation or termination the participant may
exercise the previously unexercised portion of such Option at any time within three
months after the participant’s resignation or employment termination to the extent the
optionee could have exercised the Option immediately prior to such resignation or
employment termination;

	 	(iv)	 	retire with the consent of the Bank after the optionee has reached his or
her 55th birthday but prior to his or her 65th birthday and has
at least 10 years of service

6

 

	 	 	 	with the Bank, in which case the participant may exercise the previously unexercised
portion of such Option at any time prior to the expiration of its fixed term to the
extent the optionee could have exercised the Option immediately prior to such
retirement;

	 	(v)	 	retire with the consent of the Bank after the optionee has reached his or
her 65th birthday, in which case the participant may exercise the previously
unexercised portion of such Option at any time prior to the expiration of its fixed
term to the extent the optionee could have exercised the Option immediately prior to
such retirement; or

	 	(vi)	 	retire with the consent of the Bank in any circumstance not covered by the
preceding clauses (iv) or (v), in which case the participant may exercise the
previously unexercised portion of such Option at any time within one year after the
participant’s retirement to the extent the optionee could have exercised the Option
immediately prior to such retirement.

In no event may an Option be exercised after the expiration of its fixed term.

     (e) For purposes of this Section 6, employment termination for an “Immediate Termination
Reason” means termination of employment by reason of gross misconduct, which will include but may
not be limited to the following: (i) obvious intoxication on the job or possession of any alcoholic
substance on the premises of the Bank, or (ii) misuse of Bank assets (which shall include but be
limited to cash, equipment, and/or other assets).

     (f) Recipients of Options intended to qualify as an incentive stock option under Section
422 of the Code are advised that the period for exercise of Options following cessation of
employment as set forth in Section 6(b) may be longer than the period permitted under Section 422
of the Code and such recipients may need to exercise such Options sooner in order to continue to
qualify under Section 422.

     (g) In the event that the North Carolina Commissioner of Banks or the Bank’s primary
federal regulator (which initially is the Federal Deposit Insurance Corporation) determines that
the Bank’s capital is below the applicable minimum capital requirements and upon the direction by
the Bank’s primary federal regulator that plan participants must exercise or forfeit their Options,
the Bank shall promptly mail written notice of such event to holders of Options. Options that are
not exercised within 10 days of the mailing of such notice shall be automatically cancelled and
shall be of no further force or effect. The receipt of such notice shall not accelerate the
vesting of any unvested Options.

8. Method of Exercise.

     Each Option granted under this Plan shall be deemed exercised when the holder (a) shall
indicate the decision to do so in writing delivered to the Bank, (b) shall at the same time tender
to the Bank payment in full in cash of the exercise price for the shares for which the Option is
exercised, (c) shall tender to the Bank payment in full in cash of the amount of all federal and

7

 

state withholding or other employment taxes applicable to the taxable income, if any, of the holder
resulting from such exercise, and (d) shall comply with such other reasonable requirements as the
Plan Administrator may establish.

     No person, estate, or other entity shall have any of the rights of a shareholder with
reference to shares subject to an Option until a certificate for the shares has been delivered.

     An Option granted under this Plan may be exercised for any lesser number of shares than the
full amount for which it could be exercised. Such a partial exercise of an Option shall not affect
the right to exercise the Option from time to time in accordance with this Plan for the remaining
shares subject to the Option.

9. Termination of Options.

     An Option granted under this Plan shall be considered terminated in whole or in part, to the
extent that, in accordance with the provisions of this Plan and such Option, it can no longer be
exercised for any shares originally subject to the Option. The shares subject to any Option or
portion thereof, which terminates, shall no longer be charged against the applicable limitation or
limitations provided in Section 3 of this Plan and may again become shares available for the
purposes, and subject to the same applicable limitations, of this Plan.

10. Adjustments Upon Changes in Capitalization.

     In the event of any change in the outstanding Common Stock of the Bank by reason of a stock
dividend, stock split, stock consolidation, recapitalization, reorganization, merger, split up or
the like, the shares available for purposes of this Plan and the number and kind of shares under
option in outstanding option agreements pursuant to this Plan and the option price under such
agreements shall be appropriately adjusted so as to preserve, but not increase, the benefits of
this Plan to the Bank and the benefits to the holders of such Options; provided in the case of
incentive stock options that, in the case of a corporate merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation, the excess of the aggregate fair
market value of the shares subject to any Option immediately after such event over the aggregate
option price of such shares is not more than the excess of the aggregate fair market value of all
shares subject to the Option immediately before such event over the aggregate option price of such
shares. Adjustments under this Section shall be made by the Plan Administrator, whose
determination as to what adjustments shall be made and the extent thereof, shall be final, binding
and conclusive.

     11. Compliance with Securities Laws and Other Requirements.

     No certificate(s) for shares shall be executed and delivered upon exercise of an Option until
the Bank shall have taken such action, if any, as is then required to comply with the provisions of
the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, Chapter 53
of the North Carolina General Statutes and the regulations of the North Carolina Banking Commission
thereunder, the regulations of the Federal Deposit Insurance Corporation, the North Carolina
Uniform Securities Act, as amended, any other applicable state

8

 

securities law(s) and the requirements of any exchange on which the Common Stock may, at the time,
be listed.

     In the case of the exercise of an Option by a person or estate acquiring the right to exercise
the Option by bequest or inheritance, the Board or Committee may require reasonable evidence as to
the ownership of the Option and may require such consents and releases of taxing authorities as it
may deem advisable.

12. No Right to Employment.

     Neither the adoption of this Plan nor its operation, nor any document describing or referring
to this Plan, or any part thereof, shall confer upon any employee participant under this Plan any
right to continue in the employ of the Bank or shall in any way affect the right and power of the
Bank to terminate the employment with the Bank of any participant under this Plan at any time with
or without assigning a reason therefor, to the same extent as the Bank might have done if this Plan
had not been adopted.

13. Amendment and Termination.

     The Board may at any time suspend, amend, or terminate this Plan. The Plan Administrator may
make such modifications of the terms and conditions of a holder’s Option as it shall deem
advisable. No Option may be granted during any suspension of this Plan or after such termination.
Notwithstanding the foregoing, no action may be taken that would materially impair any rights under
any outstanding Option without the consent of the holder of the Option.

     In addition to Board approval of an amendment, if the amendment would: (i) materially increase
the benefits accruing to participants, including to permit one person to receive Options to
purchase forty percent (40%) or more of the shares authorized under this Plan or to permit a person
who is not an employee of the Bank to receive Options to purchase shares under this Plan; (ii)
increase the number of securities issuable under this Plan (other than an increase pursuant to
Section 10 hereof); (iii) change the class or classes of individuals eligible to receive Options;
or (iv) otherwise materially modify the requirements for eligibility, then such amendment must be
approved by the holders of the Bank’s capital stock and the Commissioner in the manner required by
Chapter 53 of the North Carolina General Statutes.

     14. Indemnification of Board or Committee.

     In addition to such other rights of indemnification as they may have as members of the Board,
the members of the Board or Committee shall to the fullest extent permitted by law, be indemnified
by the Bank against the reasonable expenses, including attorney’s fees, actually and necessarily
incurred in connection with the defense of any action, suit, or proceeding, or in connection with
any appeal therein, to which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with this Plan or any Option granted thereunder, and against
all amounts paid by them in settlement thereof (provided the settlement is approved by independent
legal counsel selected by the Bank) or paid by them in satisfaction of a judgment in any such
action, suit or proceeding, except in relation to matters as to which it

9

 

shall be adjudged in such action, suit, or proceeding that such Board member or Committee member is
liable for gross negligence or misconduct in the performance of his duties; provided that within 60
days after institution of any such action, suit or proceeding the Board member or Committee member
shall in writing offer the Bank the opportunity, at its own expense, to handle and defend the same.

     15. Duration of Plan.

     Unless previously terminated by the Plan Administrator, this Plan shall terminate at the close
of business on the tenth anniversary of the Effective Date, and no Option shall be granted under it
thereafter, but such termination shall not affect any Option theretofore granted under this Plan.

10

 

FORM OF

PARK STERLING BANK

STOCK OPTION AGREEMENT

(2006 EMPLOYEE STOCK OPTION PLAN)

     THIS AGREEMENT, made effective as of the _____ day of ________, 20__ (the “Grant Date”), by
and between Park Sterling Bank (the “Bank”), and ___________________ (the “Holder”).

     WHEREAS, the Bank has adopted, and its stockholders and the Commissioner have approved, the
2006 Employee Stock Option Plan (the “Plan”); and

     WHEREAS, Section 5 of the Plan provides for the award of Options to officers and key employees
of the Bank; and

     WHEREAS, the Holder and the Bank are entering into this Agreement to memorialize the terms and
conditions of Options awarded to the Holder pursuant to the Plan;

     NOW, THEREFORE, the parties hereto agree as follows:

     1. Grant of Option. Pursuant to Section 5 of the Plan, the Bank hereby grants to
the Holder an option (the “Option”) to purchase all or any part of an aggregate of ____ shares of
Common Stock (the “Shares”), subject to, and in accordance with, the terms and conditions set forth
in this Agreement and the Plan. The Option and this Agreement are subject to all of the terms and
conditions of the Plan, which terms and conditions are hereby incorporated by reference, and,
except as otherwise expressly set forth herein, the capitalized terms used in this Agreement shall
have the same definitions as set forth in the Plan.

     2. Status of Option. The Option [select one]:

o is intended to qualify as incentive stock options under Section 422 of the Code;

o is not intended to qualify as incentive stock options under Section 422 of the Code.

     3. Exercise Price. The price at which the Holder shall be entitled to purchase
Shares upon the exercise of the Option shall be $ ___.___ per share.

     4. Duration of Option. Subject to the terms of the Plan, the Option shall remain
exercisable for [select one]:

o ten years after the Grant Date;

o other (specify; may be no later than ten years after the Grant Date):

      

      

 

 

     5. Vesting and Exercisability of Option. Subject to the terms of the Plan, the
Option shall vest and be exercisable [select one]

o on each anniversary of the Grant Date in increments of one-third (1/3) of the total
number of shares purchasable under the Option until the Option is fully exercisable (i.e.,
on the third anniversary of the Grant Date);

o other (specify; not available for CEO, COO, CFO or CCO):

      

      

      

     6. Acceleration of Vesting upon Change in Control. (select one)

o In the event of a “change in control,” the Option shall become fully
exercisable and vested to the full extent of the original grant.

o A “change in control” shall not affect the exercisability or vesting of the Option.

     7. Non-Transferability of Option. The Option shall not be transferable by the
Holder except to the extent permitted under the Plan.

     8. No Rights as a Stockholder. The Holder shall not have any rights or privileges
of a stockholder with respect to any shares of Common Stock by virtue of the Option until the date
of issuance by the Bank of a certificate for such shares pursuant to the exercise of the Option.

     9. Holder Bound by the Plan. The Holder hereby acknowledges receipt of a copy of
the Plan and agrees to be bound by all the terms and provisions thereof, including Section 7(g)
providing for the forfeiture of the Option upon specified circumstances. A determination of the
Plan Administrator as to any questions which may arise with respect to the interpretation of the
provisions of this Agreement and of the Plan shall be final. The Plan Administrator may authorize
and establish such rules, regulations and revisions thereof not inconsistent with the provisions of
the Plan, as it may deem advisable.

     10. Modification of Agreement. This Agreement may be modified, amended, suspended
or terminated, and any terms or conditions may be waived, but only by a written instrument executed
by the parties hereto.

     11. Severability. Each provision of this Agreement is intended to be severable.
Should any provision of this Agreement be held by a court of competent jurisdiction to be
unenforceable or invalid for any reason, the remaining provisions of this Agreement shall not be
affected by such holding and shall continue in full force in accordance with their terms.

     12. Governing Law; Jurisdiction. This Agreement shall be governed and construed
in accordance with the laws of the State of North Carolina, without regard to the principles of
conflicts of law, except to the extent governed by federal law. Each party hereby irrevocably

2

 

submits to the jurisdiction of the state and federal courts sitting in Mecklenburg County,
State of North Carolina, for the adjudication of any dispute hereunder.

     13. Successors in Interest. This Agreement shall inure to the benefit of and be
binding upon any successor to the Bank. This Agreement shall inure to the benefit of the Holder’s
legal representatives. All obligations imposed upon the Holder and all rights granted to the Bank
under this Agreement shall be final, binding and conclusive upon the Holder’s heirs, executors,
administrators and successors.

     IN WITNESS WHEREOF, this Agreement has been executed by the Bank and the Holder effective as
of the date and year first written above.

	 	 	 	 	 
	 	PARK STERLING BANK

 	 
	 	By:  	
 	 
	 	 	Title: 	 	 
	 
	 
	 	[Holder] 	 
	 

3

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