<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
-------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________________
Commission file number: 0-18202
-------
VALLICORP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0229483
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8405 NORTH FRESNO STREET, FRESNO, CALIFORNIA 93720
---------------------------------------------------
(Address of principal executive offices)
(209) 437-5700
--------------
(Registrant's telephone number, including area code)
NONE
----
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- ----------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK, $.01 PAR VALUE
13,981,944 SHARES OUTSTANDING AS OF NOVEMBER 4, 1996
<PAGE>
INDEX
VALLICORP HOLDINGS, INC.
PART I - FINANCIAL INFORMATION Page
- ------------------------------ ----
Item 1. Financial Statements
Unaudited Consolidated Balance Sheets-
September 30, 1996 and December 31, 1995........................... 3
Unaudited Consolidated Statements of Income -
Three Months and Nine Months Ended September 30, 1996 and 1995.... 4
Unaudited Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1996 and 1995...................... 5
Notes to Unaudited Consolidated Financial Statements............... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 11
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K................................... 27
SIGNATURES.................................................................. 28
- ----------
Page 2
<PAGE>
VALLICORP HOLDINGS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- -------------
(RESTATED)
<S> <C> <C>
ASSETS
Cash and due from banks $ 111,614 $ 103,004
Federal funds sold and repurchase agreement 77,700 57,770
---------- ----------
Cash and cash equivalents 189,314 160,774
Loans held for sale 3,898 5,158
Securities:
Available for sale 178,551 249,586
Held to maturity (market value $20,224
in 1996 and $66,074 in 1995) 20,103 65,646
---------- ----------
Total securities 198,654 315,232
Loans 881,286 865,749
Allowance for loan losses (15,387) (14,986)
---------- ----------
Net loans 865,899 850,763
Premises and equipment, net 29,857 25,919
Accrued interest receivable 9,604 11,201
Other assets 32,329 20,988
---------- ----------
Total assets $1,329,555 $1,390,035
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing transaction accounts $ 292,792 $ 300,746
Interest-bearing transaction and savings accounts 517,503 526,274
Certificates of deposit, $100,000 and over 124,439 136,284
Other time deposits 216,216 258,082
---------- ----------
Total deposits 1,150,950 1,221,386
Federal funds purchased and repurchase agreements 8,700 10,410
Other liabilities 9,133 10,186
Debt financing 21,396 20,932
---------- ----------
Total liabilities 1,190,179 1,262,914
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized 5,000,000
shares, none issued - -
Common stock, $.01 par value; authorized 40,000,000
shares, issued 13,973,148 shares in 1996 and
13,266,088 in 1995, including treasury shares 140 133
Paid-in capital 94,097 84,135
Retained earnings 47,183 43,389
Net unrealized securities losses, net of income taxes (2,037) (536)
Treasury stock at cost (428 shares) (7) -
---------- ----------
Total stockholders' equity 139,376 127,121
---------- ----------
Total liabilities and stockholders' equity $1,329,555 $1,390,035
========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
Page 3
<PAGE>
VALLICORP HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1996 1995
-------------------- -------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans, including fees $20,161 $22,614 $61,000 $67,388
Securities 3,007 3,826 9,703 12,188
Federal funds sold and other 1,008 853 3,369 2,068
------- ------- ------- -------
Total interest income 24,176 27,293 74,072 81,644
INTEREST EXPENSE
Deposits 7,013 9,117 21,656 25,989
Debt financing 335 442 996 1,341
Other 117 88 360 194
------- ------- ------- -------
Total interest expense 7,465 9,647 23,012 27,524
------- ------- ------- -------
NET INTEREST INCOME 16,711 17,646 51,060 54,120
PROVISION FOR LOAN LOSSES (2,102) (6,051) (5,629) (7,813)
------- ------- ------- -------
Net interest income after provision
for loan losses 14,609 11,595 45,431 46,307
OTHER INCOME
Service charges on deposits 2,569 2,352 7,254 6,981
Mortgage banking 177 171 542 559
Gain/(loss) on sale of securities 9 (16) 22 (145)
Other 801 728 2,580 1,931
------- ------- ------- -------
Total other income 3,556 3,235 10,398 9,326
OTHER EXPENSE
Salaries and employee benefits 5,816 6,176 17,486 18,939
Occupancy 1,661 1,482 4,847 4,205
Equipment and maintenance 1,164 1,214 3,532 3,478
Merger and integration costs 538 154 5,121 280
Other 4,800 4,504 13,938 13,904
------- ------- ------- -------
Total other expense 13,979 13,530 44,924 40,806
------- ------- ------- -------
Income before income taxes 4,186 1,300 10,905 14,827
Income taxes 1,737 554 4,471 5,934
------- ------- ------- -------
NET INCOME $ 2,449 $ 746 $ 6,434 $ 8,893
======= ======= ======= =======
EARNINGS PER SHARE - PRIMARY & FULLY-DILUTED $ 0.18 $ 0.06 $ 0.48 $ 0.66
======= ======= ======= =======
DIVIDENDS PER SHARE PAID BY VALLICORP $ 0.10 $ 0.09 $ 0.30 $ 0.27
======= ======= ======= =======
</TABLE>
See notes to unaudited consolidated financial statements.
Page 4
<PAGE>
VALLICORP HOLDINGS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---------------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,434 $ 8,893
Adjustments to reconcile net income
to net cash provided by operating activities:
Provision for possible loan losses 5,629 7,813
Provision for losses on other real estate owned 876 713
Depreciation and amortization 4,210 4,453
Originations of loans held for sale, net of principal collected (49,253) (39,475)
Proceeds from loan sales 50,853 38,057
Decrease in accrued interest receivable 2,362 2,067
Increase in other assets (10,449) (4,873)
Decrease in other liabilities (3,736) (3,701)
Other operating activities, net (661) (302)
--------- --------
Net cash provided by operating activities 6,265 13,645
INVESTING ACTIVITIES
Net cash obtained in merger 4,370 -
Proceeds from sales of securities available for sale - 35,583
Proceeds from maturities of securities available for sale 87,922 35,158
Purchases of securities available for sale (15,169) (36,118)
Proceeds from maturities of securities held to maturity 43,630 20,940
Net decrease (increase) in loans including loan participations 48,154 (30,594)
Purchases of premises and equipment (6,744) (3,526)
Proceeds from premises and equipment disposals 2,902 315
Proceeds from sale of other real estate owned 3,072 1,630
--------- --------
Net cash provided by investing activities 168,137 23,388
FINANCING ACTIVITIES
(Decrease) increase in deposits (136,256) 18,588
(Decrease) increase in federal funds purchased and repurchase agreements (1,710) 1,050
Decrease in debt financing agreements (5) (5)
Issuance of common stock 1,885 797
Treasury stock purchases (5,250) -
Cash dividends (4,526) (2,836)
--------- --------
Net cash (used in) provided by financing activities (145,862) 17,594
--------- --------
Increase in cash and cash equivalents 28,540 54,627
Cash and cash equivalents at beginning of period 160,774 106,968
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 189,314 $161,595
========= ========
- ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 23,672 $ 26,921
Income taxes paid 5,922 6,385
Transfers of loans to other real estate owned 4,757 1,912
Conversion of subordinated notes into common stock 63 163
Financing sales of premises and other real estate owned 345 333
Common stock issued for Auburn Bancorp merger 13,300 -
- ----------------------------------------------------------------------------------------------------
</TABLE>
See notes to unaudited consolidated financial statements.
Page 5
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ACCOUNTING POLICIES
BASIS OF PRESENTATION: The accompanying consolidated financial statements
include the effect of the first quarter 1996 acquisitions of El Capitan
Bancshares, Inc. (El Capitan) and CoBank Financial Corporation (CoBank), both of
which were accounted for as poolings-of-interests. These financial statements
include the accounts of ValliCorp Holdings, Inc. (ValliCorp) and its wholly
owned subsidiary, ValliWide Bank (ValliWide), hereinafter collectively referred
to as the "Company". Accordingly, the financial information included in the
consolidated financial statements and notes thereto presents the combined
financial condition and results of operations of ValliCorp, El Capitan, and
CoBank as if the mergers had been in effect for all periods presented. All
significant intercompany balances and transactions have been eliminated in
consolidation.
These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles on a basis consistent
with the accounting policies reflected in the audited consolidated financial
statements included in ValliCorp's Annual Report for the year ended December 31,
1995. The unaudited consolidated financial statements do not, however, include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. Refer to the supplemental
consolidated financial statements for the year ended December 31, 1995 included
in the Company's Registration Statement on Form S-4 filed with the Securities
and Exchange Commission (Registration 333-06411 dated June 20, 1996) for
additional information and the complete financial statements, which have been
restated to give effect to the 1996 acquisitions of El Capitan and CoBank
accounted for as poolings-of-interests. In the opinion of management, the
unaudited interim consolidated financial statements contained herein reflect all
adjustments (all of which are of a normal and recurring nature) necessary for a
fair statement of the results for the interim periods presented. The operating
results for the interim periods presented are not necessarily indicative of the
results that may be expected for any other interim period or for the year as a
whole.
RECLASSIFICATIONS: Certain reclassifications have been made to prior year
balances to conform to current year presentation.
Page 6
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - MERGERS AND ACQUISITIONS
EL CAPITAN: On February 2, 1996, El Capitan, together with its wholly-owned
subsidiary, El Capitan National Bank, were merged with and into ValliCorp and
ValliWide, respectively. Pursuant to the amended Agreement and Plan of
Reorganization, each outstanding share of El Capitan common stock was exchanged
for 2.3286 shares of ValliCorp's common stock, resulting in approximately 2
million shares being issued. At the date of the merger, El Capitan had
unaudited total assets of $128 million, including $63 million in loans and $48
million in securities, and total unaudited liabilities of $113 million,
including $112 million in deposits. The merger was accounted for as a pooling-
of-interests.
COBANK: On March 22, 1996, CoBank, together with its wholly-owned subsidiary,
Commerce Bank of San Luis Obispo, N.A., were merged with and into ValliCorp and
ValliWide, respectively. Pursuant to the amended Agreement and Plan of
Reorganization, each outstanding share of CoBank common stock was exchanged for
1.1875 shares of ValliCorp's common stock, resulting in approximately 1 million
shares being issued. At the date of the merger, CoBank had unaudited total
assets of $97 million, including $64 million in loans and $24 million in
securities, and total unaudited liabilities of $88 million including deposits of
$87 million. The merger was accounted for as a pooling-of-interests.
The following table presents net interest income, net income, and fully diluted
earnings per share for ValliCorp, El Capitan, and CoBank on a combined basis.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------------------
1995 1994 1993
--------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
NET INTEREST INCOME:
ValliCorp $59,364 $54,422 $37,605
El Capitan 6,849 7,503 7,902
CoBank 6,096 5,158 4,590
------- ------- -------
Combined $72,309 $67,083 $50,097
======= ======= =======
NET INCOME:
ValliCorp $10,247 $ 7,794 $ 8,116
El Capitan 1,045 1,882 2,317
CoBank 510 775 803
------- ------- -------
Combined $11,802 $10,451 $11,236
======= ======= =======
FULLY DILUTED EARNINGS PER SHARE:
ValliCorp $ 0.98 $ 0.75 $ 1.08
El Capitan 1.22 2.21 2.73
CoBank 0.60 0.97 0.95
Combined 0.87 0.78 1.07
</TABLE>
Page 7
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - MERGERS AND ACQUISITIONS - CONTINUED
AUBURN BANCORP: On September 13, 1996, Auburn Bancorp (Auburn), together with
its wholly-owned subsidiary, The Bank of Commerce, N.A., were merged with and
into ValliCorp and ValliWide, respectively. The transaction was accounted for
using the purchase method of accounting and, accordingly, the results of
operations for Auburn have been included in the consolidated financial
statements for periods subsequent to the consummation of the merger. Under this
method of accounting, the purchase price is allocated to the respective assets
acquired and liabilities assumed based on their estimated fair values, net of
applicable income taxes. Pursuant to the Agreement and Plan of Reorganization,
each outstanding share of Auburn common stock was exchanged for 0.8209 shares of
ValliCorp common stock resulting in approximately 845,000 shares of its common
stock being issued and valued at $15.25 per share, ValliCorp's stock price at
the Auburn merger announcement in March 1996. The purchase price of the Auburn
merger totaled $13.3 million in stock, including professional fees and other
merger related expenses. At the merger date, the fair value of the assets
acquired totaled approximately $76 million, including loans of approximately $57
million, securities of approximately $3 million and intangible assets of $9
million and the fair value of liabilities assumed was approximately $71 million,
including deposits of $66 million.
NOTE C - SECURITIES
The amortized cost and approximate fair value of securities available for sale
are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
-------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 34,349 $ 34,212 $ 55,506 $ 55,417
U.S. Government agencies 69,839 68,011 115,751 115,131
U.S. Government agency mortgage-
backed securities 50,685 48,398 56,120 54,906
State and political subdivisions 19,223 19,906 15,503 16,496
Other securities 8,029 8,024 7,626 7,636
-------- -------- -------- --------
$182,125 $178,551 $250,506 $249,586
======== ======== ======== ========
</TABLE>
The amortized cost and approximate fair value of securities held to maturity are
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
-------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 998 $ 988 $ 982 $ 996
U.S. Government agencies 1,179 1,167 42,578 42,534
U.S. Government agency mortgage-
backed securities 7,570 7,392 8,258 8,222
State and political subdivisions 10,356 10,677 13,828 14,322
-------- -------- -------- --------
$ 20,103 $ 20,224 $ 65,646 $ 66,074
======== ======== ======== ========
</TABLE>
Page 8
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - LOANS
Loans consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
-------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Commercial $379,766 $367,382
Agribusiness 98,278 76,278
Real estate - construction 68,062 74,720
Real estate - mortgage 141,734 136,278
Consumer 188,108 205,869
Other 5,338 5,222
-------- --------
881,286 865,749
Allowance for loan losses (15,387) (14,986)
-------- --------
Net loans $865,899 $850,763
======== ========
</TABLE>
On September 30, 1996, the recorded investment in loans that were considered to
be impaired under SFAS No. 114 totaled $10,219,000 (all of which were on
nonaccrual) for which the related allowance for loan losses was $2,856,000. The
average recorded investment in impaired loans during the nine months ended
September 30, 1996 was approximately $9,959,000. The Company uses the cash
basis method of income recognition for impaired loans. For the quarter ended
September 30, 1996, the Company did not recognize any interest income on such
loans.
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995 1995
-------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period $14,986 $14,130 $14,130
Provision for loan losses 5,629 7,813 9,633
Allowance acquired through merger 1,665 - -
Charge-offs (8,187) (3,806) (9,448)
Recoveries 1,294 471 671
------- ------- -------
Balance at end of period $15,387 $18,608 $14,986
======= ======= =======
</TABLE>
Page 9
<PAGE>
VALLICORP HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE E - ALLOWANCE FOR LOSSES ON OTHER REAL ESTATE OWNED
Changes in the allowance for losses on other real estate owned are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1996 1995 1995
-------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period $ 496 $ 250 $ 250
Provision for losses on other
real estate owned 332 518 1,002
Net charge-offs (466) (244) (756)
Allowance acquired through merger 544 - -
----- ----- ------
Balance at end of period $ 906 $ 524 $ 496
===== ===== ======
</TABLE>
NOTE F - STOCKHOLDERS' EQUITY AND EARNINGS PER SHARE
The weighted average primary and fully diluted shares outstanding were
13,525,000 and 13,585,000, respectively, for the nine months ended September 30,
1996, and 13,464,000 and 13,496,000, respectively, for the same periods in 1995.
For the three months ended September 30, 1996, the weighted average primary and
fully diluted shares outstanding were 13,587,000 and 13,639,000, respectively,
as compared to 13,414,000 and 13,504,000, respectively, for the same period in
1995.
In October 1996, ValliCorp's Board of Directors approved a regular quarterly
cash dividend per share of $0.10, payable on November 25, 1996, to stockholders
of record as of November 10, 1996.
NOTE G - MERGER AND INTEGRATION COSTS
Merger and integration costs totaling $5,121,000 ($3,096,000 net of tax) are
primarily related to the El Capitan, CoBank and Auburn mergers which were
recorded in 1996. The majority of these costs, $4,576,000 ($2,767,000 net of
tax), were related to the El Capitan and CoBank mergers which were consummated
in the first quarter of 1996. Approximately $238,000 ($143,000 net of tax) in
merger and integration costs were recorded in the third quarter of 1996 related
to the Auburn merger. Such costs related primarily to separation and benefit
costs, professional, legal and investment banking fees, facilities termination
costs and other merger related expenses.
Page 10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's strategy is to provide high quality financial services to
businesses and consumers in communities within its target market which consists
of 18 California counties from Sacramento county in the north, Kern county in
the south, and includes San Luis Obispo county and certain contiguous counties.
The Company is continually seeking to increase its market share through the
growth of existing branches in the communities it serves and through
acquisitions of other financial institutions and/or branches within its target
market.
In the first quarter of 1996, the Company completed two acquisitions within its
target market, El Capitan and CoBank. El Capitan, headquartered in Sonora,
California, was an eight branch bank holding company with assets of $128 million
at the date of the merger. CoBank, headquartered in San Luis Obispo, California
and serving the central coast of California, was a four branch bank holding
company with assets of $97 million at the date of the merger. In September
1996, the Company consummated a third merger through the acquisition of Auburn.
Auburn, based in Auburn, California, was a three branch bank holding company
with assets of $75 million at the date of the merger. As a result of these
mergers, the Company has substantially expanded its presence in its target
market through its franchise of 58 full-service banking offices.
The El Capitan and CoBank mergers were accounted for as poolings-of-interests
and, accordingly, the financial information included in the management's
discussion and analysis of the consolidated financial condition and results of
operations presents the combined financial position and results of operations of
ValliCorp, El Capitan and CoBank as if the mergers had been in effect for all
periods presented. Auburn was accounted for using the purchase method;
accordingly, the results of operations of Auburn will be included with that of
the Company for periods subsequent to the consummation of the merger.
The Company achieved consolidated net income before merger and integration costs
of $9.5 million or $0.70 per share for the nine months ended September 30, 1996,
as compared to $9.2 million or $0.68 per share for the same period in 1995.
Including merger and integration costs ($5.1 million before tax and $3.1 million
or $0.22 per share after tax), the Company achieved net income of $6.4 million
or $0.48 per share as compared to $8.9 million or $0.66 per share for the same
period in 1995. Cash dividends per share through September 30, 1996 increased by
11% to $0.30, as compared to $0.27 per share for the same period in 1995.
For the three months ended September 30, 1996, net income before merger and
integration costs ($538,000 before tax and $322,000 or $0.02 per share after
tax) was $2.8 million or $0.20 per share as compared to $900,000 or $0.07 per
share for the same period in 1995. Annualized return on average assets and
return on average equity improved to 0.87% and 8.77%, respectively, for the
three months ended September 30, 1996, as compared to 0.26% and 2.75% for the
corresponding periods in 1995.
Page 11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
At September 30, 1996, the Company's total risk-based capital and leverage
ratios were 13.99% and 9.98%, compared to 13.40% and 8.76% at December 31, 1995,
respectively, all of which were in excess of applicable minimum regulatory
guidelines.
Nonperforming assets totaled $18,139,000 at September 30, 1996 (1.36% of total
assets), as compared to $20,249,000 at December 31, 1995 (1.46% of total
assets). The allowance for loan losses as a percentage of total loans was 1.75%
at September 30, 1996, as compared to 1.73% at December 31, 1995. The coverage
ratio (allowance for loan losses divided by nonperforming loans) improved to
106% at September 30, 1996, as compared to 84% at December 31, 1995.
RESULTS OF OPERATIONS
Net income for the nine months ended September 30, 1996 was impacted by merger
and integration costs totaling $5.1 million ($3.1 million after tax, or $0.22
per share), related to the El Capitan, CoBank and Auburn mergers. Excluding
merger and integration costs, net income for the nine months ended September 30,
1996 increased $357,000, or 4%, as compared to the same period in 1995. This
increase is primarily attributable to the $2.2 million (28%) decrease in the
provision for loan losses for the nine months ended September 30, 1996, as
compared to the corresponding period in 1995, offset by the reduction in net
interest income from lower average earning asset volumes.
For the three months ended September 30, 1996, net income was $2.4 million, as
compared to $746,000 for the three months ended September 30, 1995. Excluding
merger and integration costs, net income for the three months ended September
30, 1996 and 1995 was $2.8 million and $900,000, respectively. The increase in
net income was affected by the large loan loss provision recognized in the prior
year's quarter ended September 30, 1995 related to certain nonperforming loans.
(Refer to "Allowance for Loan Losses.")
Page 12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents the distribution of average assets, liabilities and
stockholders' equity as well as the total dollar amount of interest income from
average interest-earning assets and resultant yields, and the dollar amounts of
interest expense and average interest-bearing liabilities, expressed both in
dollars and in rates.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
----------------------------------------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE RATE INTEREST BALANCE RATE INTEREST
----------------------------------------------------------------------
(IN THOUSANDS, EXCEPT YIELD INFORMATION)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans/(1)(3)/ $ 831,313 9.80% $ 61,000 $871,935 10.33% $67,388
Securities
Taxable 191,372 5.82 8,337 253,824 5.60 10,633
Tax-exempt /(2)/ 28,313 6.44 1,366 32,520 6.39 1,555
---------- ---- ------- ---------- ----- -------
Total securities 219,685 5.90 9,703 286,344 5.69 12,188
Federal funds sold and repurchase
agreement 81,006 5.56 3,369 45,479 6.08 2,068
---------- ---- ------- ---------- ----- -------
Total interest-earning assets 1,132,004 8.74 74,072 1,203,758 9.07 81,644
Allowance for loan losses (13,679) (15,006)
Noninterest-earning assets:
Cash and due from banks 90,257 85,405
Premises and equipment, net 26,710 25,189
Accrued interest receivable 9,689 11,491
Other assets /(4)/ 35,944 41,046
---------- ----------
Total average assets $1,280,925 $1,351,883
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest-bearing liabilities:
Transaction accounts $ 339,267 2.06% $ 5,243 $ 373,763 2.34% $ 6,550
Savings accounts 167,794 2.62 3,293 156,291 2.79 3,261
Certificates of deposit 338,088 5.18 13,120 390,966 5.53 16,178
Debt financing 20,945 6.35 996 26,021 6.89 1,341
Short-term borrowings 9,500 5.06 360 4,578 5.67 194
---------- ---- ------- ---------- ----- ------
Total interest-bearing
liabilities 875,594 3.51 23,012 951,619 3.87 27,524
Noninterest-bearing liabilities:
Transaction accounts 269,875 266,464
Other liabilities 8,314 9,535
---------- ----------
Total liabilities 1,153,783 1,227,618
Total stockholders' equity 127,142 124,265
---------- ----------
Total average liabilities and
stockholders' equity $1,280,925 $1,351,883
========== ==========
Net interest income $51,060 $54,120
======= =======
Interest income as a percentage
of average earning assets 8.74% 9.07%
Interest expense as a percentage
of average earning assets 2.72 3.06
---- -----
Net interest margin 6.03% 6.01%
==== =====
</TABLE>
/(1)/ Amount includes loans held for sale, but excludes nonaccrual loans.
/(2)/ The tax equivalent yields for the nine months ended September 30, 1996 and
1995 were 9.53 and 9.42%, respectively.
/(3)/ Interest income includes amortization of net origination costs of $133,800
for the period ended September 30, 1996 and net origination fees of
$860,000 for the period ended September 30, 1995.
/(4)/ Amount includes nonaccrual loans.
Page 13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET INTEREST INCOME
The Company's primary source of revenue is net interest income, which is the
difference between interest income on interest-earning assets and interest
expense on interest-bearing liabilities. The Company's net interest margin is
influenced by, among other things, competitive forces within its market area,
the mix of its earning assets and deposit base, interest reversals related to
loans placed on nonaccrual status and the changing interest rate environment.
Net interest income before provision for loan losses decreased $3,060,000 (6%)
for the nine months ended September 30, 1996 compared to the corresponding
period in 1995. As summarized in the net interest income variance analysis on
the following page, this decline was comprised of a decrease in total interest
income of $7,572,000 (9%), which was offset by a decrease in total interest
expense of $4,512,000 (16%). The Company's net interest margin (based on
average earning assets) remained relatively unchanged at 6.03% for the nine
months ended September 30, 1996, as compared to 6.01% for the same period of
1995. However, the net interest margin for the three months ended June 30, 1996
of 6.09% decreased to 5.99% for the three months ended September 30, 1996,
primarily attributable to lower yields on loans due to increased competition in
loan pricing.
Earning Asset Mix:
(Percentage of average earning assets)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------
1996 1995 1995 1994 1993
------- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Loans 74% 72% 72% 68% 71%
Securities 19 24 23 30 25
Federal funds sold and other 7 4 5 2 4
--- --- --- --- ---
Total earning assets 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
The Company's net interest income is affected by changes in the amount and mix
of interest-earning assets and interest-bearing liabilities, referred to as
"volume changes." It is also affected by changes in yields earned on interest-
earning assets and rates paid on interest-bearing deposits and other borrowed
funds, referred to as "rate changes." The following table sets forth changes in
interest income and interest expense for each major category of interest-earning
asset and interest-bearing liability and the amount of change attributable to
volume and rate changes for the years indicated. The changes due to rate and
volume have been allocated to rate and volume in proportion to the relationship
between their absolute dollar amounts and the effects of tax-equivalent yields
have not been considered because management does not deem them to be
significant.
Page 14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1996 COMPARED TO 1995
------------------------------
TOTAL RATE VOLUME
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
NET INTEREST INCOME VARIANCE ANALYSIS:
Increase (decrease) in interest income:
Loans $(6,388) $(3,352) $(3,036)
Securities (2,485) 432 (2,917)
Federal funds sold and other 1,301 (191) 1,492
------- ------- -------
Total (7,572) (3,111) (4,461)
Increase (decrease) in interest expense:
Interest-bearing transaction accounts (1,307) (736) (571)
Savings accounts 32 (201) 233
Certificates of deposit (3,058) (972) (2,086)
Debt financing (345) (99) (246)
Short-term borrowings 166 (23) 189
------- ------- -------
Total (4,512) (2,031) (2,481)
------- ------- -------
Decrease in net interest income $(3,060) $(1,080) $(1,980)
======= ======= =======
</TABLE>
The decrease in total interest income of $7,572,000 is comprised of a $4,461,000
volume decrease associated with the $71,754,000 decrease in average earning
assets for the nine months ended September 30, 1996 compared to the same period
in 1995, and a $3,111,000 rate decrease associated with a decrease in the total
yield on interest-earning assets to 8.74% for the nine months ended September
30, 1996 from 9.07% for the same period in 1995. The decrease in total interest
expense of $4,512,000 at September 30, 1996 is comprised of a volume decrease of
$2,481,000 related to the $76,025,000 decrease in average interest-bearing
liabilities for the nine months ended September 30, 1996 compared to the same
period of 1995, and a $2,031,000 rate decrease associated with a decrease in the
cost of funds to 3.51% for the nine months ended September 30, 1996 from 3.87%
for the same period in 1995.
The average balance of securities and federal funds sold decreased from
$331,823,000 for the nine months ended September 30, 1995 to $300,691,000 for
the nine months ended September 30, 1996. This $31,132,000 decrease (10%) is
primarily attributed to the decrease in average deposits, which reduced the
balance of investable funds.
Average loans decreased by $40,622,000 (5%) to $831,313,000 during the nine
months ended September 30, 1996, as compared to the nine months ended September
30, 1995, resulting primarily from pay downs in real estate loans. The decrease
in the yield on loans from 10.33% for the nine months ended September 30, 1995
to 9.80% for the same period in 1996 reflects the impact of declining interest
rates in 1996, along with increased competition relating to loan pricing within
the Company's target market. Additionally, in 1996, the Company has been
reevaluating its credit standards, in order to strengthen asset quality.
Average interest-bearing deposits decreased by $75,871,000 to $845,149,000 for
the nine months ended September 30, 1996, due to a planned reduction in high-
cost time deposits in the first quarter of 1996, coupled with deposit runoff
that was anticipated as a result of acquisitions completed during 1996, and
offset by the increase in interest-bearing deposits acquired from Auburn. As a
result, the interest rate paid on average interest-bearing deposits during the
nine months ended September 30, 1996 decreased 36 basis points to 3.42%, as
compared to the similar period in 1995.
Page 15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A changing interest rate environment can have a significant impact on the
Company's net interest margin as measured against average earning assets and its
interest rate spread. Management continually monitors its net interest margin by
repricing its loan and deposit products after giving effect to such factors as
competition in the marketplace and expected maturities in the loan, securities
and deposit portfolios.
OTHER INCOME
The following table summarizes changes in other income for the three and nine
months ended September 30, 1996, as compared to the corresponding periods in
1995:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- PERCENT ------------------ PERCENT
1996 1995 CHANGE 1996 1995 CHANGE
----------- ------- -------- -------- ------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposits $2,569 $2,352 9% $ 7,254 $6,981 4%
Mortgage banking 177 171 4 542 559 (3)
Merchant credit card services 529 357 48 1,479 836 77
Gain/(loss) on sales of securities 9 (16) NM 22 (145) NM
Other 272 371 (27) 1,101 1,095 1
------ ------ ---- ------- ------ --
Total other income $3,556 $3,235 10% $10,398 $9,326 11%
====== ====== ==== ======= ====== ==
</TABLE>
NM = Not meaningful
Other income for the three and nine months ended September 30, 1996 of
$3,556,000 and $10,398,000, respectively, increased $321,000 (10%) and
$1,072,000 (11%), as compared to the corresponding periods in 1995, principally
from growth in service charges on deposits and merchant services. Service
charges on deposits increased $217,000 (9%) and $273,000 (4%) for the three and
nine months ended September 30, 1996, respectively, as compared to the three and
nine months ended September 30, 1995, primarily attributable to various fee
enhancement programs which were implemented during the third quarter of 1996.
Merchant credit card services increased $172,000 (48%) and $643,000 (77%) for
the three and nine months ended September 30, 1996, respectively, as compared to
the corresponding periods in 1995 due to growth in merchant services. The extent
to which these enhancements and growth continue is dependent upon various
factors beyond the control of the Company, including economic conditions,
unanticipated changes in business conditions and inflation.
Page 16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OTHER EXPENSE
The following table summarizes changes in other expense for the three and nine
months ended September 30, 1996, as compared to the corresponding periods in
1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- PERCENT ------------------ PERCENT
1996 1995 CHANGE 1996 1995 CHANGE
--------- ------- -------- ------- -------- --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 5,816 $ 6,176 (6)% $17,486 $18,939 (8)%
Occupancy 1,661 1,482 12 4,847 4,205 15
Equipment and maintenance 1,164 1,214 (4) 3,532 3,478 2
Professional and legal fees 726 472 54 2,147 1,120 92
Amortization of intangible assets 390 413 (6) 1,170 1,257 (7)
FDIC assessments 14 33 (58) 61 1,326 (95)
Stationary and supplies 414 301 38 953 960 (1)
Marketing 285 300 (5) 798 1,017 (22)
Telephone 324 276 17 1,041 761 37
Check processing 476 144 231 1,493 437 242
Merchant credit card 408 120 240 1,088 345 215
OREO expense 32 350 (91) 432 643 (33)
Miscellaneous 1,731 2,095 (17) 4,755 6,038 (21)
------- ------- ---- ------ ------- ---
Total other expense before merger and
integration costs 13,441 13,376 - 39,803 40,526 (2)
Merger and integration costs 538 154 NM 5,121 280 NM
------- ------- ---- ------- ------- ---
Total other expense $13,979 $13,530 3% $44,924 $40,806 10%
======= ======= ==== ======= ======= ===
</TABLE>
NM = Not meaningful
Page 17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other expense for the three and nine months ended September 30, 1996 totaled
$13,979,000 and $44,924,000, respectively, an increase of 3% and 10% over the
corresponding periods in 1995. Excluding merger and integration costs totaling
$5,121,000 and $280,000 for the nine months ended September 30, 1996 and 1995,
respectively, other expense for the nine months ended September 30, 1996
decreased $723,000, or 2%. This decrease resulted primarily from decreases in
salaries and employee benefits and FDIC assessments, offset by increases in
occupancy, professional and legal fees, check processing expense and merchant
credit card services.
The decrease in salaries and employee benefits of $360,000 (6%) and $1,453,000
(8%) for the three and nine months ended September 30, 1996, respectively, is
primarily attributable to a reduction in full time equivalent employees related
to the recently completed acquisitions and the outsourcing of certain data
processing functions. Effective June 1, 1995, the FDIC reduced deposit
insurance premiums, resulting in a decrease of $1,265,000 (95%) in assessments
for the nine months ended 1996. As part of the Company's growth and expansion,
occupancy costs increased as a result of consolidating various support and
administrative functions from numerous locations into a centralized headquarters
office. With a more centralized operation, certain operating efficiencies and
economies are expected to be achieved. Professional and legal fees increased
$254,000 (54%) and $1,027,000 (92%) for the three and nine months ended
September 30, 1996, principally related to the engagement of outside consultants
to review the Company's operations with the objective of revenue enhancements
and streamlining the Company's work functions, as well as increased outside
legal collection services related to nonperforming loans. Check processing
expenses increased $332,000 (231%) and $1,056,000 (242%) for the three and nine
months ended September 30, 1996, primarily as a result of outsourcing part of
the Company's data processing functions. Merchant credit card costs increased
$288,000 (240%) and $743,000 (215%) for the three and nine months ended
September 30, 1996, commensurate with the revenue growth in services provided to
merchant customers.
Merger and integration costs totaling $5.1 million were related to the El
Capitan, CoBank and Auburn mergers. Such costs relate primarily to separation
and benefit costs, professional, legal and investment banking fees, facilities
termination costs and other merger related expenses.
As a result of the El Capitan, CoBank and Auburn mergers, annual cost savings in
excess of $4 million are projected to be achieved through consolidation of
operations and elimination of duplicate services. The timing and extent to which
any additional operating cost savings may be achieved depends on, among other
things, the regulatory environment and economic conditions, and may be affected
by unanticipated changes in business activities, inflation and operating costs.
Therefore, no assurance can be given with respect to the ultimate level of cost
savings to be realized, or that such savings will be realized in the time frame
currently anticipated.
The efficiency ratio, (noninterest expense divided by the sum of net interest
income plus noninterest income) excluding merger and integration costs, for the
three and nine months ended September 30, 1996, increased to 66.32% and 64.76%,
respectively, as compared to 64.06% and 63.87% for the corresponding periods in
1995. The efficiency ratio is higher because revenue (net interest income and
other income) have decreased at a faster rate than other noninterest expenses.
Page 18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BALANCE SHEET ANALYSIS
SECURITIES
Securities available for sale totaled $178,551,000 at September 30, 1996, as
compared to $249,586,000 at December 31, 1995. Maturities of U.S. Government
agency securities accounted for the majority of the decrease. Additionally, the
available-for-sale securities portfolio had net unrealized losses of
approximately 2.00% of the portfolio, as compared to .37% at December 31, 1995,
because of the impact of rising interest rates on the portfolio.
Securities held to maturity totaled $20,103,000 at September 30, 1996, as
compared to $65,646,000 at December 31, 1995. Maturities of U.S. Government
agency securities accounted for the majority of the decrease.
LOANS
The Company concentrates its lending activities in five principal areas listed
in the table below. Interest rates charged for loans made by the Company vary
with the degree of risk, the size and maturity of the loan, the borrowers'
depository relationships with the Company, and prevailing market rates.
The following table sets forth the amount of loans outstanding by type of credit
extension as of the periods indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
DOLLAR PERCENT DOLLAR PERCENT
AMOUNT OF LOANS AMOUNT OF LOANS
------ -------- ------ --------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
LOAN CATEGORIES:
Commercial $379,766 43% $367,382 42%
Agribusiness 98,278 11 76,278 9
Real estate - construction 68,062 8 74,720 8
Real estate - mortgage 141,734 16 136,278 16
Consumer 188,108 21 205,869 24
Other 5,338 1 5,222 1
-------- --- -------- ---
Total loans $881,286 100% $865,749 100%
======== === ======== ===
</TABLE>
There were no concentrations of loans exceeding 10% of total loans which were
not otherwise disclosed as a category of loans in the above table. Unsecured
loans do not comprise a significant portion of the loan portfolio.
The Company has collateral management policies in place ensuring that collateral
lending of all types is on a basis which the Company believes is consistent with
regulatory lending standards. Valuation analyses are utilized to take into
consideration the potentially adverse economic conditions under which
liquidation of collateral could occur. It is generally the Company's policy to
fully collateralize all loans with loan-to-value ratios determined on an
individual loan basis taking into account the financial stability of each
borrower and the value and type of collateral. In addition to real estate, other
collateral accepted as security against loans includes deposits, securities,
accounts receivable, inventories, equipment and other assets.
Page 19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management believes that the decrease in the Company's loans since December 31,
1995 is attributable, in part, to an emphasis on reducing the levels of
criticized/classified and nonperforming loans and to the implementation of plans
of new members of the Company's executive management to reposition the mix of
the Company's loan portfolio. The Company's loan portfolio mix is changing
toward further reliance on commercial lending, in particular to agribusiness
concerns, increased consumer lending and a focus upon residential construction
lending as opposed to longer-term real estate mortgages. Following this
transitional period, management anticipates further growth in these areas
compared to other components of the Company's loan portfolio.
CREDIT RISK MANAGEMENT AND ASSET QUALITY
Management believes that the objective of a sound credit policy is to extend
quality loans on a diversified basis to customers while controlling risks
affecting stockholders and depositors. The Credit Quality Committee, made up of
members of the Board of Directors of ValliWide, approves credit policy and
reviews asset quality and compliance with credit policy. ValliCorp maintains a
loan review staff as part of its risk control function that examines ValliWide's
loan portfolio for compliance with established standards. Executive management,
senior lending officers and senior credit officers also perform reviews of loan
quality and monitor, on a periodic basis, the progress of watch-list loans
requiring an action plan for rehabilitation or refinancing. In addition, credit
underwriting guidelines are periodically reviewed and adjusted to reflect
current economic conditions.
The Company places a loan on nonaccrual status when one of the following events
occurs: any installment of principal or interest is 90 days or more past due
(unless the loan is well-secured and in the process of collection); management
determines the ultimate collection of principal or interest on a loan to be
unlikely; management deems it to be probable the Company will take possession of
the collateral in satisfaction of the loan; or the terms of a loan have been
renegotiated resulting in a decrease in the present value of contractual cash
flows.
A loan is considered in the process of collection if, based on a probable
specific event, management expects that the loan will be repaid or brought
current. When a loan is placed on nonaccrual status, the Company's general
policy is to reverse and charge against current income previously accrued but
unpaid interest, unless the interest is deemed collectible. Income on such
loans is subsequently recognized only to the extent that cash is received and
future collection of principal is probable. Loans for which collectibility of
the principal balance or interest is considered to be doubtful by management are
placed on nonaccrual status prior to becoming 90 days delinquent.
Loans for which collateral has been repossessed or foreclosed upon are
classified as "OREO" and included in Other Assets on the Company's financial
statements. In accordance with SFAS No. 114, a loan is classified OREO when the
Company has taken possession of the collateral regardless of whether formal
foreclosure proceedings take place.
The Company values its OREO properties at the lower of the net carrying amount
or fair value, less selling expenses, based on appraisals generally performed at
the time the property is acquired. Management's objective is to dispose of
these properties in an expeditious manner in an effort to minimize holding costs
which may result in the Company realizing less than book value. Due to possible
market fluctuations in real estate values, management can give no assurance that
the recorded values of OREO properties will ultimately be realized upon
disposition.
Page 20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NONPERFORMING ASSETS
The table below sets forth information about nonperforming assets and accruing
loans 90 days or more past due. Management's classification of a loan as
nonaccrual or restructured does not measurably indicate the principal of the
loan is uncollectible in whole or in part.
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------------------------------
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans..................... $14,275 $17,480 $ 7,303 $ 6,059 $4,930 $3,259
Restructured loans................... 257 257 558 933 830 900
------- ------- ------- ------- ------ ------
Nonperforming loans.................. 14,532 17,737 7,861 6,992 5,760 4,159
Other real estate owned.............. 3,607 2,512 3,665 3,537 1,771 1,506
------- ------- ------- ------- ------ ------
Total nonperforming assets.......... $18,139 $20,249 $11,526 $10,529 $7,531 $5,665
======= ======= ======= ======= ====== ======
Accruing loans 90-days past due...... $ 377 $ 1,451 $ 3,073 $ 1,195 $1,517 $1,640
======= ======= ======= ======= ====== ======
Nonperforming loans to total loans... 1.65% 2.05% 0.89% 0.97% 1.04% 0.79%
Nonperforming assets:
To total loans...................... 2.06% 2.34% 1.31% 1.46% 1.36% 1.07%
To total loans and OREO............. 2.05 2.33 1.30 1.45 1.36 1.07
To total assets..................... 1.36 1.46 0.87 0.87 0.88 0.70
</TABLE>
At September 30, 1996, nonperforming assets decreased approximately $2.1 million
(10%) from December 31, 1995 to $18.1 million principally from paydowns,
foreclosures or chargeoffs of nonperforming assets.
While management believes the overall credit quality of the loan portfolio has
improved, total nonaccrual balances may fluctuate from quarter to quarter based
upon various factors, including changes in economic conditions within the
Company's target market.
Although the volume of nonperforming assets and accruing loans 90-days past due
will depend on the future economic environment, management of the Company has
identified approximately $1.9 million in potential problem loans as to which it
has serious doubts as to the ability of the borrowers to comply with the present
repayment terms and which may become nonperforming assets or accruing loans 90-
days past due, based on known information about possible credit problems of the
borrowers.
Page 21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ALLOWANCE FOR LOAN LOSSES
Management's determination of the allowance for loan losses requires the use of
estimates and assumptions related to risks inherent in the loan portfolio.
Actual results could differ significantly from those estimates. Estimates that
are particularly susceptible to significant fluctuation relate to the valuation
of real estate because management revalues the asset to the lower of the net
carrying amount or fair value less selling expenses. In connection with the
determination of the allowance for loan losses and the valuation of OREO,
management generally obtains independent appraisals for significant properties.
Management believes its current appraisal policies conform to federal regulatory
guidelines.
A formal evaluation of the overall quality of the portfolio is performed monthly
to determine the necessary level of the allowance for loan losses. This
evaluation takes into consideration, among other factors, specific knowledge of
certain loans, general economic conditions, the classification of loans and the
application of loss estimates to these classifications. The Company classifies
loans as pass, watch, special mention, substandard, doubtful or loss based on
classification criteria believed to be consistent with the criteria applied by
the Company's banking examiners. These classifications and loss estimates take
into consideration all sources of repayment, underlying collateral, the value of
such collateral, and current and anticipated economic conditions, trends, and
uncertainties. These processes provide management with data that helps to
identify and estimate the credit risk inherent in the portfolio so that
management may identify potential problem loans on a timely basis. However,
this evaluation is inherently subjective, as it requires material estimates,
including the amounts and timing of future cash flows expected to be received on
impaired loans that may be susceptible to significant change. The allowance for
loan losses reflects the result of these estimates. In addition, various
banking regulatory agencies periodically review the allowance for loan losses as
part of their examination process. Such agencies may require the Company to
recognize additions to the allowance based on their judgments of information
available to them at the time of their examination. Their findings are
reflected in the calculation of the allowance as well as considered in the
continuing evaluation of the Company's policies and procedures. At September
30, 1996, the $15,387,000 allowance for loan losses constituted 1.75% of total
loans and 106% of nonperforming loans.
The provisions for loan losses for the three and nine months ended September 30,
1996 were $2,102,000 and $5,629,000, respectively, as compared to $6,051,000 and
$7,813,000 for the corresponding periods in 1995. Net charge-offs for the three
and nine months ended September 30, 1996 totaled $979,000 and $6,893,000,
respectively, as compared to $2,870,000 and $3,335,000 for the corresponding
periods in 1995. The decrease in the provision for loan losses reflects the
large provision recognized in the prior year's third quarter related to certain
nonperforming loans. The increase in net charge-offs during 1996 is primarily
related to problem loans previously identified in 1995 and the effect of the two
mergers which were completed during the first quarter of 1996 (refer to
"Nonperforming Assets").
While the Company's policy is to charge off those loans for which a loss is
considered probable, there also exists the risk of future losses which cannot be
precisely quantified or attributed to particular loans or classes of loans.
Because this risk is continually changing in response to factors beyond the
control of the Company, management's judgment as to the adequacy of the
allowance for loan losses in future periods is necessarily an approximate one.
Page 22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table provides a summary of the Company's allowance for loan
losses, and charge-off and recovery activity for the periods indicated.
<TABLE>
<CAPTION>
NINE NINE YEAR
MONTHS ENDED MONTHS ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
1996 1995 1995
------------- ------------- ------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Allowance for loan losses:
Balance at beginning of period $ 14,986 $ 14,130 $ 14,130
Provision for loan losses 5,629 7,813 9,633
Allowance acquired through merger 1,665 - -
Charge-offs:
Commercial and agribusiness 3,786 1,528 4,362
Real estate - construction 1,834 - 109
Real estate - mortgage 250 1,450 3,515
Installment 2,317 801 1,346
Other - 27 116
-------- -------- --------
Total charge-offs 8,187 3,806 9,448
Recoveries:
Commercial and agribusiness 306 284 400
Real estate - construction - - -
Real estate - mortgage 31 17 26
Installment 957 140 227
Other - 30 18
-------- -------- --------
Total recoveries 1,294 471 671
-------- -------- --------
Net charge-offs 6,893 3,335 8,777
-------- -------- --------
Balance at end of period $ 15,387 $ 18,608 $ 14,986
======== ======== ========
Loans outstanding at end of period $881,286 $907,816 $865,749
Average loans 844,281 887,393 885,200
Net charge-offs during the period to average loans (annualized) 1.09% 0.50% 0.99%
Allowance for loan losses
To total loans 1.75% 2.05% 1.73%
To nonperforming loans 106 71 84
To nonperforming assets 85 66 74
</TABLE>
Page 23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CAPITAL RESOURCES
Stockholders' equity increased $12,255,000 during the nine months ended
September 30, 1996. This increase is primarily comprised of the net common
stock issued of $8,121,000 (net of $5,100,000 of treasury stock issued) related
to the Auburn purchase, net income of $6,434,000 offset by the change in
unrealized losses (net of taxes) on securities available for sale of $1,501,000
and dividends of $2,640,000.
ValliCorp and its subsidiary are required to maintain minimum capital ratios
defined by various federal government regulatory agencies. These regulatory
agencies have established risk-based capital guidelines, which include minimum
capital requirements.
The following table presents the Company's capital positions under the
regulatory guidelines:
<TABLE>
<CAPTION>
MINIMUM
SEPTEMBER 30, DECEMBER 31, CAPITAL
1996 1995 RATIOS
------------- ------------ -----------
<S> <C> <C> <C>
CAPITAL RATIOS:
Total risk-based capital ratio 13.99% 13.37% 8.00%
Tier 1 capital to risk-weighted assets 12.72 12.08 4.00
Leverage ratio 9.98 8.74 3.00 - 5.00
</TABLE>
At September 30, 1996, ValliCorp and ValliWide exceeded all applicable federal
capital standards.
The Company is subject to regulation and examination by the Board of Governors
of the Federal Reserve System (the "Federal Reserve"). ValliWide is subject to
regulation and examination by the Federal Reserve and the California State
Banking Department. ValliCorp and ValliWide promptly respond to findings of
regulators. Following a 1995 examination of ValliCorp by the Federal Reserve
and of ValliWide by the Federal Reserve and California State Banking Department,
the Board of Directors of ValliCorp and ValliWide adopted resolutions directing
management of ValliCorp and ValliWide to address certain matters related to the
establishment of loan loss reserves, loan classification and administration,
liquidity and asset/liability management planning and analysis, and the
management of certain functions, and to report actions taken on such matters to
the Federal Reserve and the California State Banking Department. The adoption
of such resolutions is not expected to have a material adverse effect on the
Company's liquidity, capital resources, or results of operations.
Page 24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
The primary objectives of the asset/liability management process are to provide
a stable net interest margin, generate net interest income to meet the Company's
earnings objectives and manage balance sheet risks. These risks include
liquidity risk, capital adequacy and overall interest rate risk inherent in the
Company's balance sheet. In order to manage its interest rate sensitivity, the
Company has adopted policies which attempt to limit the change in net interest
income assuming various interest rate scenarios. This is accomplished by
adjusting the repricing characteristics of the Company's assets and liabilities
as interest rates change. The Company's Asset/Liability Committee chooses
strategies in conformance with its policies to achieve an appropriate trade off
between interest rate sensitivity and the volatility of net interest income and
net interest margin.
The Company's policy has been to maintain an adequate liquidity position which,
in addition to cash and cash equivalents, relies on cash inflows principally
from deposits, repayments of principal on loans and securities, and interest
earned. The Company's principal cash outflows are for loan origination,
purchases of securities, depositor withdrawals, and payment of operating
expenses.
At September 30, 1996, the Company's cash and cash equivalents totaled $189
million, an increase of $28.5 million from the balance at December 31, 1995.
Operating activities of the Company provided $6,265,000 primarily related to the
Company's net income of $6,434,000. Investing activities provided $168 million
primarily due to maturities of securities exceeding purchases by $116 million.
The Company's financing activities decreased cash and cash equivalents by an
additional $146 million principally due to a decrease of $136 million in
deposits.
The Company has borrowing capacity from various sources to provide necessary
liquidity. The Company has arranged unsecured federal funds lines of credit in
the amount of approximately $99 million with five major correspondent banks to
provide funds in periods of temporary declines in deposits. The Company has
additional sources of short-term credit through repurchase borrowing
arrangements with various brokerage firms.
Liquidity management is a focus of ValliCorp as well as ValliWide. Aside from
accessing the capital markets, ValliCorp's primary source of liquidity is
dividends from ValliWide. There are state and federal restrictions on
ValliWide's ability to pay dividends to ValliCorp; however, management believes
that adequate dividends will be received or have already been received to meet
ValliCorp's cash flow needs through 1996.
Through interest rate sensitivity management, the Company seeks to manage net
interest margins and to enhance consistent growth of net interest income through
periods of changing interest rates. The difference between the amount of assets
and liabilities that are repricing in various time frames is called the "Gap."
Generally, if repricing assets exceed repricing liabilities in a given time
period, the Company would be "asset sensitive" or, if repricing liabilities
exceed repricing assets, the Company would be "liability sensitive".
Page 25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth the interest rate sensitivity and repricing
schedule of the Company's interest-earning assets and interest-bearing
liabilities, the interest rate sensitivity gap, the cumulative interest rate
sensitivity gap and the cumulative interest rate sensitivity gap ratio.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------------------------------------------------------
AFTER THREE AFTER ONE
NEXT DAY BUT MONTHS BUT YEAR BUT AFTER
WITHIN THREE WITHIN 12 WITHIN FIVE FIVE
IMMEDIATELY MONTHS MONTHS YEARS YEARS TOTAL
----------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST RATE SENSITIVITY GAP:
Loans/(1)/............................... $486,471 $ 19,572 $105,791 $139,443 $108,867 $ 860,144
Securities............................... - 41,596 36,221 74,702 46,134 198,653
Federal funds sold and other............. - 77,700 - - - 77,700
-------- -------- -------- -------- -------- ----------
Total interest earning assets....... $486,471 $138,868 $142,012 $214,145 $155,001 $1,136,497
======== ======== ======== ======== ======== ==========
Interest-bearing
transaction accounts................. $342,517 $ - $ - $ - $ - $ 342,517
Savings accounts......................... 174,986 - - - - 174,986
Certificates of deposit.................. - 160,123 137,195 43,271 67 340,656
Federal funds purchased and repurchase
agreements........................... - 8,700 - - - 8,700
Debt financing........................... 20,864 - - - 532 21,396
-------- -------- -------- -------- -------- ----------
Total interest-bearing
liabilities...................... $538,367 $168,823 $137,195 $ 43,271 $ 599 $ 888,255
======== ======== ======== ======== ======== ==========
Interest rate sensitivity gap/(2)/....... $(51,896) $(29,955) $ 4,817 $170,874 $154,402 $ 248,242
Cumulative gap........................... $(51,896) $(81,851) $(77,034) $ 93,840 $248,242
Cumulative gap percentage to interest
earning assets....................... (5)% (7)% (7)% 8% 22%
</TABLE>
/(1)/ Excludes nonaccrual loans of $14,275.
/(2)/ Does not assume prepayments of interest-earning assets or run-off of
interest-bearing liabilities.
Based upon the above repricing schedule, at September 30, 1996, the Company was
"liability sensitive" with respect to interest-earning assets and interest-
bearing liabilities repricing "immediately". Because approximately $51.9
million of interest-bearing liabilities in excess of interest-earning assets
reprice "immediately", management expects that, in an increasing rate
environment, the Company's net interest margin would tend to decrease and, in a
decreasing rate environment, the Company's net interest margin would be expected
to increase as liabilities would generally reprice more quickly than assets.
The Company supplements its gap analysis with simulations of net interest income
under a variety of alternative market interest-rate scenarios. The Company
manages its interest rate risk by emphasizing loan products which have variable
interest rates and deposit products which are short-term in duration.
Page 26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EFFECT OF CHANGING PRICES
The majority of assets and liabilities of a financial institution are monetary
in nature and, therefore, differ greatly from most commercial and industrial
companies that have significant investments in fixed assets or inventories.
However, inflation does have an important impact on the growth of total assets
in the banking industry and the resulting need to increase equity capital in
order to maintain an appropriate equity-to-assets ratio. An important effect of
this has been the reduction in the proportion of earnings paid out as dividends
by some banking organizations. Another significant effect of inflation is on
other expense which tends to rise during periods of general inflation.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit Index
Exhibit Number Description
-------------- -----------
10.1 Employment Agreement - J. Mike McGowan
10.2 Employment Agreement - Steven C. Pumphrey
10.3 Employment Agreement - Edwin L. Herbert
10.4 Employment Agreement - Wolfgang T.N. Muelleck
10.5 Employment Agreement - Jerry A. Melton
10.6 Employment Agreement - John H. Tait
10.7 Employment Agreement - Lucineia S. Donnelley
27 Financial Data Schedule
b) A Report on Form 8-K was filed by the Registrant on November 13, 1996
reporting on the execution of an Agreement and Plan of Reorganization
("Agreement") among Westamerica Bancorporation ("WABC"), the Registrant and
ValliWide Bank, which provides for the merger of the Registrant with and into
WABC and the conversion of the Registrant's common stock into stock of WABC. A
copy of the Agreement, a Stock Option Agreement between the Registrant and WABC
and a joint press release dated November 12, 1996 are attached as exhibits to
the report on Form 8-K.
Page 27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VALLICORP HOLDINGS, INC.
Date: November 13, 1996 By /s/ J. Mike McGowan
---------------------- -------------------------------------------
J. Mike McGowan
Chairman and
Chief Executive Officer
(Principal Executive Officer)
Date: November 13, 1996 By /s/ Wolfgang T.N. Muelleck
---------------------- ------------------------------------------
Wolfgang T.N. Muelleck
Executive Vice President
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 28
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT - J. MIKE MCGOWAN
1
<PAGE>
AGREEMENT
---------
THIS AGREEMENT dated July 1, 1996, is made by and between ValliCorp
Holdings, Inc., a Delaware corporation (the "Company"), and J. MIKE McGOWAN (the
"Executive").
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company, on the terms set forth herein; and
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the possibility of a Change in Control (as defined in Section 2.14(E)
hereof) exists, as in the case of any publicly-held corporation, and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its shareholders; and
WHEREAS, as a part of the terms of the Executive's employment the Board has
determined that appropriate steps should be taken to reinforce and encourage the
continued attention and dedication of the Executive to his assigned duties
without distraction in the face of potentially disturbing circumstances arising
from the possibility of a Change in Control.
NOW THEREFORE, in consideration of the promises and the mutual covenants
herein contained, the Company and the Executive hereby agree as follows:
SECTION
- -------
1. EMPLOYMENT
----------
1.1 Employment. The Company hereby employs the Executive and the
----------
Executive hereby accepts employment during the Term of Employment upon the terms
and conditions set forth herein.
-2-
<PAGE>
1.2 Term of Employment. The "Term of Employment" is the period
------------------
beginning on July 1, 1996 (the "Commencement Date") and ending on June 30, 2000.
The Term of Employment may terminate earlier or be extended as provided in this
Agreement; provided however, that this Agreement shall not terminate earlier
than the date that the provisions of Section 2 hereof cease to be applicable.
1.3 Renewal. The Term of Employment shall be extended for one year on
-------
each anniversary of the Commencement Date unless (a) the Company or the
Executive has given three (3) months' written notice of its or his intent not to
extend the termination date or (b) the Term of Employment has been terminated
under the provisions of Section 1.9 or 1.10.
1.4 Duties. The Executive is employed as Chairman and Chief Executive
------
Officer of the Company and, under the direction of the Board, shall perform and
discharge well and faithfully the duties that may be assigned to him from time
to time by the Board in connection with the conduct of the Company's business.
1.5 Extent of Services. The Executive shall devote his entire
------------------
business time, attention, and energies to the business of the Company during the
term of the Executive's employment with the Company. The foregoing, however,
shall not preclude the Executive from engaging in appropriate civic, charitable,
or religious activities or from devoting a reasonable amount of time to private
investments or from serving on boards of directors of other entities, as long as
such activities and services do not interfere or conflict with his
responsibilities to the Company.
1.6 Locations of Performance. The Executive's services shall be
------------------------
performed primarily in the vicinity of Fresno, California. The parties
acknowledge, however, that the Executive may be required to travel in connection
with the performance of his duties hereunder.
1.7 Compensation.
------------
-3-
<PAGE>
(A) Salary. During the Term of Employment, the Company shall
------
pay the Executive a monthly salary of $27,083.34, payable in arrears in
installments on the 15th and the last day of each month. The Executive's salary
shall be adjusted annually, on the anniversary of this Agreement, to reflect
such changes as the Board determines appropriate, based on the Executive's
performance for the most recent performance period.
(B) Incentive Programs. During the Term of Employment, the
------------------
Executive shall be entitled to participate in any annual and long-term incentive
programs adopted by the Company and which cover employees in positions
comparable to that of the Executive.
(C) Expenses. The Executive shall be entitled to prompt
--------
reimbursement of all reasonable business expenses incurred by him in the
performance of his duties during the Term of Employment, subject to the
presenting of appropriate vouchers and receipts in accordance with the Company's
policies.
1.8 Employee Benefits. During the Term of Employment, the Executive
-----------------
shall be entitled to participate in employee benefit plans or programs of the
Company, if any, to the extent that his position, tenure, salary, age, health,
and other qualifications make him eligible to participate, subject to the rules
and regulations applicable thereto.
1.9 Termination by the Company; Death. Notwithstanding the
---------------------------------
provisions of Sections 1.2 and 1.3, and except for situations in which the
termination of employment provisions of Section 2 apply, the Term of Employment
and the Executive's employment hereunder may be terminated by the Company
without any breach of this Agreement under the following circumstances:
(A) Involuntary Termination. The Executive's employment is at
-----------------------
will. The Company reserves the right to terminate the Executive's employment at
any time whatsoever, with or without cause, with thirty (30) days' written
notice to the
-4-
<PAGE>
Executive. The Term of Employment shall terminate on the last day of the notice
period, but the Company may require the Executive to cease performing services
at any time once the notice is given.
(B) Involuntary Termination for Just Cause. The Company
--------------------------------------
reserves the right to terminate the Executive's employment for Just Cause. "Just
Cause" shall exist if the Executive has: (i) willfully breached or habitually
neglected the duties which he was required to perform under the terms of this
Agreement, or (ii) committed act(s) of dishonesty, theft, embezzlement, fraud,
misrepresentation, or other act(s) of moral turpitude against the Company, its
subsidiaries or affiliates, its shareholders, or its employees. The Company
shall give the Executive written notice of the termination and the reasons
therefor. The Term of Employment shall terminate immediately upon receipt of the
notice.
(C) Disability. The Term of Employment shall terminate three
----------
(3) months after the Company gives the Executive written notice that it intends
to terminate his employment on account of Disability or on such later date as
the Company specifies in such notice. If the Executive resumes the performance
of substantially all of his duties under this Agreement before the termination
becomes effective, the notice of intent to terminate shall be deemed to have
been revoked.
(D) Death. The Term of Employment shall terminate upon the
-----
Executive's death.
1.10 Termination By The Executive. Notwithstanding the provisions of
----------------------------
Sections 1.2 and 1.3, the Term of Employment and the Executive's employment
hereunder may be terminated without any breach of this Agreement by the
Executive under the following circumstances:
(A) Voluntary Termination. Subject to Section 2.4 hereof, the
---------------------
Executive may terminate his employment with the Company at any time with three
(3) months' written notice to the
-5-
<PAGE>
Company. The Term of Employment shall end on the last day on which the Executive
performs services for the Company.
(B) Termination for Good Cause. The Executive may terminate his
--------------------------
employment with the Company for Good Cause by giving the Company thirty (30)
days' notice of its breach, the reasons why the breach constitutes Good Cause
and of his intent to terminate on such basis. If the Company cures its breach
within the thirty (30) day period, the Executive may rescind his notice of
intent to terminate, or terminate his employment under Section 1.10(A) hereof as
though his notice of breach was the notice provided for under Section 1.10(A).
If the Company fails to cure its breach within the thirty (30) day period, the
Term of Employment shall end on the last day of the notice period.
The term "Good Cause" as used herein means a material reduction in the
Executive's compensation under Section 1.7 or benefits under Section 1.8, a
material reduction in the Executive's title or responsibilities, or a relocation
of the Executive's primary place of employment so that the Executive's one-way
commute distance is increased by more than (40) miles.
1.11 Benefits on Termination of Employment. Except as provided in
-------------------------------------
Section 2.1 hereof, if the Executive's employment is terminated during the Term
of Employment, the Executive shall be entitled to receive the following
benefits:
(A) Death; Disability; Voluntary Termination; Termination for
---------------------------------------------------------
Just Cause. If employment is terminated under Section 1.9 (B), (C), or (D), or
- ----------
Section 1.10(A), the Executive shall receive (i) salary through the Term of
Employment; (ii) any incentive compensation earned but not yet paid; and (iii)
reimbursement of expenses incurred under Section 1.7(C) but not yet reimbursed.
All other employee benefits and compensation shall cease on the last day on
which the Executive performs services as an employee, except to the extent that
continued coverage is required by law.
-6-
<PAGE>
(B) Involuntary Termination; Termination For Good Cause. If the
---------------------------------------------------
Executive's employment is terminated under the provisions of Sections 1.9(A) or
1.10(B), the Executive shall receive in a lump sum payment an amount equal to
the sum of clauses (i) through (iii) in Section 1.11(A), and, in addition,
thirty-six (36) months of salary under Section 1.7(A) computed with reference to
the annual salary in effect immediately preceding the date of termination.
All other employee benefits and compensation, including any incentive benefits
for the year in which the Term of Employment ends, shall cease on the last day
on which the Executive performs services as an employee of the Company except to
the extent that continued coverage is required by law.
1.12 Non-Renewal. If the Executive or the Company gives notice of
-----------
intent not to extend the Term of Employment under Section 1.3, the Executive's
salary and benefits shall cease on the last day of the Term of Employment,
except to the extent that continued coverage is required by law.
1.13 Recovery of Litigation Costs. If any legal action or other
----------------------------
preceding is brought for the enforcement of any provision under Section 1 of
this Agreement (or Section 3 of this Agreement in connection with its
applicability under Section 1 of this Agreement) or any agreement or instrument
delivered under or in connection with Section 1 of this Agreement (or Section 3
of this Agreement in connection with its applicability under Section 1 of this
Agreement), or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of Section 1 of this
Agreement (or Section 3 of this Agreement in connection with its applicability
under Section 1 of this Agreement), the successful or prevailing party or
parties shall be entitled to recover reasonable attorney's fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled.
SECTION 2. TERMINATION OF EMPLOYMENT IN CONNECTION WITH A CHANGE IN CONTROL
----------------------------------------------------------------
-7-
<PAGE>
2.1 Applicability of Section 2. No payments will be required under
--------------------------
Section 1.11 of this Agreement in connection with the Executive's Termination of
Employment to the extent that the payments and benefits provided for by Section
2 of this Agreement are paid or provided to the Executive.
2.2 Term of Change in Control Provisions. Either the Company or the
------------------------------------
Executive may terminate the applicability of the provisions of this Section 2 by
giving the other at least one (1) year advance written notice of termination
thereof; provided, however, that if a Change in Control shall have occurred
during the term of this Agreement, the provisions of Section 2 hereunder shall
continue in effect until all obligations of either party hereto have been
performed in full. Notwithstanding the foregoing, the provisions of this
Section 2 shall terminate upon the Executive's attaining age sixty-five (65),
except as to obligations of the Company hereunder arising from a Change in
Control and/or a termination of the Executive's employment prior to his having
reached such age.
2.3 Company's Covenants Summarized. In order to induce the Executive
------------------------------
to remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 2.4 hereof, the Company agrees, under the terms
and conditions set forth herein, that, upon a Change in Control during the term
of this Agreement, certain benefits shall thereupon become vested as set forth
in Section 2.5 hereof, and paid in accordance with the provisions thereof, and,
in the event that the Executive's employment with the Company is terminated
thereafter during the Coverage Period, the Company shall pay the Executive the
amounts provided for in Section 2.6 hereof.
2.4 The Executive's Covenant. The Executive agrees that, subject
------------------------
to the terms and conditions of this Agreement, and notwithstanding the
provisions in Section 1.10(A) of this Agreement, in the event of a Potential
Change in Control, the Executive will remain in the employ of the Company until
the earliest of (a) a date which is nine (9) months after the date of such
Potential Change of Control, (b) the date of a Change in
-8-
<PAGE>
Control, (c) the date of termination by the Executive of the Executive's
employment for Good Reason (determined by treating the Potential Change in
Control for this purpose as a Change in Control in applying the definition of
Good Reason) or by reason of death or Disability, (d) the termination by the
Company of the Executive's employment for any reason, or (e) the Executive's
attaining age sixty-five (65).
2.5 Vesting of Bonus in the Event of a Change in Control. Upon the
----------------------------------------------------
occurrence of a Change in Control, the Executive shall have a vested and
nonforfeitable right to receive in cash an amount equal to the target bonus
amount which the Executive could earn for the year in which the Change in
Control occurs pursuant to the ValliCorp Holdings, Inc. Executive Management
Committee's Management Bonus Program for such year, or under any other
management incentive plan or program in effect in such year, as if 100% of all
objectives provided for thereunder had been met for that year (the "Vested Bonus
Amount"). The Executive's Vested Bonus Amount pursuant to the preceding sentence
shall be promptly paid to the Executive at the date on which such bonus would
have been paid pursuant to such plan or program if no Change in Control had
occurred. Notwithstanding the foregoing, however, in the event that the
Executive's Date of Termination after a Change in Control falls in the fiscal
year in which such Change in Control occurs, the Executive shall not be entitled
to receive a bonus pursuant to this Section 2.5, but shall instead be entitled
to the bonus amount as provided in Section 2.6(B)(iii) hereof.
2.6 Benefits and Rights upon Termination of Employment.
--------------------------------------------------
(A) General Termination Rights and Benefits. If the Executive's
---------------------------------------
employment by the Company is terminated after a Change in Control for any reason
(whether by the Company or the Executive), the Company shall pay to the
Executive the payments described in Subsections (i) through (iii) below.
-9-
<PAGE>
(i) Previously Earned Salary. The Company shall pay the
------------------------
Executive's full salary to the Executive through the Date of Termination at the
highest rate in effect during the sixty (60) day period preceding the date the
Notice of Intent to Terminate is given, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of any compensation or benefit plan, program or arrangement maintained by
the Company during such period.
(ii) Previously Earned Benefits. The Company shall pay the
--------------------------
Executive's normal post-termination compensation and benefits to the Executive
as such payments become due. Such post-termination compensation and benefits
shall be determined under, and paid in accordance with, the Company's
retirement, insurance, pension, welfare and other compensation or benefit plans,
programs and arrangements.
(iii) Payment of Vested Bonus Amount. Except to the extent
------------------------------
that the Company has previously paid to the Executive all or a portion of his
Vested Bonus Amount pursuant to Section 2.5 hereof, the Company shall pay to the
Executive a lump sum cash payment equal to the Executive's Vested Bonus Amount.
(B) Severance Benefits. In addition to the payments provided for
------------------
by Section 2.6(A) hereof, the Company shall pay to the Executive the payments
described in Subsections (i) through (iii) below (the "Severance Benefits") upon
termination of the Executive's employment with the Company during the Coverage
Period, unless such termination is (a) by the Company for Cause, (b) by reason
of the Executive's death or Disability or after the Executive attains age sixty-
five (65) or (c) by the Executive without Good Reason.
(i) Lump-Sum Severance Payment. In lieu of any further
--------------------------
salary payments to the Executive for periods subsequent to the Date of
Termination, the Company shall pay to the Executive a lump sum severance
payment, in cash, equal to three (3) (or, if less, the number of years,
including fractions, from the Date of Termination until the Executive would have
reached
-10-
<PAGE>
age sixty-five (65)) times the sum of (a) the Executive's Annual Base Salary and
(b) the Executive's Annual Bonus. Notwithstanding the preceding sentence, the
amount of the lump sum payment provided for therein shall be reduced by any lump
sum cash severance payment which is actually paid by the Company to the
Executive pursuant to any other plan or agreement on or prior to the date on
which the payment pursuant to this Subsection 2.6(B)(i) is required to be paid.
(ii) Continued Benefits. For a thirty-six (36) month period
------------------
(or, if less, the number of months from the Date of Termination until the
Executive would have reached age sixty-five (65)) after the Date of Termination
(the "Benefits Period"), the Company shall provide the Executive with group term
life insurance, health insurance and long-term disability insurance benefits
("Welfare Benefits") substantially similar in all respects to those which the
Executive is receiving immediately prior to the Notice of Termination (without
giving effect to any reduction in such benefits subsequent to a Change in
Control which reduction constitutes or may constitute Good Reason). Benefits
otherwise receivable by the Executive pursuant to this Section 2.6(B)(ii) shall
be reduced to the extent substantially similar benefits are actually received by
or made available to the Executive by any other employer during the same time
period for which such benefits would be provided pursuant to this Section
2.6(B)(ii) at a cost to the Executive that is commensurate with the cost
incurred by the Executive immediately prior to the Executive's Date of
Termination (without giving effect to any increased costs paid by the Executive
after the Change in Control which constituted or might have constituted Good
Reason); provided, however, that if the Executive becomes employed by a new
employer which maintains a medical plan that either (i) does not cover the
Executive or a family member or dependent with respect to a preexisting
condition which was covered under the applicable Company medical plan, or (ii)
does not cover the Executive or a family member or dependent for a designated
waiting period, the Executive's coverage under the applicable Company medical
plan shall continue (but shall be limited in the event of noncoverage due to a
preexisting
-11-
<PAGE>
condition, to such preexisting condition) until the earlier of the end of the
applicable period of noncoverage under the new employer's plan or the end of the
Benefits Period. The Executive agrees to report to the Company any coverage and
benefits actually received by the Executive from such other employer(s). The
Executive shall be entitled to elect to change his level of coverage and/or his
choice of coverage options (such as the Executive only or family medical
coverage) with respect to the Welfare Benefits to be provided by the Company to
the Executive to the same extent that actively employed senior executives of the
Company are permitted to make such changes; provided, however, that in the event
of any such changes the Executive shall pay the amount of any cost increase that
would actually be paid by an actively employed executive of the Company by
reason of making the same change in his level of coverage or coverage options.
(iii) Bonus for Year in Which Date of Termination Occurs.
--------------------------------------------------
The Company shall pay to the Executive a lump sum cash amount equal to the
product of (x) and (y), where (x) is an amount equal to the target bonus amount
which the Executive could earn for the year in which the Date of Termination
occurs pursuant to the ValliCorp Holdings, Inc. Executive Management Committee's
Management Bonus Program for such year, or under any other management incentive
plan or program in effect in such year, as if 100% of all objectives provided
for thereunder had been met for that year, and (y) is a fraction the numerator
of which is the number of days from and including the first day of the year in
which the Date of Termination occurs until (and including) the Executive's Date
of Termination and the denominator of which is 365 days.
(C) Gross-Up Payment. In the event that the Executive becomes
----------------
entitled to the Severance Benefits or any other benefits or payments under
Section 2 of this Agreement (other than pursuant to this Section 2.6(C)) or the
KESOP or DSOP by reason of the accelerated vesting of stock options thereunder
(together, the "Total Benefits"), and in the event that any of the Total
Benefits will be subject to the Excise Tax, the Company
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shall pay to the Executive an additional amount (the "Gross-Up Payment") such
that the net amount retained by the Executive, after deduction of any Excise Tax
on the Total Benefits and any federal, state and local income tax, Excise Taxes
and FICA Medicare withholding taxes upon the payment provided for by this
Section 2.6(C), shall be equal to the Total Benefits.
For purposes of determining whether any of the Total Benefits will be
subject to the Excise Tax and the amount of such Excise Tax, (i) any other
payments or benefits received or to be received by the Executive in connection
with a Change in Control or the Executive's termination of employment (whether
pursuant to the terms of this Agreement or any other agreement, plan or
arrangement with the Company, any Person whose actions result in a Change in
Control or any Person affiliated with the Company or such Person) shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion
of tax counsel ("Tax Counsel") selected by the Company's independent auditors
and acceptable to the Executive, such other payments or benefits (in whole or in
part) do not constitute parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in excess of the
Base Amount, or are otherwise not subject to the Excise Tax, (ii) the amount of
the Total Benefits which shall be treated as subject to the Excise Tax shall be
equal to the lesser of (A) the total amount of the Total Benefits reduced by the
amount of such Total Benefits that in the opinion of Tax Counsel are not
parachute payments, or (B) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the
value of any non-cash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with the
principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar
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year in which the Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rate of taxation in the state and locality of the
Executive's residence on the Date of Termination, net of the reduction in
federal income taxes which could be obtained from deduction of such state and
local taxes (calculated by assuming that any reduction under Section 68 of the
Code in the amount of itemized deductions allowable to the Executive applies
first to reduce the amount of such state and local income taxes that would
otherwise be deductible by the Executive).
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax, federal, state
and local income taxes and FICA and Medicare withholding taxes imposed on the
Gross-Up Payment being repaid by the Executive to the extent that such repayment
results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or
a federal, state or local income tax deduction) plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In
the event that the Excise Tax is determined to exceed the amount taken into
account hereunder at the time of the termination of the Executive's employment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment to the Executive in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) at the time that the amount of such excess is finally determined.
2.7 Timing of Payments. The payments provided for in Sections 2.6(A)
------------------
through 2.6(C) (other than Section 2.6(B)(ii) hereof) shall be made on the Date
of Termination, provided, however, that if the amounts of such payments cannot
be finally
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<PAGE>
determined on or before such day, the Company shall pay to the Executive on such
day an estimate, as determined in good faith by the Company, of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in Section 1274(b)(2)(B) of the Code from the
fifth (5th) day following the Date of Termination to the payment of such
remainder) as soon as the amount thereof can be determined but in no event later
than the thirtieth (30th) day after the Date of Termination. In the event that
the amount of the estimated payments exceeds the amount subsequently determined
to have been due, such excess shall constitute a loan by the Company to the
Executive, payable on the fifth (5th) business day after demand by the Company
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code from the fifth (5th) day following the Date of Termination to the repayment
of such excess).
2.8 Reimbursement of Legal Costs. The Company shall pay to the
----------------------------
Executive all legal fees and expenses incurred by the Executive as a result of a
termination which entitles the Executive to any payments under Section 2 of this
Agreement, including all such fees and expenses, if any, incurred in contesting
or disputing any Notice of Intent to Terminate under Section 2.9(C) hereof or in
seeking to obtain or enforce any right or benefit provided by Section 2 of this
Agreement (or Section 3 of this Agreement in connection with its applicability
under Section 2 of this Agreement), or in connection with any tax audit or
proceeding to the extent attributable to the application of section 4999 of the
Code to any payment or benefit provided hereunder. Such payments shall be made
within five (5) business days after delivery of the Executive's respective
written requests for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
2.9 Termination Procedures and Compensation During Dispute
------------------------------------------------------
(A) Notice of Intent To Terminate. After a Change in Control,
-----------------------------
any purported termination of the Executive's
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<PAGE>
employment (other than by reason of death) must be preceded by a written Notice
of Intent to Terminate from one party hereto to the other party hereto in
accordance with Section 3.6 hereof. For purposes of this Agreement, a "Notice of
Intent to Terminate" shall mean a notice which shall indicate the notifying
party's opinion regarding the specific provisions of this Agreement that will
apply upon such termination and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for the application of the
provisions indicated. Further, a Notice of Intent to Terminate for Cause is
required to include a copy of a resolution duly adopted by the affirmative vote
of not less than three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board which was called and held for the purpose of considering
such termination (after reasonable notice to the Executive and an opportunity
for the Executive, together with the Executive's counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive was
guilty of conduct set forth in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail.
(B) Date of Termination. "Date of Termination", with respect to
-------------------
any purported termination of the Executive's employment after a Change in
Control, shall mean, except as provided in Section 2.9(C) hereof, (a) if the
Executive's employment is terminated for Disability, three (3) months after
Notice of Intent to Terminate is given (provided that the Executive shall not
have returned to the full-time performance of the Executive's duties during such
three (3) month period), and (b) if the Executive's employment is terminated for
any other reason, the date specified in the Notice of Intent to Terminate
(which, in the case of a termination by the Company, shall not be less than
thirty (30) days after Notice of Intent to Terminate is given (except in the
case of a termination for Cause in which case it shall not be less than ten (10)
days after Notice of Intent to Terminate is given, provided that the Company may
require the Executive not to report to work during such ten (10) day period),
and, in the case of a termination by the Executive, shall not be less than
fifteen (15) days nor more than
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<PAGE>
sixty (60) days, respectively, from the date such Notice of Intent to Terminate
is given).
(C) Dispute Concerning Termination. If within fifteen (15) days
------------------------------
after any Notice of Intent to Terminate is given, or, if later, prior to the
Date of Termination (as determined without regard to this Section 2.9(C)), the
party receiving such Notice of Intent to Terminate notifies the other party that
a dispute exists concerning the termination or the provisions of this Agreement
that apply to such termination, the Date of Termination shall be the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided further
that the Date of Termination shall be extended by a notice of dispute only if
such notice is given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable diligence.
(D) Compensation During Dispute. If a purported termination
---------------------------
occurs following a Change in Control and such termination or the provisions of
Section 2 of this Agreement that apply upon such termination is disputed in
accordance with Section 2.9(C) hereof, the Company shall continue to pay the
Executive the full compensation (including, but not limited to, salary) at the
highest rate in effect during the sixty (60) day period preceding the date that
the Notice of Intent to Terminate was given and continue the Executive as a
participant in all compensation, benefit, insurance and pension and welfare
benefit plans in which the Executive was participating when the Notice of Intent
to Terminate was given (not taking into account any reductions in compensation,
benefits or insurance under such plans occurring during the sixty (60) day
period preceding the date that the Notice of Intent to Terminate was given),
until the dispute is finally resolved in accordance with Section 2.9(C) hereof.
Amounts paid under this Section 2.9(D) are in addition to all other amounts due
under Section 2 of this Agreement (other than those due under Section 2.6(A)(i)
hereof) and shall not be
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<PAGE>
offset against or reduce any other amounts due under this Agreement.
2.10 No Mitigation. The Company agrees that, if the Executive's
-------------
employment by the Company is terminated during the Coverage Period, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to this
Agreement. Further, the amount of any payment or benefit provided for under this
Agreement (other than to the extent provided in Section 2.6(B)(ii) and Section
2.6(B)(iii)) shall not be reduced by any compensation earned by the Executive as
the result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Executive to the Company, or
otherwise.
2.11 Terminations in Anticipation of Change in Control. The
-------------------------------------------------
Executive's employment shall be deemed to have been terminated by the Company
without Cause during the Coverage Period if the Executive's employment is
terminated by the Company without Cause prior to a Change in Control and such
termination of employment (a) was at the request of a third party who has taken
steps reasonably calculated to effect a Change in Control or (b) otherwise arose
in anticipation of a Change in Control. The Executive's employment shall be
deemed to have been terminated by the Executive for Good Reason during the
Coverage Period if the Executive terminates her employment with Good Reason
prior to a Change in Control if the circumstance or event which constitutes Good
Reason occurs (a) at the request of a third party who has taken steps reasonably
calculated to effect a Change in Control or (b) otherwise arose in anticipation
of a Change in Control. In the event of a termination of employment described in
this Section 2.11, the Executive shall be entitled to all payments and other
benefits to which the Executive would have been entitled had such termination
occurred during the Coverage Period (other than salary pursuant to Section
2.6(A)(i) hereof for any period after the actual date of termination) and the
Executive shall be entitled to an additional payment in an amount which shall
compensate the Executive to the extent that
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<PAGE>
the Executive was deprived by such termination of the opportunity prior to
termination of employment to exercise stock options granted to her under the
KESOP or DSOP at the highest market price of the Company's Common Stock reached
in connection with the Change in Control. Notwithstanding the provisions of
Section 2.13 hereof, for purposes of this Section 2.11 only, the burden of
proving that the requirements of clauses (a) and (b) of the first and second
sentences of this Section 2.11 have been met shall be on the Executive and the
standard of proof to be met by the Executive shall be clear and convincing
evidence, except that, in the event that the termination of employment occurs
following a Potential Change in Control or within two (2) months prior to a
Change in Control, the burden of proving that the requirements of clauses (a)
and (b) of the first and second sentences of this Section 2.11 have not been met
shall be upon the Company, and the standard of proof to be met by the Company
shall be clear and convincing evidence.
2.12 Reduction of Benefits By Legally Required Benefits.
--------------------------------------------------
Notwithstanding any other provision of this Agreement to the contrary, if the
Company is obligated by law or by contract (other than under this Agreement) to
pay severance pay, a termination indemnity, notice pay, or the like, or if the
Company is obligated by law or by contract to provide advance notice of
separation ("Notice Period"), then any Severance Benefits hereunder shall be
reduced by the amount of any such severance pay, termination indemnity, notice
pay or the like, as applicable, and by the amount of any pay received during any
Notice Period.
2.13 Burden and Standard of Proof. Except as otherwise expressly
----------------------------
provided in Section 2.11 hereof, in any proceeding (regardless of who initiates
such proceeding) in which the payment of Severance Benefits or other benefits
under Section 2 of this Agreement is at issue, the burden of proof as to whether
there exists either Cause or Good Reason for purposes of this Agreement shall be
upon the Company or its successor, and the standard of proof to be met with
respect thereto shall be clear and convincing evidence.
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<PAGE>
2.14 Definitions
-----------
(A) "Annual Base Salary" means the higher of (a) the Executive's
------------------
highest annual base salary in effect during the one (1) year period preceding a
Change in Control, or (b) the Executive's highest annual base salary in effect
during the one year period preceding the Executive's Date of Termination.
(B) "Annual Bonus" means the highest of (a) the average of the
------------
three highest bonuses paid or payable, including any bonus or portion thereof
which has been earned but deferred, to the Executive by the Company in respect
of the five fiscal years (or such shorter period during which the Executive has
been employed by the Company) immediately preceding the fiscal year in which a
Change in Control occurs (annualized for any fiscal year during such period
consisting of less than twelve full months or with respect to which the
Executive has been employed by the Company for less than twelve full months),
(b) the bonus paid or payable (annualized as described above), including any
bonus or portion thereof which has been earned but deferred, to the Executive by
the Company in respect of the most recently completed fiscal year prior to the
Change in Control, (c) the bonus paid or payable (annualized as described
above), including any bonus or portion thereof which has been earned or
deferred, for the most recently completed fiscal year preceding the Executive's
Date of Termination, and (d) 100% of the Executive's target bonus award amount
for the year including the Executive's Date of Termination.
(C) "Base Amount" shall have the meaning ascribed to such term in
-----------
Section 280G(b)(3) of the Code.
(D) "Cause" means:
-----
(i) The willful and continued failure of the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive
-20-
<PAGE>
by the Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief Executive Officer believes
that the Executive has not substantially performed the Executive's duties;
(ii) the willful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious to the
Company;
(iii) personal dishonesty or breach of fiduciary duty to the
Company that in either case results or was intended to result in personal profit
to the Executive at the expense of the Company; or
(iv) willful violation of any law, rule or regulation (other
than traffic violations, misdemeanors or similar offenses) or cease-and-desist
order, court order, judgment or supervisory agreement, which violation is
materially and demonstrably injurious to the Company.
For purposes of the preceding clauses, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith and without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon prior approval given by the Board or upon the
instructions or with the approval of the Chief Executive Officer or the
Executive's superior or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of employment
of the Executive shall not be deemed to be for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion
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<PAGE>
of the Board, the Executive is guilty of the conduct described in clauses (i)
through (iv) above, and specifying the particulars thereof in detail.
(E) A "Change in Control" means: a change of control of the
-----------------
Company of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on
any similar schedule or form) promulgated under the Exchange Act, whether or not
the Company is then subject to such reporting requirement; provided, however,
that without limitation, a Change in Control shall be deemed to have occurred
if:
(i) any Person is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act or any successor
provisions thereto), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities;
(ii) a merger or consolidation of the Company is consummated
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least fifty percent
(50%) of the combined voting power either of the Company's then outstanding
securities or of such surviving entity's securities outstanding immediately
after such merger or consolidation;
(iii) the Company's shareholders approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the combined voting power
either of the Company's then
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<PAGE>
outstanding securities or of such surviving entity's securities outstanding
immediately after such merger or consolidation, provided however that, in the
event that such merger or consolidation has not been consummated by a date which
is 180 days after the date of the shareholder vote to approve such merger or
consolidation, no Change in Control shall be deemed to have occurred pursuant to
this subsection 2.14(E)(iii), without prejudice to the Executive's rights, if
any, pursuant to Section 2.11 hereof or, in the event of a subsequent
consummation of such merger or consolidation, pursuant to Subsection 2.14(E)(ii)
hereof;
(iv) the shareholders of the Company approve a plan of
complete liquidation or an agreement for the sale or disposition (in one
transaction or a series of transactions) of all or substantially all of the
Company's assets;
(v) as a result of a proxy contest, individuals who prior to
the conclusion thereof constituted the Board (including for this purpose any new
director whose election or nomination for election by the Company's shareholders
in connection with such proxy contest was approved by a vote of at least two-
thirds of the directors then still in office who were directors prior to such
proxy contest) cease to constitute at least a majority of the Board; or
(vi) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constituted the Board (including
for this purpose any new director whose election or nomination for election by
the Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
(F) "Code" means the Internal Revenue Code of 1986, as amended
----
from time to time.
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<PAGE>
(G) "Coverage Period" means the period, commencing on the date on
---------------
which a Change in Control occurs and ending on the second anniversary date
thereof.
(H) "Date of Termination" has the meaning assigned to such term
-------------------
in Section 2.9(B) hereof.
(I) "DSOP" means the ValliCorp Holdings, Inc. Amended and
----
Restated Directors' Stock Option Plan, as last amended effective on May 20,
1996, and any successor or replacement plan thereof.
(J) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended from time to time.
(K) "Excise Tax" means any excise tax imposed under Section 4999
----------
of the Code.
(L) "Good Reason" means:
-----------
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities immediately prior to either the Potential Change in Control
which precedes the Change in Control or the Change in Control or any other
action by the Company which results in a diminution in any respect in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) a reduction by the Company in the Executive's annual
base salary as in effect on the date hereof or as the same may be increased from
time to time;
(iii) the failure by the Company to increase the Executive's
base salary each year after a Change in Control by an amount which at least
equals, on a percentage basis, the
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<PAGE>
mean average percentage increase in base salary for all officers of the Company
during the two full calendar years immediately preceding a Change in Control;
(iv) the Company's requiring the Executive to be based at any
office or location that is more than forty (40) miles from the Executive's
office or location immediately prior to either the Potential Change in Control
which precedes the Change in Control or the Change in Control but only if such
change involves a material increase in the employee's cost of living and is not
accompanied by a commensurate increase in compensation and benefits;
(v) the Company's requiring the Executive to travel on
Company business to a substantially greater extent than required immediately
prior to either the Potential Change in Control which precedes the Change in
Control or the Change in Control;
(vi) the failure by the Company, without the Executive's
consent, to pay to the Executive any portion of the Executive's current
compensation, or to pay to the Executive any portion of an installment of
deferred compensation under any deferred compensation program of the Company
within seven (7) days of the date such compensation is due;
(vii) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately prior to
either the Potential Change in Control preceding the Change in Control or the
Change in Control which is material to the Executive's total compensation,
including but not limited to the KESOP or DSOP or any substitute or alternative
plans adopted prior to either the Potential Change in Control preceding the
Change in Control or the Change in Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to continue the Executive's
participation therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of
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<PAGE>
benefits provided and the level of the Executive's participation relative to
other participants, as existed at the time of the Change in Control;
(viii) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the Executive
under any of the Company's pension, life insurance, medical, health and
accident, disability or other welfare plans, including this Agreement, in which
the Executive was participating at the time of the Change in Control, the taking
of any action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any material fringe
benefit enjoyed by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the number of paid vacation
days to which the Executive is entitled on the basis of years of service with
the Company in accordance with the Company's normal vacation policy in effect at
the time of the Change in Control;
(ix) any purported termination by the Company of the
Executive's employment after a Change in Control otherwise than in accordance
with the termination procedures of Sections 2.9(A) through 2.9(D) hereof; or
(x) any failure by the Company to comply with and satisfy
Section 3.3 of this Agreement.
(M) "KESOP" means the ValliCorp Holdings, Inc. Amended and
-----
Restated Key Employee Stock Option Plan, as last amended effective on May 20,
1996, and any successor or replacement plan thereof.
(N) "Notice of Intent to Terminate" shall have the meaning
-----------------------------
assigned to such term in Section 2.9(A) hereof.
(O) "Person" shall have the meaning given in Section 3(a)(9) of
------
the Exchange Act, as modified and used in Section 13(d)(3) thereof.
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<PAGE>
(P) "Potential Change in Control" means the occurrence of any of
---------------------------
the following:
(i) the Board approves a transaction described in Subsection
(ii) or (iv) of the definition of Change in Control contained herein;
(ii) the commencement of a proxy contest in which any Person
seeks to replace or remove a majority of the members of the Board; or
(iii) any Person files an application with the Board of
Governors of the Federal Reserve System for approval of the acquisition of more
than five percent (5%) of the Company's voting securities, or of any class
thereof, under the Bank Holding Company Act of 1956, as amended, or any
successor statute thereto, or files a notice of intent to acquire ten percent
(10%) or more of the Company's outstanding voting securities, or any class
thereof, pursuant to the Change in Bank Control Act or any successor statute
thereto.
(Q) "Severance Benefits" has the meaning assigned to such term in
------------------
Section 2.6(B) hereof.
(R) "Vested Bonus Amount" shall have the meaning assigned to such
-------------------
term in Section 2.5 hereof.
SECTION 3. GENERAL
- ------- -------
3.1 Non-Competition Clause. In addition to her obligations as an
----------------------
executive and whether or not she remains an executive of the Company, the
Executive agrees that during the period commencing with the Commencement Date
and ending upon termination of employment with the Company, however caused, she
will not, without the prior written consent of the Company, engage, directly or
indirectly, in any business that competes with the Company for customers of the
Company. In the event of a breach by the Executive of this Section 3.1, in
addition to other remedies provided by applicable law, the Company will be
entitled
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to issuance of a temporary restraining order or preliminary injunction enforcing
its rights under this Section 3.1.
3.2 Proprietary Information.
-----------------------
(A) The Executive agrees to comply fully with the Company's
policies relating to nondisclosure of the Company's trade secrets and
proprietary information and processes. Without limiting the generality of the
foregoing, the Executive will not, during the term of her employment by the
Company, disclose any such secrets, information, or processes to any person,
firm, corporation, association, or other entity for any reason or purpose
whatsoever, nor shall the Executive make use of any such property for her own
purposes or for the benefit of any person, firm, corporation, or other entity
(except the Company) under any circumstances during or after the term of her
employment, provided that after the term of her employment, this provision shall
not apply to secrets, information, and processes that are then in the public
domain (provided that the Executive was not responsible, directly or indirectly,
for such secrets, information, or processes entering the public domain without
the Company's consent).
(B) The Executive hereby sells, transfers, and assigns to the
Company all of the entire right, title, and interest of the Executive in and to
all inventions, ideas, disclosures, and improvements, whether patented or
unpatented, and copyrightable material, to the extent made or conceived by the
Executive, solely or jointly, during the term of this Agreement, except to the
extent prohibited by Section 2870 of the California Labor Code, a copy of which
is attached hereto as Exhibit A. The Executive shall communicate promptly and
disclose to the Company, in such form as the Company requests, all information,
details, and data pertaining to the aforementioned inventions, ideas,
disclosures, and improvements; and, whether during the term hereof or
thereafter, the Executive shall execute and deliver to the Company such formal
transfers and assignments and such other papers and documents as may be required
of the Executive to permit the Company to file and prosecute any patent
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<PAGE>
applications relating to such inventions, ideas, disclosures, and improvements
and, as to copyrightable material, to obtain copyright thereon.
(C) Trade secrets, proprietary information, and processes shall
not be deemed to include information which is:
(i) known to the Executive at the time of the disclosure;
(ii) publicly known (or becomes publicly known) without the
fault or negligence of the Executive;
(iii) received from a third party without restriction and
without breach of this Agreement;
(iv) approved for release by written authorization of the
Company; or
(v) required to be disclosed by law; provided, however, that
in the event of a proposed disclosure pursuant to this subsection 3.2(C)(v), the
recipient shall give the Company prior written notice before such disclosure is
made.
In the event of a breach by the Executive of this Section 3.2, in
addition to other remedies provided by applicable law, the Company will be
entitled to issuance of a temporary restraining order or preliminary injunction
enforcing its rights under this Section 3.2.
3.3 Successors. In addition to any obligations imposed by law upon any
----------
successor to the Company, the Company shall be obligated to require any
successor (whether direct or indirect, by purchase, merger, consolidation,
operation of law, or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption
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<PAGE>
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation and
benefits from the Company in the same amount and on the same terms as the
Executive would be entitled to hereunder if the Executive were to terminate the
Executive's employment for Good Reason during the Coverage Period, except that,
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
3.4 Incompetency. Any benefit payable to or for the benefit of the
------------
Executive, if legally incompetent, or incapable of giving a receipt therefor,
shall be deemed paid when paid to the Executive's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Company.
3.5 Death. Except as otherwise provided herein, this Agreement shall
-----
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still
be payable to the Executive hereunder (other than amounts which, by their terms,
terminate upon the death of the Executive) if the Executive had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
3.6 Notices. For the purpose of this Agreement, notices and all other
-------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon actual receipt:
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<PAGE>
To the Company:
ValliCorp Holdings, Inc.
8405 North Fresno Street
Fresno, California 93720
Attention:
Executive Vice President and General Counsel
To the Executive:
J. MIKE McGOWAM
ValliCorp Holdings, Inc.
8405 North Fresno Street
Fresno, CA 93720
3.7 Modification, Waiver. No provision of this Agreement may be
--------------------
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
3.8 Entire Agreement. No agreements or representations, oral or
----------------
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
This Agreement supercedes and replaces the Agreement dated as of February 1,
1996, between the Company and the Executive.
3.9 Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
Delaware.
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<PAGE>
3.10 Statutory Changes. All references to sections of the Exchange
-----------------
Act or the Code shall be deemed also to refer to any successor provisions to
such sections.
3.11 Withholding. Any payments provided for hereunder shall be paid
-----------
net of any applicable withholding required under federal, state or local law and
any additional withholding to which the Executive has agreed.
3.12 Savings Clause. If any term, covenant, or condition of this
--------------
Agreement or the application thereof to any person or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term, covenant, or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant, or condition of this Agreement shall
be valid and enforced to the fullest extent permitted by law.
3.13 Authority to Contract. The Company warrants and represents that
---------------------
it has full authority to enter into this Agreement and to consummate the
transactions contemplated hereby and that this Agreement is not in conflict with
any other agreement to which the Company is a party or by which it may be bound.
The Company hereto further warrants and represents that the individuals
executing this Agreement on behalf of the Company have the full power and
authority to bind the Company to the terms hereof and have been authorized to do
so in accordance with the Company's corporate organization.
3.14 No Assignment of Benefits. Except as otherwise provided herein
-------------------------
law, no right or interest of the Executive under the Agreement shall be
assignable or transferable, in whole or in part, either directly or by operation
of law or otherwise, including without limitation by execution, levy,
garnishment, attachment, pledge or in any manner; no attempted assignment or
transfer thereof shall be effective; and no right or interest of the Executive
under this Agreement shall be liable for, or subject to, any obligation or
liability of the Executive.
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<PAGE>
3.15 Headings. The headings and captions herein are provided for
--------
reference and convenience only, shall not be considered part of the Agreement,
and shall not be employed in the construction of the Agreement.
3.16 Force Majeure. Neither party shall be liable to the other for any
-------------
delay or failure to perform hereunder, which delay or failure is due to causes
beyond the control of said party, including, but not limited to: acts of God;
acts of the public enemy; acts of the United States of America, or any State
territory, or political subdivision thereof or of the District of Columbia;
fires; floods; epidemics; quarantine restrictions; strikes; or freight
embargoes. Notwithstanding the foregoing provisions of this Section, in every
case the delay or failure to perform must be beyond the control and without the
fault or negligence of the party claiming excusable delay.
3.17 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
3.18 Definitions
-----------
(A) "Company" means ValliCorp Holdings, Inc., a Delaware
-------
corporation. If the Executive becomes employed by a direct or indirect
Subsidiary of ValliCorp Holdings, Inc., the "Company" shall be deemed to refer
to the Subsidiary thereof by which the Executive is employed. In such case,
references to payments, benefits, privileges or other rights to be accorded by
"the Company" shall be deemed to refer to such payments, benefits, privileges or
other rights to be provided by the Subsidiary by which the Executive is employed
or to ValliCorp Holdings, Inc., as the case may be, to correspond to the
corporate entity obligated to make payments or provide benefits, privileges or
other rights pursuant to employee benefit plans affected by the provisions
hereof, and in the absence of any such existing plans or provisions, such
reference shall be deemed to be to ValliCorp Holdings, Inc.
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<PAGE>
(B) "Disability" means that the Executive has been unable to
-----------
perform her duties under this Agreement for a period of three (3) consecutive
months as the result of her incapacity due to physical or mental illness.
(C) "Subsidiary" means any corporation controlled by the Company,
----------
directly or indirectly.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its officer, thereunto duly authorized, and the Executive has
executed this Agreement, all as of the day and year first above written.
VALLICORP HOLDINGS, INC.
By___________________________
Name: LOUIS H. HERWALT
Title: Chairman, Compensation
Committee
------------------------------
J. MIKE McGOWAN
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<PAGE>
EXHIBIT A
---------
Section 2870. Application of provision providing that employee shall assign or
offer to assign rights in invention to employer
(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of her rights in an invention to her
employer shall not apply to an invention that the employee developed entirely on
her own time without using the employer's equipment, supplies, facilities, or
trade secret information except for those inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to require an
employee to assign an invention otherwise excluded from being required to be
assigned under subdivision (a), the provision is against the public policy of
this state and is unenforceable.
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<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT - STEVEN C. PUMPHREY
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<PAGE>
AGREEMENT
---------
THIS AGREEMENT dated July 1, 1996, is made by and between ValliCorp
Holdings, Inc., a Delaware corporation (the "Company"), and STEVEN C. PUMPHREY
(the "Executive").
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company, on the terms set forth herein; and
WHEREAS, the Board of Directors of the Company (the "Board")
recognizes that the possibility of a Change in Control (as defined in Section
2.14(E) hereof) exists, as in the case of any publicly-held corporation, and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders; and
WHEREAS, as a part of the terms of the Executive's employment the
Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of the Executive to his
assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control.
NOW THEREFORE, in consideration of the promises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
SECTION 4. EMPLOYMENT
- ------- ----------
4.1 Employment. The Company hereby employs the Executive and the
----------
Executive hereby accepts employment during the Term of Employment upon the terms
and conditions set forth herein.
4.2 Term of Employment. The "Term of Employment" is the period
------------------
beginning on July 1, 1996 (the "Commencement Date") and ending on June 30, 2000.
The Term of Employment may
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<PAGE>
terminate earlier or be extended as provided in this Agreement; provided
however, that this Agreement shall not terminate earlier than the date that the
provisions of Section 2 hereof cease to be applicable.
4.3 Renewal. The Term of Employment shall be extended for one year
-------
on each anniversary of the Commencement Date unless (a) the Company or the
Executive has given three (3) months' written notice of its or his intent not to
extend the termination date or (b) the Term of Employment has been terminated
under the provisions of Section 1.9 or 1.10.
4.4 Duties. The Executive is employed as President and Chief
------
Operating Officer of the Company and, under the direction of the Board and Chief
Executive Officer, shall perform and discharge well and faithfully the duties
that may be assigned to him from time to time by the Chief Executive Officer in
connection with the conduct of the Company's business.
4.5 Extent of Services. The Executive shall devote his entire
------------------
business time, attention, and energies to the business of the Company during the
term of the Executive's employment with the Company. The foregoing, however,
shall not preclude the Executive from engaging in appropriate civic, charitable,
or religious activities or from devoting a reasonable amount of time to private
investments or from serving on boards of directors of other entities, as long as
such activities and services do not interfere or conflict with his
responsibilities to the Company.
4.6 Locations of Performance. The Executive's services shall be
------------------------
performed primarily in the vicinity of Fresno, California. The parties
acknowledge, however, that the Executive may be required to travel in connection
with the performance of his duties hereunder.
4.7 Compensation.
------------
(A) Salary. During the Term of Employment, the Company shall
------
pay the Executive a monthly salary of $16,250.00,
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<PAGE>
payable in arrears in installments on the 15th and the last day of each month.
The Executive's salary shall be adjusted annually, on the anniversary of this
Agreement, to reflect such changes as the Board determines appropriate, based on
the Executive's performance for the most recent performance period.
(B) Incentive Programs. During the Term of Employment, the
------------------
Executive shall be entitled to participate in any annual and long-term incentive
programs adopted by the Company and which cover employees in positions
comparable to that of the Executive.
(C) Expenses. The Executive shall be entitled to prompt
--------
reimbursement of all reasonable business expenses incurred by him in the
performance of his duties during the Term of Employment, subject to the
presenting of appropriate vouchers and receipts in accordance with the Company's
policies.
4.8 Employee Benefits. During the Term of Employment, the
-----------------
Executive shall be entitled to participate in employee benefit plans or programs
of the Company, if any, to the extent that his position, tenure, salary, age,
health, and other qualifications make him eligible to participate, subject to
the rules and regulations applicable thereto.
4.9 Termination by the Company; Death. Notwithstanding the
---------------------------------
provisions of Sections 1.2 and 1.3, and except for situations in which the
termination of employment provisions of Section 2 apply, the Term of Employment
and the Executive's employment hereunder may be terminated by the Company
without any breach of this Agreement under the following circumstances:
(A) Involuntary Termination. The Executive's employment is at
-----------------------
will. The Company reserves the right to terminate the Executive's employment at
any time whatsoever, with or without cause, with thirty (30) days' written
notice to the Executive. The Term of Employment shall terminate on the last day
of the notice period, but the Company may require the
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<PAGE>
Executive to cease performing services at any time once the notice is given.
(B) Involuntary Termination for Just Cause. The Company
--------------------------------------
reserves the right to terminate the Executive's employment for Just Cause. "Just
Cause" shall exist if the Executive has: (i) willfully breached or habitually
neglected the duties which he was required to perform under the terms of this
Agreement, or (ii) committed act(s) of dishonesty, theft, embezzlement, fraud,
misrepresentation, or other act(s) of moral turpitude against the Company, its
subsidiaries or affiliates, its shareholders, or its employees. The Company
shall give the Executive written notice of the termination and the reasons
therefor. The Term of Employment shall terminate immediately upon receipt of the
notice.
(C) Disability. The Term of Employment shall terminate three (3)
----------
months after the Company gives the Executive written notice that it intends to
terminate his employment on account of Disability or on such later date as the
Company specifies in such notice. If the Executive resumes the performance of
substantially all of his duties under this Agreement before the termination
becomes effective, the notice of intent to terminate shall be deemed to have
been revoked.
(D) Death. The Term of Employment shall terminate upon the
-----
Executive's death.
4.10 Termination By The Executive. Notwithstanding the provisions of
----------------------------
Sections 1.2 and 1.3, the Term of Employment and the Executive's employment
hereunder may be terminated without any breach of this Agreement by the
Executive under the following circumstances:
(A) Voluntary Termination. Subject to Section 2.4 hereof, the
---------------------
Executive may terminate his employment with the Company at any time with three
(3) months' written notice to the Company. The Term of Employment shall end on
the last day on which the Executive performs services for the Company.
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<PAGE>
(B) Termination for Good Cause. The Executive may terminate his
--------------------------
employment with the Company for Good Cause by giving the Company thirty (30)
days' notice of its breach, the reasons why the breach constitutes Good Cause
and of his intent to terminate on such basis. If the Company cures its breach
within the thirty (30) day period, the Executive may rescind his notice of
intent to terminate, or terminate his employment under Section 1.10(A) hereof as
though his notice of breach was the notice provided for under Section 1.10(A).
If the Company fails to cure its breach within the thirty (30) day period, the
Term of Employment shall end on the last day of the notice period.
The term "Good Cause" as used herein means a material reduction in the
Executive's compensation under Section 1.7 or benefits under Section 1.8, a
material reduction in the Executive's title or responsibilities, or a relocation
of the Executive's primary place of employment so that the Executive's one-way
commute distance is increased by more than (40) miles.
4.11 Benefits on Termination of Employment. Except as provided in
-------------------------------------
Section 2.1 hereof, if the Executive's employment is terminated during the Term
of Employment, the Executive shall be entitled to receive the following
benefits:
(A) Death; Disability; Voluntary Termination; Termination for
---------------------------------------------------------
Just Cause. If employment is terminated under Section 1.9
----------
(B), (C), or (D), or Section 1.10(A), the Executive shall
receive (i) salary through the Term of Employment; (ii) any
incentive compensation earned but not yet paid; and (iii)
reimbursement of expenses incurred under Section 1.7(C) but
not yet reimbursed. All other employee benefits and
compensation shall cease on the last day on which the
Executive performs services as an employee, except to the
extent that continued coverage is required by law.
(B) Involuntary Termination; Termination For Good Cause. If the
---------------------------------------------------
Executive's employment is terminated under the provisions of Sections 1.9(A) or
1.10(B), the Executive shall receive in a lump sum payment an amount equal to
the sum of
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<PAGE>
clauses (i) through (iii) in Section 1.11(A), and, in addition, eighteen (18)
months of salary under Section 1.7(A) computed with reference to the annual
salary in effect immediately preceding the date of termination.
All other employee benefits and compensation, including any incentive benefits
for the year in which the Term of Employment ends, shall cease on the last day
on which the Executive performs services as an employee of the Company except to
the extent that continued coverage is required by law.
4.12 Non-Renewal. If the Executive or the Company gives notice of
-----------
intent not to extend the Term of Employment under Section 1.3, the Executive's
salary and benefits shall cease on the last day of the Term of Employment,
except to the extent that continued coverage is required by law.
4.13 Recovery of Litigation Costs. If any legal action or other
----------------------------
preceding is brought for the enforcement of any provision under Section 1 of
this Agreement (or Section 3 of this Agreement in connection with its
applicability under Section 1 of this Agreement) or any agreement or instrument
delivered under or in connection with Section 1 of this Agreement (or Section 3
of this Agreement in connection with its applicability under Section 1 of this
Agreement), or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of Section 1 of this
Agreement (or Section 3 of this Agreement in connection with its applicability
under Section 1 of this Agreement), the successful or prevailing party or
parties shall be entitled to recover reasonable attorney's fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled.
SECTION 5. TERMINATION OF EMPLOYMENT IN CONNECTION WITH A CHANGE IN CONTROL
- ------- ----------------------------------------------------------------
5.1 Applicability of Section 2. No payments will be required under
--------------------------
Section 1.11 of this Agreement in connection with the Executive's Termination of
Employment to the extent that the
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<PAGE>
payments and benefits provided for by Section 2 of this Agreement are paid or
provided to the Executive.
5.2 Term of Change in Control Provisions. Either the Company or the
------------------------------------
Executive may terminate the applicability of the provisions of this Section 2 by
giving the other at least one (1) year advance written notice of termination
thereof; provided, however, that if a Change in Control shall have occurred
during the term of this Agreement, the provisions of Section 2 hereunder shall
continue in effect until all obligations of either party hereto have been
performed in full. Notwithstanding the foregoing, the provisions of this Section
2 shall terminate upon the Executive's attaining age sixty-five (65), except as
to obligations of the Company hereunder arising from a Change in Control and/or
a termination of the Executive's employment prior to his having reached such
age.
5.3 Company's Covenants Summarized. In order to induce the
------------------------------
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants set forth in Section 2.4 hereof, the Company agrees, under
the terms and conditions set forth herein, that, upon a Change in Control during
the term of this Agreement, certain benefits shall thereupon become vested as
set forth in Section 2.5 hereof, and paid in accordance with the provisions
thereof, and, in the event that the Executive's employment with the Company is
terminated thereafter during the Coverage Period, the Company shall pay the
Executive the amounts provided for in Section 2.6 hereof.
5.4 The Executive's Covenant. The Executive agrees that, subject
------------------------
to the terms and conditions of this Agreement, and notwithstanding the
provisions in Section 1.10(A) of this Agreement, in the event of a Potential
Change in Control, the Executive will remain in the employ of the Company until
the earliest of (a) a date which is nine (9) months after the date of such
Potential Change of Control, (b) the date of a Change in Control, (c) the date
of termination by the Executive of the Executive's employment for Good Reason
(determined by treating the Potential Change in Control for this purpose as a
Change in
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<PAGE>
Control in applying the definition of Good Reason) or by reason of death or
Disability, (d) the termination by the Company of the Executive's employment for
any reason, or (e) the Executive's attaining age sixty-five (65).
5.5 Vesting of Bonus in the Event of a Change in Control. Upon the
----------------------------------------------------
occurrence of a Change in Control, the Executive shall have a vested and
nonforfeitable right to receive in cash an amount equal to the target bonus
amount which the Executive could earn for the year in which the Change in
Control occurs pursuant to the ValliCorp Holdings, Inc. Executive Management
Committee's Management Bonus Program for such year, or under any other
management incentive plan or program in effect in such year, as if 100% of all
objectives provided for thereunder had been met for that year (the "Vested Bonus
Amount"). The Executive's Vested Bonus Amount pursuant to the preceding sentence
shall be promptly paid to the Executive at the date on which such bonus would
have been paid pursuant to such plan or program if no Change in Control had
occurred. Notwithstanding the foregoing, however, in the event that the
Executive's Date of Termination after a Change in Control falls in the fiscal
year in which such Change in Control occurs, the Executive shall not be entitled
to receive a bonus pursuant to this Section 2.5, but shall instead be entitled
to the bonus amount as provided in Section 2.6(B)(iii) hereof.
5.6 Benefits and Rights upon Termination of Employment.
--------------------------------------------------
(A) General Termination Rights and Benefits. If the Executive's
---------------------------------------
employment by the Company is terminated after a Change in Control for any reason
(whether by the Company or the Executive), the Company shall pay to the
Executive the payments described in Subsections (i) through (iii) below.
(i) Previously Earned Salary. The Company shall pay the
------------------------
Executive's full salary to the Executive through the Date of Termination at the
highest rate in effect during the sixty (60) day period preceding the date the
Notice of Intent to
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<PAGE>
Terminate is given, together with all compensation and benefits payable to the
Executive through the Date of Termination under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period.
(ii) Previously Earned Benefits. The Company shall pay the
--------------------------
Executive's normal post-termination compensation and benefits to the Executive
as such payments become due. Such post-termination compensation and benefits
shall be determined under, and paid in accordance with, the Company's
retirement, insurance, pension, welfare and other compensation or benefit plans,
programs and arrangements.
(iii) Payment of Vested Bonus Amount. Except to the
------------------------------
extent that the Company has previously paid to the Executive all or a portion of
his Vested Bonus Amount pursuant to Section 2.5 hereof, the Company shall pay to
the Executive a lump sum cash payment equal to the Executive's Vested Bonus
Amount.
(B) Severance Benefits. In addition to the payments provided
------------------
for by Section 2.6(A) hereof, the Company shall pay to the Executive the
payments described in Subsections (i) through (iii) below (the "Severance
Benefits") upon termination of the Executive's employment with the Company
during the Coverage Period, unless such termination is (a) by the Company for
Cause, (b) by reason of the Executive's death or Disability or after the
Executive attains age sixty-five (65) or (c) by the Executive without Good
Reason.
(i) Lump-Sum Severance Payment. In lieu of any further
--------------------------
salary payments to the Executive for periods subsequent to the Date of
Termination, the Company shall pay to the Executive a lump sum severance
payment, in cash, equal to three (3) (or, if less, the number of years,
including fractions, from the Date of Termination until the Executive would have
reached age sixty-five (65)) times the sum of (a) the Executive's Annual Base
Salary and (b) the Executive's Annual Bonus. Notwithstanding the preceding
sentence, the amount of the lump sum payment provided for therein shall be
reduced by any lump sum
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<PAGE>
cash severance payment which is actually paid by the Company to the Executive
pursuant to any other plan or agreement on or prior to the date on which the
payment pursuant to this Subsection 2.6(B)(i) is required to be paid.
(ii) Continued Benefits. For a thirty-six (36) month
------------------
period (or, if less, the number of months from the Date of Termination until the
Executive would have reached age sixty-five (65)) after the Date of Termination
(the "Benefits Period"), the Company shall provide the Executive with group term
life insurance, health insurance and long-term disability insurance benefits
("Welfare Benefits") substantially similar in all respects to those which the
Executive is receiving immediately prior to the Notice of Termination (without
giving effect to any reduction in such benefits subsequent to a Change in
Control which reduction constitutes or may constitute Good Reason). Benefits
otherwise receivable by the Executive pursuant to this Section 2.6(B)(ii) shall
be reduced to the extent substantially similar benefits are actually received by
or made available to the Executive by any other employer during the same time
period for which such benefits would be provided pursuant to this Section
2.6(B)(ii) at a cost to the Executive that is commensurate with the cost
incurred by the Executive immediately prior to the Executive's Date of
Termination (without giving effect to any increased costs paid by the Executive
after the Change in Control which constituted or might have constituted Good
Reason); provided, however, that if the Executive becomes employed by a new
employer which maintains a medical plan that either (i) does not cover the
Executive or a family member or dependent with respect to a preexisting
condition which was covered under the applicable Company medical plan, or (ii)
does not cover the Executive or a family member or dependent for a designated
waiting period, the Executive's coverage under the applicable Company medical
plan shall continue (but shall be limited in the event of noncoverage due to a
preexisting condition, to such preexisting condition) until the earlier of the
end of the applicable period of noncoverage under the new employer's plan or the
end of the Benefits Period. The Executive agrees to report to the Company any
coverage and benefits
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<PAGE>
actually received by the Executive from such other employer(s). The Executive
shall be entitled to elect to change his level of coverage and/or his choice of
coverage options (such as the Executive only or family medical coverage) with
respect to the Welfare Benefits to be provided by the Company to the Executive
to the same extent that actively employed senior executives of the Company are
permitted to make such changes; provided, however, that in the event of any such
changes the Executive shall pay the amount of any cost increase that would
actually be paid by an actively employed executive of the Company by reason of
making the same change in his level of coverage or coverage options.
(iii) Bonus for Year in Which Date of Termination Occurs.
--------------------------------------------------
The Company shall pay to the Executive a lump sum cash amount equal to the
product of (x) and (y), where (x) is an amount equal to the target bonus amount
which the Executive could earn for the year in which the Date of Termination
occurs pursuant to the ValliCorp Holdings, Inc. Executive Management Committee's
Management Bonus Program for such year, or under any other management incentive
plan or program in effect in such year, as if 100% of all objectives provided
for thereunder had been met for that year, and (y) is a fraction the numerator
of which is the number of days from and including the first day of the year in
which the Date of Termination occurs until (and including) the Executive's Date
of Termination and the denominator of which is 365 days.
(C) Gross-Up Payment. In the event that the Executive becomes
----------------
entitled to the Severance Benefits or any other benefits or payments under
Section 2 of this Agreement (other than pursuant to this Section 2.6(C)) or the
KESOP or DSOP by reason of the accelerated vesting of stock options thereunder
(together, the "Total Benefits"), and in the event that any of the Total
Benefits will be subject to the Excise Tax, the Company shall pay to the
Executive an additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of any Excise Tax on the Total
Benefits and any federal, state and local income tax, Excise Taxes and FICA and
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Medicare withholding taxes upon the payment provided for by this Section 2.6(C),
shall be equal to the Total Benefits.
For purposes of determining whether any of the Total Benefits will be
subject to the Excise Tax and the amount of such Excise Tax, (i) any other
payments or benefits received or to be received by the Executive in connection
with a Change in Control or the Executive's termination of employment (whether
pursuant to the terms of this Agreement or any other agreement, plan or
arrangement with the Company, any Person whose actions result in a Change in
Control or any Person affiliated with the Company or such Person) shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion
of tax counsel ("Tax Counsel") selected by the Company's independent auditors
and acceptable to the Executive, such other payments or benefits (in whole or in
part) do not constitute parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in excess of the
Base Amount, or are otherwise not subject to the Excise Tax, (ii) the amount of
the Total Benefits which shall be treated as subject to the Excise Tax shall be
equal to the lesser of (A) the total amount of the Total Benefits reduced by the
amount of such Total Benefits that in the opinion of Tax Counsel are not
parachute payments, or (B) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the
value of any non-cash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with the
principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's residence on the Date of Termination, net of the
reduction in federal income taxes
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which could be obtained from deduction of such state and local taxes (calculated
by assuming that any reduction under Section 68 of the Code in the amount of
itemized deductions allowable to the Executive applies first to reduce the
amount of such state and local income taxes that would otherwise be deductible
by the Executive).
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable to such reduction
(plus that portion of the Gross-Up Payment attributable to the Excise Tax,
federal, state and local income taxes and FICA and Medicare withholding taxes
imposed on the Gross-Up Payment being repaid by the Executive to the extent that
such repayment results in a reduction in Excise Tax, FICA and Medicare
withholding taxes and/or a federal, state or local income tax deduction) plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time of the termination of
the Executive's employment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional Gross-Up Payment to the Executive in respect of
such excess (plus any interest, penalties or additions payable by the Executive
with respect to such excess) at the time that the amount of such excess is
finally determined.
5.7 Timing of Payments. The payments provided for in Sections 2.6(A)
------------------
through 2.6(C) (other than Section 2.6(B)(ii) hereof) shall be made on the Date
of Termination, provided, however, that if the amounts of such payments cannot
be finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the
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rate provided in Section 1274(b)(2)(B) of the Code from the fifth (5th) day
following the Date of Termination to the payment of such remainder) as soon as
the amount thereof can be determined but in no event later than the thirtieth
(30th) day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) business day after demand by the Company (together with interest
at the rate provided in Section 1274(b)(2)(B) of the Code from the fifth (5th)
day following the Date of Termination to the repayment of such excess).
5.8 Reimbursement of Legal Costs. The Company shall pay to the
----------------------------
Executive all legal fees and expenses incurred by the Executive as a result of a
termination which entitles the Executive to any payments under Section 2 of this
Agreement, including all such fees and expenses, if any, incurred in contesting
or disputing any Notice of Intent to Terminate under Section 2.9(C) hereof or in
seeking to obtain or enforce any right or benefit provided by Section 2 of this
Agreement (or Section 3 of this Agreement in connection with its applicability
under Section 2 of this Agreement), or in connection with any tax audit or
proceeding to the extent attributable to the application of section 4999 of the
Code to any payment or benefit provided hereunder. Such payments shall be made
within five (5) business days after delivery of the Executive's respective
written requests for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
5.9 Termination Procedures and Compensation During Dispute
------------------------------------------------------
(A) Notice of Intent To Terminate. After a Change in Control,
-----------------------------
any purported termination of the Executive's employment (other than by reason of
death) must be preceded by a written Notice of Intent to Terminate from one
party hereto to the other party hereto in accordance with Section 3.6 hereof.
For purposes of this Agreement, a "Notice of Intent to Terminate"
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shall mean a notice which shall indicate the notifying party's opinion regarding
the specific provisions of this Agreement that will apply upon such termination
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for the application of the provisions indicated. Further, a
Notice of Intent to Terminate for Cause is required to include a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting of the Board which was
called and held for the purpose of considering such termination (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive was guilty of
conduct set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
(B) Date of Termination. "Date of Termination", with respect
-------------------
to any purported termination of the Executive's employment after a Change in
Control, shall mean, except as provided in Section 2.9(C) hereof, (a) if the
Executive's employment is terminated for Disability, three (3) months after
Notice of Intent to Terminate is given (provided that the Executive shall not
have returned to the full-time performance of the Executive's duties during such
three (3) month period), and (b) if the Executive's employment is terminated for
any other reason, the date specified in the Notice of Intent to Terminate
(which, in the case of a termination by the Company, shall not be less than
thirty (30) days after Notice of Intent to Terminate is given (except in the
case of a termination for Cause in which case it shall not be less than ten (10)
days after Notice of Intent to Terminate is given, provided that the Company may
require the Executive not to report to work during such ten (10) day period),
and, in the case of a termination by the Executive, shall not be less than
fifteen (15) days nor more than sixty (60) days, respectively, from the date
such Notice of Intent to Terminate is given).
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(C) Dispute Concerning Termination. If within fifteen (15) days
------------------------------
after any Notice of Intent to Terminate is given, or, if later, prior to the
Date of Termination (as determined without regard to this Section 2.9(C)), the
party receiving such Notice of Intent to Terminate notifies the other party that
a dispute exists concerning the termination or the provisions of this Agreement
that apply to such termination, the Date of Termination shall be the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided further
that the Date of Termination shall be extended by a notice of dispute only if
such notice is given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable diligence.
(D) Compensation During Dispute. If a purported termination
---------------------------
occurs following a Change in Control and such termination or the provisions of
Section 2 of this Agreement that apply upon such termination is disputed in
accordance with Section 2.9(C) hereof, the Company shall continue to pay the
Executive the full compensation (including, but not limited to, salary) at the
highest rate in effect during the sixty (60) day period preceding the date that
the Notice of Intent to Terminate was given and continue the Executive as a
participant in all compensation, benefit, insurance and pension and welfare
benefit plans in which the Executive was participating when the Notice of Intent
to Terminate was given (not taking into account any reductions in compensation,
benefits or insurance under such plans occurring during the sixty (60) day
period preceding the date that the Notice of Intent to Terminate was given),
until the dispute is finally resolved in accordance with Section 2.9(C) hereof.
Amounts paid under this Section 2.9(D) are in addition to all other amounts due
under Section 2 of this Agreement (other than those due under Section 2.6(A)(i)
hereof) and shall not be offset against or reduce any other amounts due under
this Agreement.
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5.10 No Mitigation. The Company agrees that, if the Executive's
-------------
employment by the Company is terminated during the Coverage Period, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to this
Agreement. Further, the amount of any payment or benefit provided for under this
Agreement (other than to the extent provided in Section 2.6(B)(ii) and Section
2.6(B)(iii)) shall not be reduced by any compensation earned by the Executive as
the result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Executive to the Company, or
otherwise.
5.11 Terminations in Anticipation of Change in Control. The
-------------------------------------------------
Executive's employment shall be deemed to have been terminated by the Company
without Cause during the Coverage Period if the Executive's employment is
terminated by the Company without Cause prior to a Change in Control and such
termination of employment (a) was at the request of a third party who has taken
steps reasonably calculated to effect a Change in Control or (b) otherwise arose
in anticipation of a Change in Control. The Executive's employment shall be
deemed to have been terminated by the Executive for Good Reason during the
Coverage Period if the Executive terminates his employment with Good Reason
prior to a Change in Control if the circumstance or event which constitutes Good
Reason occurs (a) at the request of a third party who has taken steps reasonably
calculated to effect a Change in Control or (b) otherwise arose in anticipation
of a Change in Control. In the event of a termination of employment described in
this Section 2.11, the Executive shall be entitled to all payments and other
benefits to which the Executive would have been entitled had such termination
occurred during the Coverage Period (other than salary pursuant to Section
2.6(A)(i) hereof for any period after the actual date of termination) and the
Executive shall be entitled to an additional payment in an amount which shall
compensate the Executive to the extent that the Executive was deprived by such
termination of the opportunity prior to termination of employment to exercise
stock options granted to him under the KESOP or DSOP at the highest market
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price of the Company's Common Stock reached in connection with the Change in
Control. Notwithstanding the provisions of Section 2.13 hereof, for purposes of
this Section 2.11 only, the burden of proving that the requirements of clauses
(a) and (b) of the first and second sentences of this Section 2.11 have been met
shall be on the Executive and the standard of proof to be met by the Executive
shall be clear and convincing evidence, except that, in the event that the
termination of employment occurs following a Potential Change in Control or
within two (2) months prior to a Change in Control, the burden of proving that
the requirements of clauses (a) and (b) of the first and second sentences of
this Section 2.11 have not been met shall be upon the Company, and the standard
of proof to be met by the Company shall be clear and convincing evidence.
5.12 Reduction of Benefits By Legally Required Benefits.
--------------------------------------------------
Notwithstanding any other provision of this Agreement to the contrary, if the
Company is obligated by law or by contract (other than under this Agreement) to
pay severance pay, a termination indemnity, notice pay, or the like, or if the
Company is obligated by law or by contract to provide advance notice of
separation ("Notice Period"), then any Severance Benefits hereunder shall be
reduced by the amount of any such severance pay, termination indemnity, notice
pay or the like, as applicable, and by the amount of any pay received during any
Notice Period.
5.13 Burden and Standard of Proof. Except as otherwise expressly
----------------------------
in Section 2.11 hereof, in any proceeding (regardless of who initiates such
proceeding) in which the payment of Severance Benefits or other benefits under
Section 2 of this Agreement is at issue, the burden of proof as to whether there
exists either Cause or Good Reason for purposes of this Agreement shall be upon
the Company or its successor, and the standard of proof to be met with respect
thereto shall be clear and convincing evidence.
5.14 Definitions
-----------
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<PAGE>
(A) "Annual Base Salary" means the higher of (a) the Executive's
------------------
highest annual base salary in effect during the one (1) year period preceding a
Change in Control, or (b) the Executive's highest annual base salary in effect
during the one year period preceding the Executive's Date of Termination.
(B) "Annual Bonus" means the highest of (a) the average of the
------------
three highest bonuses paid or payable, including any bonus or portion thereof
which has been earned but deferred, to the Executive by the Company in respect
of the five fiscal years (or such shorter period during which the Executive has
been employed by the Company) immediately preceding the fiscal year in which a
Change in Control occurs (annualized for any fiscal year during such period
consisting of less than twelve full months or with respect to which the
Executive has been employed by the Company for less than twelve full months),
(b) the bonus paid or payable (annualized as described above), including any
bonus or portion thereof which has been earned but deferred, to the Executive by
the Company in respect of the most recently completed fiscal year prior to the
Change in Control, (c) the bonus paid or payable (annualized as described
above), including any bonus or portion thereof which has been earned or
deferred, for the most recently completed fiscal year preceding the Executive's
Date of Termination, and (d) 100% of the Executive's target bonus award amount
for the year including the Executive's Date of Termination.
(C) "Base Amount" shall have the meaning ascribed to such term in
-----------
Section 280G(b)(3) of the Code.
(D) "Cause" means:
-----
(i) The willful and continued failure of the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief
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<PAGE>
Executive Officer believes that the Executive has not substantially performed
the Executive's duties;
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the Company;
(iii) personal dishonesty or breach of fiduciary duty to the
Company that in either case results or was intended to result in personal profit
to the Executive at the expense of the Company; or
(iv) willful violation of any law, rule or regulation (other than
traffic violations, misdemeanors or similar offenses) or cease-and-desist order,
court order, judgment or supervisory agreement, which violation is materially
and demonstrably injurious to the Company.
For purposes of the preceding clauses, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith and without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon prior approval given by the Board or upon the
instructions or with the approval of the Chief Executive Officer or the
Executive's superior or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of employment
of the Executive shall not be deemed to be for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in
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<PAGE>
clauses (i) through (iv) above, and specifying the particulars thereof in
detail.
(E) A "Change in Control" means: a change of control of the
-----------------
Company of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on
any similar schedule or form) promulgated under the Exchange Act, whether or not
the Company is then subject to such reporting requirement; provided, however,
that without limitation, a Change in Control shall be deemed to have occurred
if:
(i) any Person is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act or any successor
provisions thereto), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities;
(ii) a merger or consolidation of the Company is consummated
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least fifty percent
(50%) of the combined voting power either of the Company's then outstanding
securities or of such surviving entity's securities outstanding immediately
after such merger or consolidation;
(iii) the Company's shareholders approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the combined voting power
either of the Company's then outstanding securities or of such surviving
entity's securities
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outstanding immediately after such merger or consolidation, provided however
that, in the event that such merger or consolidation has not been consummated by
a date which is 180 days after the date of the shareholder vote to approve such
merger or consolidation, no Change in Control shall be deemed to have occurred
pursuant to this subsection 2.14(E)(iii), without prejudice to the Executive's
rights, if any, pursuant to Section 2.11 hereof or, in the event of a subsequent
consummation of such merger or consolidation, pursuant to Subsection 2.14(E)(ii)
hereof;
(iv) the shareholders of the Company approve a plan of
complete liquidation or an agreement for the sale or disposition (in one
transaction or a series of transactions) of all or substantially all of the
Company's assets;
(v) as a result of a proxy contest, individuals who prior to
the conclusion thereof constituted the Board (including for this purpose any new
director whose election or nomination for election by the Company's shareholders
in connection with such proxy contest was approved by a vote of at least two-
thirds of the directors then still in office who were directors prior to such
proxy contest) cease to constitute at least a majority of the Board; or
(vi) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constituted the Board (including
for this purpose any new director whose election or nomination for election by
the Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
(F) "Code" means the Internal Revenue Code of 1986, as amended
----
from time to time.
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(G) "Coverage Period" means the period, commencing on the date on
---------------
which a Change in Control occurs and ending on the second anniversary date
thereof.
(H) "Date of Termination" has the meaning assigned to such term
-------------------
in Section 2.9(B) hereof.
(I) "DSOP" means the ValliCorp Holdings, Inc. Amended and
----
Restated Directors' Stock Option Plan, as last amended effective on May 20,
1996, and any successor or replacement plan thereof.
(J) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended from time to time.
(K) "Excise Tax" means any excise tax imposed under Section 4999
----------
of the Code.
(L) "Good Reason" means:
-----------
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities immediately prior to either the Potential Change in Control
which precedes the Change in Control or the Change in Control or any other
action by the Company which results in a diminution in any respect in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) a reduction by the Company in the Executive's annual
base salary as in effect on the date hereof or as the same may be increased from
time to time;
(iii) the failure by the Company to increase the Executive's
base salary each year after a Change in Control by an amount which at least
equals, on a percentage basis, the
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mean average percentage increase in base salary for all officers of the Company
during the two full calendar years immediately preceding a Change in Control;
(iv) the Company's requiring the Executive to be based at any
office or location that is more than forty (40) miles from the Executive's
office or location immediately prior to either the Potential Change in Control
which precedes the Change in Control or the Change in Control but only if such
change involves a material increase in the employee's cost of living and is not
accompanied by a commensurate increase in compensation and benefits;
(v) the Company's requiring the Executive to travel on
Company business to a substantially greater extent than required immediately
prior to either the Potential Change in Control which precedes the Change in
Control or the Change in Control;
(vi) the failure by the Company, without the Executive's
consent, to pay to the Executive any portion of the Executive's current
compensation, or to pay to the Executive any portion of an installment of
deferred compensation under any deferred compensation program of the Company
within seven (7) days of the date such compensation is due;
(vii) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately prior to
either the Potential Change in Control preceding the Change in Control or the
Change in Control which is material to the Executive's total compensation,
including but not limited to the KESOP or DSOP or any substitute or alternative
plans adopted prior to either the Potential Change in Control preceding the
Change in Control or the Change in Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to continue the Executive's
participation therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of
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benefits provided and the level of the Executive's participation relative to
other participants, as existed at the time of the Change in Control;
(viii) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the Executive
under any of the Company's pension, life insurance, medical, health and
accident, disability or other welfare plans, including this Agreement, in which
the Executive was participating at the time of the Change in Control, the taking
of any action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any material fringe
benefit enjoyed by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the number of paid vacation
days to which the Executive is entitled on the basis of years of service with
the Company in accordance with the Company's normal vacation policy in effect at
the time of the Change in Control;
(ix) any purported termination by the Company of the
Executive's employment after a Change in Control otherwise than in accordance
with the termination procedures of Sections 2.9(A) through 2.9(D) hereof; or
(x) any failure by the Company to comply with and satisfy
Section 3.3 of this Agreement.
(M) "KESOP" means the ValliCorp Holdings, Inc. Amended and
-----
Restated Key Employee Stock Option Plan, as last amended effective on May 20,
1996, and any successor or replacement plan thereof.
(N) "Notice of Intent to Terminate" shall have the meaning
-----------------------------
assigned to such term in Section 2.9(A) hereof.
(O) "Person" shall have the meaning given in Section 3(a)(9) of
------
the Exchange Act, as modified and used in Section 13(d)(3) thereof.
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(P) "Potential Change in Control" means the occurrence of any of
---------------------------
the following:
(i) the Board approves a transaction described in Subsection
(ii) or (iv) of the definition of Change in Control contained herein;
(ii) the commencement of a proxy contest in which any Person
seeks to replace or remove a majority of the members of the Board; or
(iii) any Person files an application with the Board of
Governors of the Federal Reserve System for approval of the acquisition of more
than five percent (5%) of the Company's voting securities, or of any class
thereof, under the Bank Holding Company Act of 1956, as amended, or any
successor statute thereto, or files a notice of intent to acquire ten percent
(10%) or more of the Company's outstanding voting securities, or any class
thereof, pursuant to the Change in Bank Control Act or any successor statute
thereto.
(Q) "Severance Benefits" has the meaning assigned to such term in
------------------
Section 2.6(B) hereof.
(R) "Vested Bonus Amount" shall have the meaning assigned to such
-------------------
term in Section 2.5 hereof.
SECTION 6. GENERAL
- ------- -------
6.1 Non-Competition Clause. In addition to his obligations as an
----------------------
executive and whether or not he remains an executive of the Company, the
Executive agrees that during the period commencing with the Commencement Date
and ending upon termination of employment with the Company, however caused, he
will not, without the prior written consent of the Company, engage, directly or
indirectly, in any business that competes with the Company for customers of the
Company. In the event of a breach by the Executive of this Section 3.1, in
addition to other remedies provided by applicable law, the Company will be
entitled
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to issuance of a temporary restraining order or preliminary injunction enforcing
its rights under this Section 3.1.
6.2 Proprietary Information.
-----------------------
(A) The Executive agrees to comply fully with the Company's
policies relating to nondisclosure of the Company's trade secrets and
proprietary information and processes. Without limiting the generality of the
foregoing, the Executive will not, during the term of his employment by the
Company, disclose any such secrets, information, or processes to any person,
firm, corporation, association, or other entity for any reason or purpose
whatsoever, nor shall the Executive make use of any such property for his own
purposes or for the benefit of any person, firm, corporation, or other entity
(except the Company) under any circumstances during or after the term of his
employment, provided that after the term of his employment, this provision shall
not apply to secrets, information, and processes that are then in the public
domain (provided that the Executive was not responsible, directly or indirectly,
for such secrets, information, or processes entering the public domain without
the Company's consent).
(B) The Executive hereby sells, transfers, and assigns to the
Company all of the entire right, title, and interest of the Executive in and to
all inventions, ideas, disclosures, and improvements, whether patented or
unpatented, and copyrightable material, to the extent made or conceived by the
Executive, solely or jointly, during the term of this Agreement, except to the
extent prohibited by Section 2870 of the California Labor Code, a copy of which
is attached hereto as Exhibit A. The Executive shall communicate promptly and
disclose to the Company, in such form as the Company requests, all information,
details, and data pertaining to the aforementioned inventions, ideas,
disclosures, and improvements; and, whether during the term hereof or
thereafter, the Executive shall execute and deliver to the Company such formal
transfers and assignments and such other papers and documents as may be required
of the Executive to permit the Company to file and prosecute any patent
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applications relating to such inventions, ideas, disclosures, and improvements
and, as to copyrightable material, to obtain copyright thereon.
(C) Trade secrets, proprietary information, and processes shall
not be deemed to include information which is:
(i) known to the Executive at the time of the disclosure;
(ii) publicly known (or becomes publicly known) without the
fault or negligence of the Executive;
(iii) received from a third party without restriction and
without breach of this Agreement;
(iv) approved for release by written authorization of the
Company; or
(v) required to be disclosed by law; provided, however,
-------- -------
that in the event of a proposed disclosure pursuant to this subsection
3.2(C)(v), the recipient shall give the Company prior written notice before such
disclosure is made.
In the event of a breach by the Executive of this Section 3.2, in
addition to other remedies provided by applicable law, the Company will be
entitled to issuance of a temporary restraining order or preliminary injunction
enforcing its rights under this Section 3.2.
6.3 Successors. In addition to any obligations imposed by law upon
----------
any
successor to the Company, the Company shall be obligated to require any
successor (whether direct or indirect, by purchase, merger, consolidation,
operation of law, or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption
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and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation and
benefits from the Company in the same amount and on the same terms as the
Executive would be entitled to hereunder if the Executive were to terminate the
Executive's employment for Good Reason during the Coverage Period, except that,
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
6.4 Incompetency. Any benefit payable to or for the benefit of the
------------
Executive, if legally incompetent, or incapable of giving a receipt therefor,
shall be deemed paid when paid to the Executive's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Company.
6.5 Death. Except as otherwise provided herein, this Agreement shall
-----
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still
be payable to the Executive hereunder (other than amounts which, by their terms,
terminate upon the death of the Executive) if the Executive had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
6.6 Notices. For the purpose of this Agreement, notices and all
-------
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon actual receipt:
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<PAGE>
To the Company:
ValliCorp Holdings, Inc.
8405 North Fresno Street
Fresno, California 93720
Attention:
Executive Vice President and General Counsel
To the Executive:
STEVEN C. PUMPHREY
ValliCorp Holdings, Inc.
8405 North Fresno Street
Fresno, California 93720
6.7 Modification, Waiver. No provision of this Agreement may be
--------------------
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
6.8 Entire Agreement. No agreements or representations, oral or
----------------
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
This Agreement supercedes and replaces the Agreement dated as of February 1,
1996, between the Company and the Executive.
6.9 Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
Delaware.
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6.10 Statutory Changes. All references to sections of the Exchange
-----------------
Act or the Code shall be deemed also to refer to any successor provisions to
such sections.
6.11 Withholding. Any payments provided for hereunder shall be paid
-----------
net of any applicable withholding required under federal, state or local law and
any additional withholding to which the Executive has agreed.
6.12 Savings Clause. If any term, covenant, or condition of this
--------------
Agreement or the application thereof to any person or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term, covenant, or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant, or condition of this Agreement shall
be valid and enforced to the fullest extent permitted by law.
6.13 Authority to Contract. The Company warrants and represents that
---------------------
it has full authority to enter into this Agreement and to consummate the
transactions contemplated hereby and that this Agreement is not in conflict with
any other agreement to which the Company is a party or by which it may be bound.
The Company hereto further warrants and represents that the individuals
executing this Agreement on behalf of the Company have the full power and
authority to bind the Company to the terms hereof and have been authorized to do
so in accordance with the Company's corporate organization.
6.14 No Assignment of Benefits. Except as otherwise provided herein
-------------------------
or by law, no right or interest of the Executive under the Agreement shall be
assignable or transferable, in whole or in part, either directly or by operation
of law or otherwise, including without limitation by execution, levy,
garnishment, attachment, pledge or in any manner; no attempted assignment or
transfer thereof shall be effective; and no right or interest of the Executive
under this Agreement shall be liable for, or subject to, any obligation or
liability of the Executive.
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6.15 Headings. The headings and captions herein are provided for
--------
reference and convenience only, shall not be considered part of the Agreement,
and shall not be employed in the construction of the Agreement.
6.16 Force Majeure. Neither party shall be liable to the other for
-------------
any delay or failure to perform hereunder, which delay or failure is due to
causes beyond the control of said party, including, but not limited to: acts of
God; acts of the public enemy; acts of the United States of America, or any
State territory, or political subdivision thereof or of the District of
Columbia; fires; floods; epidemics; quarantine restrictions; strikes; or freight
embargoes. Notwithstanding the foregoing provisions of this Section, in every
case the delay or failure to perform must be beyond the control and without the
fault or negligence of the party claiming excusable delay.
6.17 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
6.18 Definitions
-----------
(A) "Company" means ValliCorp Holdings, Inc., a Delaware
-------
corporation. If the Executive becomes employed by a direct or indirect
Subsidiary of ValliCorp Holdings, Inc., the "Company" shall be deemed to refer
to the Subsidiary thereof by which the Executive is employed. In such case,
references to payments, benefits, privileges or other rights to be accorded by
"the Company" shall be deemed to refer to such payments, benefits, privileges or
other rights to be provided by the Subsidiary by which the Executive is employed
or to ValliCorp Holdings, Inc., as the case may be, to correspond to the
corporate entity obligated to make payments or provide benefits, privileges or
other rights pursuant to employee benefit plans affected by the provisions
hereof, and in the absence of any such existing plans or provisions, such
reference shall be deemed to be to ValliCorp Holdings, Inc.
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(B) "Disability" means that the Executive has been unable to
-----------
perform his duties under this Agreement for a period of three (3) consecutive
months as the result of his incapacity due to physical or mental illness.
(C) "Subsidiary" means any corporation controlled by the Company,
----------
directly or indirectly.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its officer, thereunto duly authorized, and the Executive has
executed this Agreement, all as of the day and year first above written.
VALLICORP HOLDINGS, INC.
By
___________________________
Name: J. MIKE McGOWAN
Title: Chairman and Chief
Executive Officer
---------------------------
STEVEN C. PUMPHREY
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EXHIBIT A
---------
Section 2870. Application of provision providing that employee shall assign or
offer to assign rights in invention to employer
(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of his rights in an invention to his
employer shall not apply to an invention that the employee developed entirely on
his own time without using the employer's equipment, supplies, facilities, or
trade secret information except for those inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to require an
employee to assign an invention otherwise excluded from being required to be
assigned under subdivision (a), the provision is against the public policy of
this state and is unenforceable.
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT - EDWIN L. HERBERT
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<PAGE>
AGREEMENT
---------
THIS AGREEMENT dated July 1, 1996, is made by and between ValliCorp
Holdings, Inc., a Delaware corporation (the "Company"), and EDWIN L. HERBERT
(the "Executive").
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company, on the terms set forth herein; and
WHEREAS, the Board of Directors of the Company (the "Board")
recognizes that the possibility of a Change in Control (as defined in Section
2.14(E) hereof) exists, as in the case of any publicly-held corporation, and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders; and
WHEREAS, as a part of the terms of the Executive's employment the
Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of the Executive to his
assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control.
NOW THEREFORE, in consideration of the promises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
SECTION 7. EMPLOYMENT
- ------- ----------
7.1 Employment. The Company hereby employs the Executive and the
----------
Executive hereby accepts employment during the Term of Employment upon the terms
and conditions set forth herein.
7.2 Term of Employment. The "Term of Employment" is the period
------------------
beginning on July 1, 1996 (the "Commencement Date") and ending on June 30, 2000.
The Term of Employment may
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terminate earlier or be extended as provided in this Agreement; provided
however, that this Agreement shall not terminate earlier than the date that the
provisions of Section 2 hereof cease to be applicable.
7.3 Renewal. The Term of Employment shall be extended for one year
-------
on each anniversary of the Commencement Date unless (a) the Company or the
Executive has given three (3) months' written notice of its or his intent not to
extend the termination date or (b) the Term of Employment has been terminated
under the provisions of Section 1.9 or 1.10.
7.4 Duties. The Executive is employed as Executive Vice President,
------
General Counsel and Secretary of the Company and, under the direction of the
Board and Chief Executive Officer, shall perform and discharge well and
faithfully the duties that may be assigned to him from time to time by the Chief
Executive Officer in connection with the conduct of the Company's business.
7.5 Extent of Services. The Executive shall devote his entire
------------------
business time, attention, and energies to the business of the Company during the
term of the Executive's employment with the Company. The foregoing, however,
shall not preclude the Executive from engaging in appropriate civic, charitable,
or religious activities or from devoting a reasonable amount of time to private
investments or from serving on boards of directors of other entities, as long as
such activities and services do not interfere or conflict with his
responsibilities to the Company.
7.6 Locations of Performance. The Executive's services shall be
------------------------
performed primarily in the vicinity of Fresno, California. The parties
acknowledge, however, that the Executive may be required to travel in connection
with the performance of his duties hereunder.
7.7 Compensation.
------------
(A) Salary. During the Term of Employment, the Company shall
------
pay the Executive a monthly salary of $10,583.34,
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payable in arrears in installments on the 15th and the last day of each month.
The Executive's salary shall be adjusted annually, on the anniversary of this
Agreement, to reflect such changes as the Board determines appropriate, based on
the Executive's performance for the most recent performance period.
(B) Incentive Programs. During the Term of Employment, the
------------------
Executive shall be entitled to participate in any annual and long-term incentive
programs adopted by the Company and which cover employees in positions
comparable to that of the Executive.
(C) Expenses. The Executive shall be entitled to prompt
--------
reimbursement of all reasonable business expenses incurred by him in the
performance of his duties during the Term of Employment, subject to the
presenting of appropriate vouchers and receipts in accordance with the Company's
policies.
7.8 Employee Benefits. During the Term of Employment, the Executive
-----------------
shall be entitled to participate in employee benefit plans or programs of the
Company, if any, to the extent that his position, tenure, salary, age, health,
and other qualifications make him eligible to participate, subject to the rules
and regulations applicable thereto.
7.9 Termination by the Company; Death. Notwithstanding the
---------------------------------
provisions of Sections 1.2 and 1.3, and except for situations in which the
termination of employment provisions of Section 2 apply, the Term of Employment
and the Executive's employment hereunder may be terminated by the Company
without any breach of this Agreement under the following circumstances:
(A) Involuntary Termination. The Executive's employment is at
-----------------------
will. The Company reserves the right to terminate the Executive's employment at
any time whatsoever, with or without cause, with thirty (30) days' written
notice to the Executive. The Term of Employment shall terminate on the last day
of the notice period, but the Company may require the
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Executive to cease performing services at any time once the notice is given.
(B) Involuntary Termination for Just Cause. The Company
--------------------------------------
reserves the right to terminate the Executive's employment for Just Cause. "Just
Cause" shall exist if the Executive has: (i) willfully breached or habitually
neglected the duties which he was required to perform under the terms of this
Agreement, or (ii) committed act(s) of dishonesty, theft, embezzlement, fraud,
misrepresentation, or other act(s) of moral turpitude against the Company, its
subsidiaries or affiliates, its shareholders, or its employees. The Company
shall give the Executive written notice of the termination and the reasons
therefor. The Term of Employment shall terminate immediately upon receipt of the
notice.
(C) Disability. The Term of Employment shall terminate three
----------
(3) months after the Company gives the Executive written notice that it intends
to terminate his employment on account of Disability or on such later date as
the Company specifies in such notice. If the Executive resumes the performance
of substantially all of his duties under this Agreement before the termination
becomes effective, the notice of intent to terminate shall be deemed to have
been revoked.
(D) Death. The Term of Employment shall terminate upon the
-----
Executive's death.
7.10 Termination By The Executive. Notwithstanding the provisions of
----------------------------
Sections 1.2 and 1.3, the Term of Employment and the Executive's employment
hereunder may be terminated without any breach of this Agreement by the
Executive under the following circumstances:
(A) Voluntary Termination. Subject to Section 2.4 hereof, the
---------------------
Executive may terminate his employment with the Company at any time with three
(3) months' written notice to the Company. The Term of Employment shall end on
the last day on which the Executive performs services for the Company.
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(B) Termination for Good Cause. The Executive may terminate his
--------------------------
employment with the Company for Good Cause by giving the Company thirty (30)
days' notice of its breach, the reasons why the breach constitutes Good Cause
and of his intent to terminate on such basis. If the Company cures its breach
within the thirty (30) day period, the Executive may rescind his notice of
intent to terminate, or terminate his employment under Section 1.10(A) hereof as
though his notice of breach was the notice provided for under Section 1.10(A).
If the Company fails to cure its breach within the thirty (30) day period, the
Term of Employment shall end on the last day of the notice period.
The term "Good Cause" as used herein means a material reduction in the
Executive's compensation under Section 1.7 or benefits under Section 1.8, a
material reduction in the Executive's title or responsibilities, or a relocation
of the Executive's primary place of employment so that the Executive's one-way
commute distance is increased by more than (40) miles.
7.11 Benefits on Termination of Employment. Except as provided in
-------------------------------------
Section 2.1 hereof, if the Executive's employment is terminated during the Term
of Employment, the Executive shall be entitled to receive the following
benefits:
(A) Death; Disability; Voluntary Termination; Termination for
---------------------------------------------------------
Just Cause. If employment is terminated under Section 1.9 (B), (C), or (D), or
- ----------
Section 1.10(A), the Executive shall receive (i) salary through the Term of
Employment; (ii) any incentive compensation earned but not yet paid; and (iii)
reimbursement of expenses incurred under Section 1.7(C) but not yet reimbursed.
All other employee benefits and compensation shall cease on the last day on
which the Executive performs services as an employee, except to the extent that
continued coverage is required by law.
(B) Involuntary Termination; Termination for Good Cause. If the
---------------------------------------------------
Executive's employment is terminated under the provisions of Sections 1.9(A) or
1.10(B), the Executive shall receive in a lump sum payment an amount equal to
the sum of
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clauses (i) through (iii) in Section 1.11(A), and, in addition, twelve (12)
months of salary under Section 1.7(A) computed with reference to the annual
salary in effect immediately preceding the date of termination.
All other employee benefits and compensation, including any incentive benefits
for the year in which the Term of Employment ends, shall cease on the last day
on which the Executive performs services as an employee of the Company except to
the extent that continued coverage is required by law.
7.12 Non-Renewal. If the Executive or the Company gives notice of
-----------
intent not to extend the Term of Employment under Section 1.3, the Executive's
salary and benefits shall cease on the last day of the Term of Employment,
except to the extent that continued coverage is required by law.
7.13 Recovery of Litigation Costs. If any legal action or other
----------------------------
preceding is brought for the enforcement of any provision under Section 1 of
this Agreement (or Section 3 of this Agreement in connection with its
applicability under Section 1 of this Agreement) or any agreement or instrument
delivered under or in connection with Section 1 of this Agreement (or Section 3
of this Agreement in connection with its applicability under Section 1 of this
Agreement), or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of Section 1 of this
Agreement (or Section 3 of this Agreement in connection with its applicability
under Section 1 of this Agreement), the successful or prevailing party or
parties shall be entitled to recover reasonable attorney's fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled.
SECTION 8. TERMINATION OF EMPLOYMENT IN CONNECTION WITH A CHANGE IN CONTROL
- ------- ----------------------------------------------------------------
8.1 Applicability of Section 2. No payments will be required under
--------------------------
Section 1.11 of this Agreement in connection with the Executive's Termination of
Employment to the extent that the
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payments and benefits provided for by Section 2 of this Agreement are paid or
provided to the Executive.
8.2 Term of Change in Control Provisions. Either the Company or the
------------------------------------
Executive may terminate the applicability of the provisions of this Section 2 by
giving the other at least one (1) year advance written notice of termination
thereof; provided, however, that if a Change in Control shall have occurred
during the term of this Agreement, the provisions of Section 2 hereunder shall
continue in effect until all obligations of either party hereto have been
performed in full. Notwithstanding the foregoing, the provisions of this Section
2 shall terminate upon the Executive's attaining age sixty-five (65), except as
to obligations of the Company hereunder arising from a Change in Control and/or
a termination of the Executive's employment prior to his having reached such
age.
8.3 Company's Covenants Summarized. In order to induce the
------------------------------
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants set forth in Section 2.4 hereof, the Company agrees, under
the terms and conditions set forth herein, that, upon a Change in Control during
the term of this Agreement, certain benefits shall thereupon become vested as
set forth in Section 2.5 hereof, and paid in accordance with the provisions
thereof, and, in the event that the Executive's employment with the Company is
terminated thereafter during the Coverage Period, the Company shall pay the
Executive the amounts provided for in Section 2.6 hereof.
8.4 The Executive's Covenant. The Executive agrees that, subject to
------------------------
the terms and conditions of this Agreement, and notwithstanding the provisions
in Section 1.10(A) of this Agreement, in the event of a Potential Change in
Control, the Executive will remain in the employ of the Company until the
earliest of (a) a date which is nine (9) months after the date of such Potential
Change of Control, (b) the date of a Change in Control, (c) the date of
termination by the Executive of the Executive's employment for Good Reason
(determined by treating the Potential Change in Control for this purpose as a
Change in
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Control in applying the definition of Good Reason) or by reason of death or
Disability, (d) the termination by the Company of the Executive's employment for
any reason, or (e) the Executive's attaining age sixty-five (65).
8.5 Vesting of Bonus in the Event of a Change in Control. Upon the
----------------------------------------------------
occurrence of a Change in Control, the Executive shall have a vested and
nonforfeitable right to receive in cash an amount equal to the target bonus
amount which the Executive could earn for the year in which the Change in
Control occurs pursuant to the ValliCorp Holdings, Inc. Executive Management
Committee's Management Bonus Program for such year, or under any other
management incentive plan or program in effect in such year, as if 100% of all
objectives provided for thereunder had been met for that year (the "Vested Bonus
Amount"). The Executive's Vested Bonus Amount pursuant to the preceding sentence
shall be promptly paid to the Executive at the date on which such bonus would
have been paid pursuant to such plan or program if no Change in Control had
occurred. Notwithstanding the foregoing, however, in the event that the
Executive's Date of Termination after a Change in Control falls in the fiscal
year in which such Change in Control occurs, the Executive shall not be entitled
to receive a bonus pursuant to this Section 2.5, but shall instead be entitled
to the bonus amount as provided in Section 2.6(B)(iii) hereof.
8.6 Benefits and Rights upon Termination of Employment.
--------------------------------------------------
(A) General Termination Rights and Benefits. If the Executive's
---------------------------------------
employment by the Company is terminated after a Change in Control for any reason
(whether by the Company or the Executive), the Company shall pay to the
Executive the payments described in Subsections (i) through (iii) below.
(i) Previously Earned Salary. The Company shall pay the
------------------------
Executive's full salary to the Executive through the Date of Termination at the
highest rate in effect during the sixty (60) day period preceding the date the
Notice of Intent to
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Terminate is given, together with all compensation and benefits payable to the
Executive through the Date of Termination under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period.
(ii) Previously Earned Benefits. The Company shall pay the
--------------------------
Executive's normal post-termination compensation and benefits to the Executive
as such payments become due. Such post-termination compensation and benefits
shall be determined under, and paid in accordance with, the Company's
retirement, insurance, pension, welfare and other compensation or benefit plans,
programs and arrangements.
(iii) Payment of Vested Bonus Amount. Except to the extent
------------------------------
that the Company has previously paid to the Executive all or a portion of his
Vested Bonus Amount pursuant to Section 2.5 hereof, the Company shall pay to the
Executive a lump sum cash payment equal to the Executive's Vested Bonus Amount.
(B) Severance Benefits. In addition to the payments provided
------------------
for by Section 2.6(A) hereof, the Company shall pay to the Executive the
payments described in Subsections (i) through (iii) below (the "Severance
Benefits") upon termination of the Executive's employment with the Company
during the Coverage Period, unless such termination is (a) by the Company for
Cause, (b) by reason of the Executive's death or Disability or after the
Executive attains age sixty-five (65) or (c) by the Executive without Good
Reason.
(i) Lump-Sum Severance Payment. In lieu of any further
--------------------------
salary payments to the Executive for periods subsequent to the Date of
Termination, the Company shall pay to the Executive a lump sum severance
payment, in cash, equal to two (2) (or, if less, the number of years, including
fractions, from the Date of Termination until the Executive would have reached
age sixty-five (65)) times the sum of (a) the Executive's Annual Base Salary and
(b) the Executive's Annual Bonus. Notwithstanding the preceding sentence, the
amount of the lump sum payment provided for therein shall be reduced by any lump
sum cash severance
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payment which is actually paid by the Company to the Executive pursuant to any
other plan or agreement on or prior to the date on which the payment pursuant to
this Subsection 2.6(B)(i) is required to be paid.
(ii) Continued Benefits. For a twenty-four (24) month
------------------
period (or, if less, the number of months from the Date of Termination until the
Executive would have reached age sixty-five (65)) after the Date of Termination
(the "Benefits Period"), the Company shall provide the Executive with group term
life insurance, health insurance and long-term disability insurance benefits
("Welfare Benefits") substantially similar in all respects to those which the
Executive is receiving immediately prior to the Notice of Termination (without
giving effect to any reduction in such benefits subsequent to a Change in
Control which reduction constitutes or may constitute Good Reason). Benefits
otherwise receivable by the Executive pursuant to this Section 2.6(B)(ii) shall
be reduced to the extent substantially similar benefits are actually received by
or made available to the Executive by any other employer during the same time
period for which such benefits would be provided pursuant to this Section
2.6(B)(ii) at a cost to the Executive that is commensurate with the cost
incurred by the Executive immediately prior to the Executive's Date of
Termination (without giving effect to any increased costs paid by the Executive
after the Change in Control which constituted or might have constituted Good
Reason); provided, however, that if the Executive becomes employed by a new
employer which maintains a medical plan that either (i) does not cover the
Executive or a family member or dependent with respect to a preexisting
condition which was covered under the applicable Company medical plan, or (ii)
does not cover the Executive or a family member or dependent for a designated
waiting period, the Executive's coverage under the applicable Company medical
plan shall continue (but shall be limited in the event of noncoverage due to a
preexisting condition, to such preexisting condition) until the earlier of the
end of the applicable period of noncoverage under the new employer's plan or the
end of the Benefits Period. The Executive agrees to report to the Company any
coverage and benefits
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actually received by the Executive from such other employer(s). The Executive
shall be entitled to elect to change his level of coverage and/or his choice of
coverage options (such as the Executive only or family medical coverage) with
respect to the Welfare Benefits to be provided by the Company to the Executive
to the same extent that actively employed senior executives of the Company are
permitted to make such changes; provided, however, that in the event of any such
changes the Executive shall pay the amount of any cost increase that would
actually be paid by an actively employed executive of the Company by reason of
making the same change in his level of coverage or coverage options.
(iii) Bonus for Year in Which Date of Termination Occurs.
--------------------------------------------------
The Company shall pay to the Executive a lump sum cash amount equal to the
product of (x) and (y), where (x) is an amount equal to the target bonus amount
which the Executive could earn for the year in which the Date of Termination
occurs pursuant to the ValliCorp Holdings, Inc. Executive Management Committee's
Management Bonus Program for such year, or under any other management incentive
plan or program in effect in such year, as if 100% of all objectives provided
for thereunder had been met for that year, and (y) is a fraction the numerator
of which is the number of days from and including the first day of the year in
which the Date of Termination occurs until (and including) the Executive's Date
of Termination and the denominator of which is 365 days.
(C) Gross-Up Payment. In the event that the Executive becomes
----------------
entitled to the Severance Benefits or any other benefits or payments under
Section 2 of this Agreement (other than pursuant to this Section 2.6(C)) or the
KESOP or DSOP by reason of the accelerated vesting of stock options thereunder
(together, the "Total Benefits"), and in the event that any of the Total
Benefits will be subject to the Excise Tax, the Company shall pay to the
Executive an additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of any Excise Tax on the Total
Benefits and any federal, state and local income tax, Excise Taxes and FICA and
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Medicare withholding taxes upon the payment provided for by this Section 2.6(C),
shall be equal to the Total Benefits.
For purposes of determining whether any of the Total Benefits will be
subject to the Excise Tax and the amount of such Excise Tax, (i) any other
payments or benefits received or to be received by the Executive in connection
with a Change in Control or the Executive's termination of employment (whether
pursuant to the terms of this Agreement or any other agreement, plan or
arrangement with the Company, any Person whose actions result in a Change in
Control or any Person affiliated with the Company or such Person) shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion
of tax counsel ("Tax Counsel") selected by the Company's independent auditors
and acceptable to the Executive, such other payments or benefits (in whole or in
part) do not constitute parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in excess of the
Base Amount, or are otherwise not subject to the Excise Tax, (ii) the amount of
the Total Benefits which shall be treated as subject to the Excise Tax shall be
equal to the lesser of (A) the total amount of the Total Benefits reduced by the
amount of such Total Benefits that in the opinion of Tax Counsel are not
parachute payments, or (B) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the
value of any non-cash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with the
principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's residence on the Date of Termination, net of the
reduction in federal income taxes
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which could be obtained from deduction of such state and local taxes (calculated
by assuming that any reduction under Section 68 of the Code in the amount of
itemized deductions allowable to the Executive applies first to reduce the
amount of such state and local income taxes that would otherwise be deductible
by the Executive).
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax, federal, state
and local income taxes and FICA and Medicare withholding taxes imposed on the
Gross-Up Payment being repaid by the Executive to the extent that such repayment
results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or
a federal, state or local income tax deduction) plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of the Executive's employment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment to the Executive in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) at the time that the amount of such excess is finally determined.
8.7 Timing of Payments. The payments provided for in Sections 2.6(A)
------------------
through 2.6(C) (other than Section 2.6(B)(ii) hereof) shall be made on the Date
of Termination, provided, however, that if the amounts of such payments cannot
be finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the
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rate provided in Section 1274(b)(2)(B) of the Code from the fifth (5th) day
following the Date of Termination to the payment of such remainder) as soon as
the amount thereof can be determined but in no event later than the thirtieth
(30th) day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) business day after demand by the Company (together with interest
at the rate provided in Section 1274(b)(2)(B) of the Code from the fifth (5th)
day following the Date of Termination to the repayment of such excess).
8.8 Reimbursement of Legal Costs. The Company shall pay to the
----------------------------
Executive all legal fees and expenses incurred by the Executive as a result of a
termination which entitles the Executive to any payments under Section 2 of this
Agreement, including all such fees and expenses, if any, incurred in contesting
or disputing any Notice of Intent to Terminate under Section 2.9(C) hereof or in
seeking to obtain or enforce any right or benefit provided by Section 2 of this
Agreement (or Section 3 of this Agreement in connection with its applicability
under Section 2 of this Agreement), or in connection with any tax audit or
proceeding to the extent attributable to the application of section 4999 of the
Code to any payment or benefit provided hereunder. Such payments shall be made
within five (5) business days after delivery of the Executive's respective
written requests for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
8.9 Termination Procedures and Compensation During Dispute
------------------------------------------------------
(A) Notice of Intent To Terminate. After a Change in Control,
-----------------------------
any purported termination of the Executive's employment (other than by reason of
death) must be preceded by a written Notice of Intent to Terminate from one
party hereto to the other party hereto in accordance with Section 3.6 hereof.
For purposes of this Agreement, a "Notice of Intent to Terminate"
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shall mean a notice which shall indicate the notifying party's opinion regarding
the specific provisions of this Agreement that will apply upon such termination
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for the application of the provisions indicated. Further, a
Notice of Intent to Terminate for Cause is required to include a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting of the Board which was
called and held for the purpose of considering such termination (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive was guilty of
conduct set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
(B) Date of Termination. "Date of Termination", with respect
-------------------
to any purported termination of the Executive's employment after a Change in
Control, shall mean, except as provided in Section 2.9(C) hereof, (a) if the
Executive's employment is terminated for Disability, three (3) months after
Notice of Intent to Terminate is given (provided that the Executive shall not
have returned to the full-time performance of the Executive's duties during such
three (3) month period), and (b) if the Executive's employment is terminated for
any other reason, the date specified in the Notice of Intent to Terminate
(which, in the case of a termination by the Company, shall not be less than
thirty (30) days after Notice of Intent to Terminate is given (except in the
case of a termination for Cause in which case it shall not be less than ten (10)
days after Notice of Intent to Terminate is given, provided that the Company may
require the Executive not to report to work during such ten (10) day period),
and, in the case of a termination by the Executive, shall not be less than
fifteen (15) days nor more than sixty (60) days, respectively, from the date
such Notice of Intent to Terminate is given).
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(C) Dispute Concerning Termination. If within fifteen (15)
------------------------------
days after any Notice of Intent to Terminate is given, or, if later, prior to
the Date of Termination (as determined without regard to this Section 2.9(C)),
the party receiving such Notice of Intent to Terminate notifies the other party
that a dispute exists concerning the termination or the provisions of this
Agreement that apply to such termination, the Date of Termination shall be the
date on which the dispute is finally resolved, either by mutual written
agreement of the parties or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
(D) Compensation During Dispute. If a purported termination
---------------------------
occurs following a Change in Control and such termination or the provisions of
Section 2 of this Agreement that apply upon such termination is disputed in
accordance with Section 2.9(C) hereof, the Company shall continue to pay the
Executive the full compensation (including, but not limited to, salary) at the
highest rate in effect during the sixty (60) day period preceding the date that
the Notice of Intent to Terminate was given and continue the Executive as a
participant in all compensation, benefit, insurance and pension and welfare
benefit plans in which the Executive was participating when the Notice of Intent
to Terminate was given (not taking into account any reductions in compensation,
benefits or insurance under such plans occurring during the sixty (60) day
period preceding the date that the Notice of Intent to Terminate was given),
until the dispute is finally resolved in accordance with Section 2.9(C) hereof.
Amounts paid under this Section 2.9(D) are in addition to all other amounts due
under Section 2 of this Agreement (other than those due under Section 2.6(A)(i)
hereof) and shall not be offset against or reduce any other amounts due under
this Agreement.
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8.10 No Mitigation. The Company agrees that, if the Executive's
-------------
employment by the Company is terminated during the Coverage Period, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to this
Agreement. Further, the amount of any payment or benefit provided for under this
Agreement (other than to the extent provided in Section 2.6(B)(ii) and Section
2.6(B)(iii)) shall not be reduced by any compensation earned by the Executive as
the result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Executive to the Company, or
otherwise.
8.11 Terminations in Anticipation of Change in Control. The
-------------------------------------------------
Executive's employment shall be deemed to have been terminated by the Company
without Cause during the Coverage Period if the Executive's employment is
terminated by the Company without Cause prior to a Change in Control and such
termination of employment (a) was at the request of a third party who has taken
steps reasonably calculated to effect a Change in Control or (b) otherwise arose
in anticipation of a Change in Control. The Executive's employment shall be
deemed to have been terminated by the Executive for Good Reason during the
Coverage Period if the Executive terminates his employment with Good Reason
prior to a Change in Control if the circumstance or event which constitutes Good
Reason occurs (a) at the request of a third party who has taken steps reasonably
calculated to effect a Change in Control or (b) otherwise arose in anticipation
of a Change in Control. In the event of a termination of employment described in
this Section 2.11, the Executive shall be entitled to all payments and other
benefits to which the Executive would have been entitled had such termination
occurred during the Coverage Period (other than salary pursuant to Section
2.6(A)(i) hereof for any period after the actual date of termination) and the
Executive shall be entitled to an additional payment in an amount which shall
compensate the Executive to the extent that the Executive was deprived by such
termination of the opportunity prior to termination of employment to exercise
stock options granted to him under the KESOP or DSOP at the highest market
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price of the Company's Common Stock reached in connection with the Change in
Control. Notwithstanding the provisions of Section 2.13 hereof, for purposes of
this Section 2.11 only, the burden of proving that the requirements of clauses
(a) and (b) of the first and second sentences of this Section 2.11 have been met
shall be on the Executive and the standard of proof to be met by the Executive
shall be clear and convincing evidence, except that, in the event that the
termination of employment occurs following a Potential Change in Control or
within two (2) months prior to a Change in Control, the burden of proving that
the requirements of clauses (a) and (b) of the first and second sentences of
this Section 2.11 have not been met shall be upon the Company, and the standard
of proof to be met by the Company shall be clear and convincing evidence.
8.12 Reduction of Benefits By Legally Required Benefits.
--------------------------------------------------
Notwithstanding any other provision of this Agreement to the contrary, if the
Company is obligated by law or by contract (other than under this Agreement) to
pay severance pay, a termination indemnity, notice pay, or the like, or if the
Company is obligated by law or by contract to provide advance notice of
separation ("Notice Period"), then any Severance Benefits hereunder shall be
reduced by the amount of any such severance pay, termination indemnity, notice
pay or the like, as applicable, and by the amount of any pay received during any
Notice Period.
8.13 Burden and Standard of Proof. Except as otherwise expressly
----------------------------
provided in Section 2.11 hereof, in any proceeding (regardless of who initiates
such proceeding) in which the payment of Severance Benefits or other benefits
under Section 2 of this Agreement is at issue, the burden of proof as to whether
there exists either Cause or Good Reason for purposes of this Agreement shall be
upon the Company or its successor, and the standard of proof to be met with
respect thereto shall be clear and convincing evidence.
8.14 Definitions
-----------
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(A) "Annual Base Salary" means the higher of (a) the Executive's
------------------
highest annual base salary in effect during the one (1) year period preceding a
Change in Control, or (b) the Executive's highest annual base salary in effect
during the one year period preceding the Executive's Date of Termination.
(B) "Annual Bonus" means the highest of (a) the average of the
------------
three highest bonuses paid or payable, including any bonus or portion thereof
which has been earned but deferred, to the Executive by the Company in respect
of the five fiscal years (or such shorter period during which the Executive has
been employed by the Company) immediately preceding the fiscal year in which a
Change in Control occurs (annualized for any fiscal year during such period
consisting of less than twelve full months or with respect to which the
Executive has been employed by the Company for less than twelve full months),
(b) the bonus paid or payable (annualized as described above), including any
bonus or portion thereof which has been earned but deferred, to the Executive by
the Company in respect of the most recently completed fiscal year prior to the
Change in Control, (c) the bonus paid or payable (annualized as described
above), including any bonus or portion thereof which has been earned or
deferred, for the most recently completed fiscal year preceding the Executive's
Date of Termination, and (d) 100% of the Executive's target bonus award amount
for the year including the Executive's Date of Termination.
(C) "Base Amount" shall have the meaning ascribed to such term
-----------
in Section 280G(b)(3) of the Code.
(D) "Cause" means:
-----
(i) The willful and continued failure of the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief
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Executive Officer believes that the Executive has not substantially performed
the Executive's duties;
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company;
(iii) personal dishonesty or breach of fiduciary duty to the
Company that in either case results or was intended to result in personal profit
to the Executive at the expense of the Company; or
(iv) willful violation of any law, rule or regulation
(other than traffic violations, misdemeanors or similar offenses) or cease-and-
desist order, court order, judgment or supervisory agreement, which violation is
materially and demonstrably injurious to the Company.
For purposes of the preceding clauses, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith and without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon prior approval given by the Board or upon the
instructions or with the approval of the Chief Executive Officer or the
Executive's superior or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of employment
of the Executive shall not be deemed to be for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in
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<PAGE>
clauses (i) through (iv) above, and specifying the particulars thereof in
detail.
(E) A "Change in Control" means: a change of control of the
-----------------
Company of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on
any similar schedule or form) promulgated under the Exchange Act, whether or not
the Company is then subject to such reporting requirement; provided, however,
that without limitation, a Change in Control shall be deemed to have occurred
if:
(i) any Person is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act or any successor
provisions thereto), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities;
(ii) a merger or consolidation of the Company is
consummated with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least fifty percent (50%) of the combined voting power either of the
Company's then outstanding securities or of such surviving entity's securities
outstanding immediately after such merger or consolidation;
(iii) the Company's shareholders approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the combined voting power
either of the Company's then outstanding securities or of such surviving
entity's securities
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outstanding immediately after such merger or consolidation, provided however
that, in the event that such merger or con-solidation has not been consummated
by a date which is 180 days after the date of the shareholder vote to approve
such merger or consolidation, no Change in Control shall be deemed to have
occurred pursuant to this subsection 2.14(E)(iii), without prejudice to the
Executive's rights, if any, pursuant to Section 2.11 hereof or, in the event of
a subsequent consummation of such merger or consolidation, pursuant to
Subsection 2.14(E)(ii) hereof;
(iv) the shareholders of the Company approve a plan of
complete liquidation or an agreement for the sale or disposition (in one
transaction or a series of transactions) of all or substantially all of the
Company's assets;
(v) as a result of a proxy contest, individuals who prior
to the conclusion thereof constituted the Board (including for this purpose any
new director whose election or nomination for election by the Company's
shareholders in connection with such proxy contest was approved by a vote of at
least two-thirds of the directors then still in office who were directors prior
to such proxy contest) cease to constitute at least a majority of the Board; or
(vi) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constituted the Board (including
for this purpose any new director whose election or nomination for election by
the Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
(F) "Code" means the Internal Revenue Code of 1986, as amended
----
from time to time.
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(G) "Coverage Period" means the period, commencing on the date
---------------
on which a Change in Control occurs and ending on the second anniversary date
thereof.
(H) "Date of Termination" has the meaning assigned to such term
-------------------
in Section 2.9(B) hereof.
(I) "DSOP" means the ValliCorp Holdings, Inc. Amended and
----
Restated Directors' Stock Option Plan, as last amended effective on May 20,
1996, and any successor or replacement plan thereof.
(J) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended from time to time.
(K) "Excise Tax" means any excise tax imposed under Section 4999
----------
of the Code.
(L) "Good Reason" means:
-----------
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities immediately prior to either the Potential Change in Control
which precedes the Change in Control or the Change in Control or any other
action by the Company which results in a diminution in any respect in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) a reduction by the Company in the Executive's annual
base salary as in effect on the date hereof or as the same may be increased from
time to time;
(iii) the failure by the Company to increase the Executive's
base salary each year after a Change in Control by an amount which at least
equals, on a percentage basis, the
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mean average percentage increase in base salary for all officers of the Company
during the two full calendar years immediately preceding a Change in Control;
(iv) the Company's requiring the Executive to be based at
any office or location that is more than forty (40) miles from the Executive's
office or location immediately prior to either the Potential Change in Control
which precedes the Change in Control or the Change in Control but only if such
change involves a material increase in the employee's cost of living and is not
accompanied by a commensurate increase in compensation and benefits;
(v) the Company's requiring the Executive to travel on
Company business to a substantially greater extent than required immediately
prior to either the Potential Change in Control which precedes the Change in
Control or the Change in Control;
(vi) the failure by the Company, without the Executive's
consent, to pay to the Executive any portion of the Executive's current
compensation, or to pay to the Executive any portion of an installment of
deferred compensation under any deferred compensation program of the Company
within seven (7) days of the date such compensation is due;
(vii) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately prior to
either the Potential Change in Control preceding the Change in Control or the
Change in Control which is material to the Executive's total compensation,
including but not limited to the KESOP or DSOP or any substitute or alternative
plans adopted prior to either the Potential Change in Control preceding the
Change in Control or the Change in Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to continue the Executive's
participation therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of
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benefits provided and the level of the Executive's participation relative to
other participants, as existed at the time of the Change in Control;
(viii) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the Executive
under any of the Company's pension, life insurance, medical, health and
accident, disability or other welfare plans, including this Agreement, in which
the Executive was participating at the time of the Change in Control, the taking
of any action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any material fringe
benefit enjoyed by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the number of paid vacation
days to which the Executive is entitled on the basis of years of service with
the Company in accordance with the Company's normal vacation policy in effect at
the time of the Change in Control;
(ix) any purported termination by the Company of the
Executive's employment after a Change in Control otherwise than in accordance
with the termination procedures of Sections 2.9(A) through 2.9(D) hereof; or
(x) any failure by the Company to comply with and satisfy
Section 3.3 of this Agreement.
(M) "KESOP" means the ValliCorp Holdings, Inc. Amended and
-----
Restated Key Employee Stock Option Plan, as last amended effective on May 20,
1996, and any successor or replacement plan thereof.
(N) "Notice of Intent to Terminate" shall have the meaning
-----------------------------
assigned to such term in Section 2.9(A) hereof.
(O) "Person" shall have the meaning given in Section 3(a)(9) of
------
the Exchange Act, as modified and used in Section 13(d)(3) thereof.
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(P) "Potential Change in Control" means the occurrence of any of
---------------------------
the following:
(i) the Board approves a transaction described in
Subsection (ii) or (iv) of the definition of Change in Control contained herein;
(ii) the commencement of a proxy contest in which any
Person seeks to replace or remove a majority of the members of the Board; or
(iii) any Person files an application with the Board of
Governors of the Federal Reserve System for approval of the acquisition of more
than five percent (5%) of the Company's voting securities, or of any class
thereof, under the Bank Holding Company Act of 1956, as amended, or any
successor statute thereto, or files a notice of intent to acquire ten percent
(10%) or more of the Company's outstanding voting securities, or any class
thereof, pursuant to the Change in Bank Control Act or any successor statute
thereto.
(Q) "Severance Benefits" has the meaning assigned to such term
------------------
in Section 2.6(B) hereof.
(R) "Vested Bonus Amount" shall have the meaning assigned to
-------------------
such term in Section 2.5 hereof.
SECTION 9. GENERAL
- ------- -------
9.1 Non-Competition Clause. In addition to his obligations as an
----------------------
executive and whether or not he remains an executive of the Company, the
Executive agrees that during the period commencing with the Commencement Date
and ending upon termination of employment with the Company, however caused, he
will not, without the prior written consent of the Company, engage, directly or
indirectly, in any business that competes with the Company for customers of the
Company. In the event of a breach by the Executive of this Section 3.1, in
addition to other remedies provided by applicable law, the Company will be
entitled
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to issuance of a temporary restraining order or preliminary injunction enforcing
its rights under this Section 3.1.
9.2 Proprietary Information.
-----------------------
(A) The Executive agrees to comply fully with the Company's
policies relating to nondisclosure of the Company's trade secrets and
proprietary information and processes. Without limiting the generality of the
foregoing, the Executive will not, during the term of his employment by the
Company, disclose any such secrets, information, or processes to any person,
firm, corporation, association, or other entity for any reason or purpose
whatsoever, nor shall the Executive make use of any such property for his own
purposes or for the benefit of any person, firm, corporation, or other entity
(except the Company) under any circumstances during or after the term of his
employment, provided that after the term of his employment, this provision shall
not apply to secrets, information, and processes that are then in the public
domain (provided that the Executive was not responsible, directly or indirectly,
for such secrets, information, or processes entering the public domain without
the Company's consent).
(B) The Executive hereby sells, transfers, and assigns to the
Company all of the entire right, title, and interest of the Executive in and to
all inventions, ideas, disclosures, and improvements, whether patented or
unpatented, and copyrightable material, to the extent made or conceived by the
Executive, solely or jointly, during the term of this Agreement, except to the
extent prohibited by Section 2870 of the California Labor Code, a copy of which
is attached hereto as Exhibit A. The Executive shall communicate promptly and
disclose to the Company, in such form as the Company requests, all information,
details, and data pertaining to the aforementioned inventions, ideas,
disclosures, and improvements; and, whether during the term hereof or
thereafter, the Executive shall execute and deliver to the Company such formal
transfers and assignments and such other papers and documents as may be required
of the Executive to permit the Company to file and prosecute any patent
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applications relating to such inventions, ideas, disclosures, and improvements
and, as to copyrightable material, to obtain copyright thereon.
(C) Trade secrets, proprietary information, and processes shall
not be deemed to include information which is:
(i) known to the Executive at the time of the disclosure;
(ii) publicly known (or becomes publicly known) without the
fault or negligence of the Executive;
(iii) received from a third party without restriction and
without breach of this Agreement;
(iv) approved for release by written authorization of the
Company; or
(v) required to be disclosed by law; provided, however,
-------- -------
that in the event of a proposed disclosure pursuant to this subsection
3.2(C)(v), the recipient shall give the Company prior written notice before such
disclosure is made.
In the event of a breach by the Executive of this Section 3.2, in
addition to other remedies provided by applicable law, the Company will be
entitled to issuance of a temporary restraining order or preliminary injunction
enforcing its rights under this Section 3.2.
9.3 Successors. In addition to any obligations imposed by law upon
----------
any successor to the Company, the Company shall be obligated to require any
successor (whether direct or indirect, by purchase, merger, consolidation,
operation of law, or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption
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and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation and
benefits from the Company in the same amount and on the same terms as the
Executive would be entitled to hereunder if the Executive were to terminate the
Executive's employment for Good Reason during the Coverage Period, except that,
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
9.4 Incompetency. Any benefit payable to or for the benefit of the
------------
Executive, if legally incompetent, or incapable of giving a receipt therefor,
shall be deemed paid when paid to the Executive's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Company.
9.5 Death. Except as otherwise provided herein, this Agreement shall
-----
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still
be payable to the Executive hereunder (other than amounts which, by their terms,
terminate upon the death of the Executive) if the Executive had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
9.6 Notices. For the purpose of this Agreement, notices and all
-------
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth below, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon actual receipt:
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To the Company:
ValliCorp Holdings, Inc.
8405 North Fresno Street
Fresno, California 93720
Attention:
Executive Vice President and General Counsel
To the Executive:
EDWIN L. HERBERT
ValliCorp Holdings, Inc.
8405 North Fresno Street
Fresno, CA 93720
9.7 Modification, Waiver. No provision of this Agreement may be
--------------------
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
9.8 Entire Agreement. No agreements or representations, oral or
----------------
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
This Agreement supercedes and replaces the Agreement dated as of July 1, 1995,
between the Company and the Executive.
9.9 Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
Delaware.
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9.10 Statutory Changes. All references to sections of the Exchange
-----------------
Act or the Code shall be deemed also to refer to any successor provisions to
such sections.
9.11 Withholding. Any payments provided for hereunder shall be paid
-----------
net of any applicable withholding required under federal, state or local law and
any additional withholding to which the Executive has agreed.
9.12 Savings Clause. If any term, covenant, or condition of this
--------------
Agreement or the application thereof to any person or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term, covenant, or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant, or condition of this Agreement shall
be valid and enforced to the fullest extent permitted by law.
9.13 Authority to Contract. The Company warrants and represents
---------------------
that it has full authority to enter into this Agreement and to consummate the
transactions contemplated hereby and that this Agreement is not in conflict with
any other agreement to which the Company is a party or by which it may be bound.
The Company hereto further warrants and represents that the individuals
executing this Agreement on behalf of the Company have the full power and
authority to bind the Company to the terms hereof and have been authorized to do
so in accordance with the Company's corporate organization.
9.14 No Assignment of Benefits. Except as otherwise provided herein
-------------------------
or by law, no right or interest of the Executive under the Agreement shall be
assignable or transferable, in whole or in part, either directly or by operation
of law or otherwise, including without limitation by execution, levy,
garnishment, attachment, pledge or in any manner; no attempted assignment or
transfer thereof shall be effective; and no right or interest of the Executive
under this Agreement shall be liable for, or subject to, any obligation or
liability of the Executive.
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9.15 Headings. The headings and captions herein are provided for
--------
reference and convenience only, shall not be considered part of the Agreement,
and shall not be employed in the construction of the Agreement.
9.16 Force Majeure. Neither party shall be liable to the other for
-------------
any delay or failure to perform hereunder, which delay or failure is due to
causes beyond the control of said party, including, but not limited to: acts of
God; acts of the public enemy; acts of the United States of America, or any
State territory, or political subdivision thereof or of the District of
Columbia; fires; floods; epidemics; quarantine restrictions; strikes; or freight
embargoes. Notwithstanding the foregoing provisions of this Section, in every
case the delay or failure to perform must be beyond the control and without the
fault or negligence of the party claiming excusable delay.
9.17 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
9.18 Definitions
-----------
(A) "Company" means ValliCorp Holdings, Inc., a Delaware
-------
corporation. If the Executive becomes employed by a direct or indirect
Subsidiary of ValliCorp Holdings, Inc., the "Company" shall be deemed to refer
to the Subsidiary thereof by which the Executive is employed. In such case,
references to payments, benefits, privileges or other rights to be accorded by
"the Company" shall be deemed to refer to such payments, benefits, privileges or
other rights to be provided by the Subsidiary by which the Executive is employed
or to ValliCorp Holdings, Inc., as the case may be, to correspond to the
corporate entity obligated to make payments or provide benefits, privileges or
other rights pursuant to employee benefit plans affected by the provisions
hereof, and in the absence of any such existing plans or provisions, such
reference shall be deemed to be to ValliCorp Holdings, Inc.
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(B) "Disability" means that the Executive has been unable to
----------
perform his duties under this Agreement for a period of three (3) consecutive
months as the result of his incapacity due to physical or mental illness.
(C) "Subsidiary" means any corporation controlled by the
----------
Company, directly or indirectly.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its officer, thereunto duly authorized, and the Executive has
executed this Agreement, all as of the day and year first above written.
VALLICORP HOLDINGS, INC.
By___________________________
Name: J. MIKE McGOWAN
Title: Chairman and Chief
Executive Officer
------------------------------
EDWIN L. HERBERT
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EXHIBIT A
---------
Section 2870. Application of provision providing that employee shall assign or
offer to assign rights in invention to employer
(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of his rights in an invention to his
employer shall not apply to an invention that the employee developed entirely on
his own time without using the employer's equipment, supplies, facilities, or
trade secret information except for those inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to require an
employee to assign an invention otherwise excluded from being required to be
assigned under subdivision (a), the provision is against the public policy of
this state and is unenforceable.
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT - WOLFGANG T.N. MUELLECK
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<PAGE>
AGREEMENT
---------
THIS AGREEMENT dated July 1, 1996, is made by and between ValliCorp
Holdings, Inc., a Delaware corporation (the "Company"), and WOLFGANG T.N.
MUELLECK (the "Executive").
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company, on the terms set forth herein; and
WHEREAS, the Board of Directors of the Company (the "Board")
recognizes that the possibility of a Change in Control (as defined in Section
2.14(E) hereof) exists, as in the case of any publicly-held corporation, and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders; and
WHEREAS, as a part of the terms of the Executive's employment the
Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of the Executive to his
assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control.
NOW THEREFORE, in consideration of the promises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
SECTION 10. EMPLOYMENT
- ------- ----------
10.1 Employment. The Company hereby employs the Executive and the
----------
Executive hereby accepts employment during the Term of Employment upon the terms
and conditions set forth herein.
10.2 Term of Employment. The "Term of Employment" is the period
------------------
beginning on July 1, 1996 (the "Commencement Date") and ending on June 30, 2000.
The Term of Employment may
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terminate earlier or be extended as provided in this Agreement; provided
however, that this Agreement shall not terminate earlier than the date that the
provisions of Section 2 hereof cease to be applicable.
10.3 Renewal. The Term of Employment shall be extended for one year
-------
on each anniversary of the Commencement Date unless (a) the Company or the
Executive has given three (3) months' written notice of its or his intent not to
extend the termination date or (b) the Term of Employment has been terminated
under the provisions of Section 1.9 or 1.10.
10.4 Duties. The Executive is employed as Executive Vice President
------
and Chief Financial Officer of the Company and, under the direction of the Board
and Chief Operating Officer, shall perform and discharge well and faithfully the
duties that may be assigned to him from time to time by the Chief Operating
Officer in connection with the conduct of the Company's business.
10.5 Extent of Services. The Executive shall devote his entire
------------------
business time, attention, and energies to the business of the Company during the
term of the Executive's employment with the Company. The foregoing, however,
shall not preclude the Executive from engaging in appropriate civic, charitable,
or religious activities or from devoting a reasonable amount of time to private
investments or from serving on boards of directors of other entities, as long as
such activities and services do not interfere or conflict with his
responsibilities to the Company.
10.6 Locations of Performance. The Executive's services shall be
------------------------
performed primarily in the vicinity of Fresno, California. The parties
acknowledge, however, that the Executive may be required to travel in connection
with the performance of his duties hereunder.
10.7 Compensation.
------------
(A) Salary. During the Term of Employment, the Company shall pay
------
the Executive a monthly salary of $12,250.00,
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payable in arrears in installments on the 15th and the last day of each month.
The Executive's salary shall be adjusted annually, on the anniversary of this
Agreement, to reflect such changes as the Board determines appropriate, based on
the Executive's performance for the most recent performance period.
(B) Incentive Programs. During the Term of Employment, the
------------------
Executive shall be entitled to participate in any annual and long-term
incentive programs adopted by the Company and which cover employees in
positions comparable to that of the Executive.
(C) Expenses. The Executive shall be entitled to prompt
--------
reimbursement of all reasonable business expenses incurred by him in the
performance of his duties during the Term of Employment, subject to the
presenting of appropriate vouchers and receipts in accordance with the Company's
policies.
10.8 Employee Benefits. During the Term of Employment, the Executive
-----------------
shall be entitled to participate in employee benefit plans or programs of the
Company, if any, to the extent that his position, tenure, salary, age, health,
and other qualifications make him eligible to participate, subject to the rules
and regulations applicable thereto.
10.9 Termination by the Company; Death. Notwithstanding the provisions
---------------------------------
of Sections 1.2 and 1.3, and except for situations in which the termination of
employment provisions of Section 2 apply, the Term of Employment and the
Executive's employment hereunder may be terminated by the Company without any
breach of this Agreement under the following circumstances:
(A) Involuntary Termination. The Executive's employment is at
-----------------------
will. The Company reserves the right to terminate the Executive's employment at
any time whatsoever, with or without cause, with thirty (30) days' written
notice to the Executive. The Term of Employment shall terminate on the last day
of the notice period, but the Company may require the
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Executive to cease performing services at any time once the notice is given.
(B) Involuntary Termination for Just Cause. The Company reserves
--------------------------------------
the right to terminate the Executive's employment for Just Cause. "Just Cause"
shall exist if the Executive has: (i) willfully breached or habitually neglected
the duties which he was required to perform under the terms of this Agreement,
or (ii) committed act(s) of dishonesty, theft, embezzlement, fraud,
misrepresentation, or other act(s) of moral turpitude against the Company, its
subsidiaries or affiliates, its shareholders, or its employees. The Company
shall give the Executive written notice of the termination and the reasons
therefor. The Term of Employment shall terminate immediately upon receipt of the
notice.
(C) Disability. The Term of Employment shall terminate three (3)
----------
months after the Company gives the Executive written notice that it intends to
terminate his employment on account of Disability or on such later date as the
Company specifies in such notice. If the Executive resumes the performance of
substantially all of his duties under this Agreement before the termination
becomes effective, the notice of intent to terminate shall be deemed to have
been revoked.
(D) Death. The Term of Employment shall terminate upon the
-----
Executive's death.
10.10 Termination By The Executive. Notwithstanding the provisions of
----------------------------
Sections 1.2 and 1.3, the Term of Employment and the Executive's employment
hereunder may be terminated without any breach of this Agreement by the
Executive under the following circumstances:
(A) Voluntary Termination. Subject to Section 2.4 hereof, the
---------------------
Executive may terminate his employment with the Company at any time with three
(3) months' written notice to the Company. The Term of Employment shall end on
the last day on which the Executive performs services for the Company.
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(B) Termination for Good Cause. The Executive may terminate his
--------------------------
employment with the Company for Good Cause by giving the Company thirty (30)
days' notice of its breach, the reasons why the breach constitutes Good Cause
and of his intent to terminate on such basis. If the Company cures its breach
within the thirty (30) day period, the Executive may rescind his notice of
intent to terminate, or terminate his employment under Section 1.10(A) hereof as
though his notice of breach was the notice provided for under Section 1.10(A).
If the Company fails to cure its breach within the thirty (30) day period, the
Term of Employment shall end on the last day of the notice period.
The term "Good Cause" as used herein means a material reduction in the
Executive's compensation under Section 1.7 or benefits under Section 1.8, a
material reduction in the Executive's title or responsibilities, or a relocation
of the Executive's primary place of employment so that the Executive's one-way
commute distance is increased by more than (40) miles.
10.11 Benefits on Termination of Employment. Except as provided in
-------------------------------------
Section 2.1 hereof, if the Executive's employment is terminated during the Term
of Employment, the Executive shall be entitled to receive the following
benefits:
(A) Death; Disability; Voluntary Termination; Termination for
---------------------------------------------------------
Just Cause. If employment is terminated under Section 1.9 (B), (C), or (D), or
- ----------
Section 1.10(A), the Executive shall receive (i) salary through the Term of
Employment; (ii) any incentive compensation earned but not yet paid; and (iii)
reimbursement of expenses incurred under Section 1.7(C) but not yet reimbursed.
All other employee benefits and compensation shall cease on the last day on
which the Executive performs services as an employee, except to the extent that
continued coverage is required by law.
(B) Involuntary Termination; Termination For Good Cause. If the
---------------------------------------------------
Executive's employment is terminated under the provisions of Sections 1.9(A) or
1.10(B), the Executive shall receive in a lump sum payment an amount equal to
the sum of
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clauses (i) through (iii) in Section 1.11(A), and, in addition, twelve (12)
months of salary under Section 1.7(A) computed with reference to the annual
salary in effect immediately preceding the date of termination.
All other employee benefits and compensation, including any incentive benefits
for the year in which the Term of Employment ends, shall cease on the last day
on which the Executive performs services as an employee of the Company except to
the extent that continued coverage is required by law.
10.12 Non-Renewal. If the Executive or the Company gives notice of
-----------
intent not to extend the Term of Employment under Section 1.3, the Executive's
salary and benefits shall cease on the last day of the Term of Employment,
except to the extent that continued coverage is required by law.
10.13 Recovery of Litigation Costs. If any legal action or other
----------------------------
preceding is brought for the enforcement of any provision under Section 1 of
this Agreement (or Section 3 of this Agreement in connection with its
applicability under Section 1 of this Agreement) or any agreement or instrument
delivered under or in connection with Section 1 of this Agreement (or Section 3
of this Agreement in connection with its applicability under Section 1 of this
Agreement), or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of Section 1 of this
Agreement (or Section 3 of this Agreement in connection with its applicability
under Section 1 of this Agreement), the successful or prevailing party or
parties shall be entitled to recover reasonable attorney's fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled.
SECTION 11. TERMINATION OF EMPLOYMENT IN CONNECTION WITH A CHANGE IN CONTROL
- ------- ----------------------------------------------------------------
11.1 Applicability of Section 2. No payments will be required under
--------------------------
Section 1.11 of this Agreement in connection with the Executive's Termination of
Employment to the extent that the
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payments and benefits provided for by Section 2 of this Agreement are paid or
provided to the Executive.
11.2 Term of Change in Control Provisions. Either the Company or the
------------------------------------
Executive may terminate the applicability of the provisions of this Section 2 by
giving the other at least one (1) year advance written notice of termination
thereof; provided, however, that if a Change in Control shall have occurred
during the term of this Agreement, the provisions of Section 2 hereunder shall
continue in effect until all obligations of either party hereto have been
performed in full. Notwithstanding the foregoing, the provisions of this Section
2 shall terminate upon the Executive's attaining age sixty-five (65), except as
to obligations of the Company hereunder arising from a Change in Control and/or
a termination of the Executive's employment prior to his having reached such
age.
11.3 Company's Covenants Summarized. In order to induce the Executive
------------------------------
to remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 2.4 hereof, the Company agrees, under the terms
and conditions set forth herein, that, upon a Change in Control during the term
of this Agreement, certain benefits shall thereupon become vested as set forth
in Section 2.5 hereof, and paid in accordance with the provisions thereof, and,
in the event that the Executive's employment with the Company is terminated
thereafter during the Coverage Period, the Company shall pay the Executive the
amounts provided for in Section 2.6 hereof.
11.4 The Executive's Covenant. The Executive agrees that, subject to
------------------------
the terms and conditions of this Agreement, and notwithstanding the provisions
in Section 1.10(A) of this Agreement, in the event of a Potential Change in
Control, the Executive will remain in the employ of the Company until the
earliest of (a) a date which is nine (9) months after the date of such Potential
Change of Control, (b) the date of a Change in Control, (c) the date of
termination by the Executive of the Executive's employment for Good Reason
(determined by treating the Potential Change in Control for this purpose as a
Change in
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Control in applying the definition of Good Reason) or by reason of death or
Disability, (d) the termination by the Company of the Executive's employment for
any reason, or (e) the Executive's attaining age sixty-five (65).
11.5 Vesting of Bonus in the Event of a Change in Control. Upon the
----------------------------------------------------
occurrence of a Change in Control, the Executive shall have a vested and
nonforfeitable right to receive in cash an amount equal to the target bonus
amount which the Executive could earn for the year in which the Change in
Control occurs pursuant to the ValliCorp Holdings, Inc. Executive Management
Committee's Management Bonus Program for such year, or under any other
management incentive plan or program in effect in such year, as if 100% of all
objectives provided for thereunder had been met for that year (the "Vested Bonus
Amount"). The Executive's Vested Bonus Amount pursuant to the preceding sentence
shall be promptly paid to the Executive at the date on which such bonus would
have been paid pursuant to such plan or program if no Change in Control had
occurred. Notwithstanding the foregoing, however, in the event that the
Executive's Date of Termination after a Change in Control falls in the fiscal
year in which such Change in Control occurs, the Executive shall not be entitled
to receive a bonus pursuant to this Section 2.5, but shall instead be entitled
to the bonus amount as provided in Section 2.6(B)(iii) hereof.
11.6 Benefits and Rights upon Termination of Employment.
--------------------------------------------------
(A) General Termination Rights and Benefits. If the Executive's
---------------------------------------
employment by the Company is terminated after a Change in Control for any reason
(whether by the Company or the Executive), the Company shall pay to the
Executive the payments described in Subsections (i) through (iii) below.
(i) Previously Earned Salary. The Company shall pay the
------------------------
Executive's full salary to the Executive through the Date of Termination at the
highest rate in effect during the sixty (60) day period preceding the date the
Notice of Intent to
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Terminate is given, together with all compensation and benefits payable to the
Executive through the Date of Termination under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period.
(ii) Previously Earned Benefits. The Company shall pay the
--------------------------
Executive's normal post-termination compensation and benefits to the Executive
as such payments become due. Such post-termination compensation and benefits
shall be determined under, and paid in accordance with, the Company's
retirement, insurance, pension, welfare and other compensation or benefit plans,
programs and arrangements.
(iii) Payment of Vested Bonus Amount. Except to the extent
------------------------------
that the Company has previously paid to the Executive all or a portion of his
Vested Bonus Amount pursuant to Section 2.5 hereof, the Company shall pay to the
Executive a lump sum cash payment equal to the Executive's Vested Bonus Amount.
(B) Severance Benefits. In addition to the payments provided
------------------
for by Section 2.6(A) hereof, the Company shall pay to the Executive the
payments described in Subsections (i) through (iii) below (the "Severance
Benefits") upon termination of the Executive's employment with the Company
during the Coverage Period, unless such termination is (a) by the Company for
Cause, (b) by reason of the Executive's death or Disability or after the
Executive attains age sixty-five (65) or (c) by the Executive without Good
Reason.
(i) Lump-Sum Severance Payment. In lieu of any further
--------------------------
salary payments to the Executive for periods subsequent to the Date of
Termination, the Company shall pay to the Executive a lump sum severance
payment, in cash, equal to two (2) (or, if less, the number of years, including
fractions, from the Date of Termination until the Executive would have reached
age sixty-five (65)) times the sum of (a) the Executive's Annual Base Salary and
(b) the Executive's Annual Bonus. Notwithstanding the preceding sentence, the
amount of the lump sum payment provided for therein shall be reduced by any lump
sum cash severance
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payment which is actually paid by the Company to the Executive pursuant to any
other plan or agreement on or prior to the date on which the payment pursuant to
this Subsection 2.6(B)(i) is required to be paid.
(ii) Continued Benefits. For a twenty-four (24) month
------------------
period (or, if less, the number of months from the Date of Termination until the
Executive would have reached age sixty-five (65)) after the Date of Termination
(the "Benefits Period"), the Company shall provide the Executive with group term
life insurance, health insurance and long-term disability insurance benefits
("Welfare Benefits") substantially similar in all respects to those which the
Executive is receiving immediately prior to the Notice of Termination (without
giving effect to any reduction in such benefits subsequent to a Change in
Control which reduction constitutes or may constitute Good Reason). Benefits
otherwise receivable by the Executive pursuant to this Section 2.6(B)(ii) shall
be reduced to the extent substantially similar benefits are actually received by
or made available to the Executive by any other employer during the same time
period for which such benefits would be provided pursuant to this Section
2.6(B)(ii) at a cost to the Executive that is commensurate with the cost
incurred by the Executive immediately prior to the Executive's Date of
Termination (without giving effect to any increased costs paid by the Executive
after the Change in Control which constituted or might have constituted Good
Reason); provided, however, that if the Executive becomes employed by a new
employer which maintains a medical plan that either (i) does not cover the
Executive or a family member or dependent with respect to a preexisting
condition which was covered under the applicable Company medical plan, or (ii)
does not cover the Executive or a family member or dependent for a designated
waiting period, the Executive's coverage under the applicable Company medical
plan shall continue (but shall be limited in the event of noncoverage due to a
preexisting condition, to such preexisting condition) until the earlier of the
end of the applicable period of noncoverage under the new employer's plan or the
end of the Benefits Period. The Executive agrees to report to the Company any
coverage and benefits
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actually received by the Executive from such other employer(s). The Executive
shall be entitled to elect to change his level of coverage and/or his choice of
coverage options (such as the Executive only or family medical coverage) with
respect to the Welfare Benefits to be provided by the Company to the Executive
to the same extent that actively employed senior executives of the Company are
permitted to make such changes; provided, however, that in the event of any such
changes the Executive shall pay the amount of any cost increase that would
actually be paid by an actively employed executive of the Company by reason of
making the same change in his level of coverage or coverage options.
(iii) Bonus for Year in Which Date of Termination Occurs.
--------------------------------------------------
The Company shall pay to the Executive a lump sum cash amount equal to the
product of (x) and (y), where (x) is an amount equal to the target bonus amount
which the Executive could earn for the year in which the Date of Termination
occurs pursuant to the ValliCorp Holdings, Inc. Executive Management Committee's
Management Bonus Program for such year, or under any other management incentive
plan or program in effect in such year, as if 100% of all objectives provided
for thereunder had been met for that year, and (y) is a fraction the numerator
of which is the number of days from and including the first day of the year in
which the Date of Termination occurs until (and including) the Executive's Date
of Termination and the denominator of which is 365 days.
(C) Gross-Up Payment. In the event that the Executive becomes
----------------
entitled to the Severance Benefits or any other benefits or payments under
Section 2 of this Agreement (other than pursuant to this Section 2.6(C)) or the
KESOP or DSOP by reason of the accelerated vesting of stock options thereunder
(together, the "Total Benefits"), and in the event that any of the Total
Benefits will be subject to the Excise Tax, the Company shall pay to the
Executive an additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of any Excise Tax on the Total
Benefits and any federal, state and local income tax, Excise Taxes and FICA and
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Medicare withholding taxes upon the payment provided for by this Section 2.6(C),
shall be equal to the Total Benefits.
For purposes of determining whether any of the Total Benefits will be
subject to the Excise Tax and the amount of such Excise Tax, (i) any other
payments or benefits received or to be received by the Executive in connection
with a Change in Control or the Executive's termination of employment (whether
pursuant to the terms of this Agreement or any other agreement, plan or
arrangement with the Company, any Person whose actions result in a Change in
Control or any Person affiliated with the Company or such Person) shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion
of tax counsel ("Tax Counsel") selected by the Company's independent auditors
and acceptable to the Executive, such other payments or benefits (in whole or in
part) do not constitute parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in excess of the
Base Amount, or are otherwise not subject to the Excise Tax, (ii) the amount of
the Total Benefits which shall be treated as subject to the Excise Tax shall be
equal to the lesser of (A) the total amount of the Total Benefits reduced by the
amount of such Total Benefits that in the opinion of Tax Counsel are not
parachute payments, or (B) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the
value of any non-cash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with the
principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's residence on the Date of Termination, net of the
reduction in federal income taxes
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which could be obtained from deduction of such state and local taxes (calculated
by assuming that any reduction under Section 68 of the Code in the amount of
itemized deductions allowable to the Executive applies first to reduce the
amount of such state and local income taxes that would otherwise be deductible
by the Executive).
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax, federal, state
and local income taxes and FICA and Medicare withholding taxes imposed on the
Gross-Up Payment being repaid by the Executive to the extent that such repayment
results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or
a federal, state or local income tax deduction) plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of the Executive's employment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment to the Executive in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) at the time that the amount of such excess is finally determined.
11.7 Timing of Payments. The payments provided for in Sections 2.6(A)
------------------
through 2.6(C) (other than Section 2.6(B)(ii) hereof) shall be made on the Date
of Termination, provided, however, that if the amounts of such payments cannot
be finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the
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rate provided in Section 1274(b)(2)(B) of the Code from the fifth (5th) day
following the Date of Termination to the payment of such remainder) as soon as
the amount thereof can be determined but in no event later than the thirtieth
(30th) day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) business day after demand by the Company (together with interest
at the rate provided in Section 1274(b)(2)(B) of the Code from the fifth (5th)
day following the Date of Termination to the repayment of such excess).
11.8 Reimbursement of Legal Costs. The Company shall pay to the
----------------------------
Executive all legal fees and expenses incurred by the Executive as a result of a
termination which entitles the Executive to any payments under Section 2 of this
Agreement, including all such fees and expenses, if any, incurred in contesting
or disputing any Notice of Intent to Terminate under Section 2.9(C) hereof or in
seeking to obtain or enforce any right or benefit provided by Section 2 of this
Agreement (or Section 3 of this Agreement in connection with its applicability
under Section 2 of this Agreement), or in connection with any tax audit or
proceeding to the extent attributable to the application of section 4999 of the
Code to any payment or benefit provided hereunder. Such payments shall be made
within five (5) business days after delivery of the Executive's respective
written requests for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
11.9 Termination Procedures and Compensation During Dispute
------------------------------------------------------
(A) Notice of Intent To Terminate. After a Change in Control, any
-----------------------------
purported termination of the Executive's employment (other than by reason of
death) must be preceded by a written Notice of Intent to Terminate from one
party hereto to the other party hereto in accordance with Section 3.6 hereof.
For purposes of this Agreement, a "Notice of Intent to Terminate"
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shall mean a notice which shall indicate the notifying party's opinion regarding
the specific provisions of this Agreement that will apply upon such termination
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for the application of the provisions indicated. Further, a
Notice of Intent to Terminate for Cause is required to include a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting of the Board which was
called and held for the purpose of considering such termination (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive was guilty of
conduct set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
(B) Date of Termination. "Date of Termination", with respect to any
-------------------
purported termination of the Executive's employment after a Change in Control,
shall mean, except as provided in Section 2.9(C) hereof, (a) if the Executive's
employment is terminated for Disability, three (3) months after Notice of Intent
to Terminate is given (provided that the Executive shall not have returned to
the full-time performance of the Executive's duties during such three (3) month
period), and (b) if the Executive's employment is terminated for any other
reason, the date specified in the Notice of Intent to Terminate (which, in the
case of a termination by the Company, shall not be less than thirty (30) days
after Notice of Intent to Terminate is given (except in the case of a
termination for Cause in which case it shall not be less than ten (10) days
after Notice of Intent to Terminate is given, provided that the Company may
require the Executive not to report to work during such ten (10) day period),
and, in the case of a termination by the Executive, shall not be less than
fifteen (15) days nor more than sixty (60) days, respectively, from the date
such Notice of Intent to Terminate is given).
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(C) Dispute Concerning Termination. If within fifteen (15) days
------------------------------
after any Notice of Intent to Terminate is given, or, if later, prior to the
Date of Termination (as determined without regard to this Section 2.9(C)), the
party receiving such Notice of Intent to Terminate notifies the other party that
a dispute exists concerning the termination or the provisions of this Agreement
that apply to such termination, the Date of Termination shall be the date on
which the dispute is finally resolved, either by mutual written agreement of the
parties or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided further
that the Date of Termination shall be extended by a notice of dispute only if
such notice is given in good faith and the party giving such notice pursues the
resolution of such dispute with reasonable diligence.
(D) Compensation During Dispute. If a purported termination occurs
---------------------------
following a Change in Control and such termination or the provisions of Section
2 of this Agreement that apply upon such termination is disputed in accordance
with Section 2.9(C) hereof, the Company shall continue to pay the Executive the
full compensation (including, but not limited to, salary) at the highest rate in
effect during the sixty (60) day period preceding the date that the Notice of
Intent to Terminate was given and continue the Executive as a participant in all
compensation, benefit, insurance and pension and welfare benefit plans in which
the Executive was participating when the Notice of Intent to Terminate was given
(not taking into account any reductions in compensation, benefits or insurance
under such plans occurring during the sixty (60) day period preceding the date
that the Notice of Intent to Terminate was given), until the dispute is finally
resolved in accordance with Section 2.9(C) hereof. Amounts paid under this
Section 2.9(D) are in addition to all other amounts due under Section 2 of this
Agreement (other than those due under Section 2.6(A)(i) hereof) and shall not be
offset against or reduce any other amounts due under this Agreement.
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11.10 No Mitigation. The Company agrees that, if the Executive's
-------------
employment by the Company is terminated during the Coverage Period, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to this
Agreement. Further, the amount of any payment or benefit provided for under this
Agreement (other than to the extent provided in Section 2.6(B)(ii) and Section
2.6(B)(iii)) shall not be reduced by any compensation earned by the Executive as
the result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Executive to the Company, or
otherwise.
11.11 Terminations in Anticipation of Change in Control. The
-------------------------------------------------
Executive's employment shall be deemed to have been terminated by the Company
without Cause during the Coverage Period if the Executive's employment is
terminated by the Company without Cause prior to a Change in Control and such
termination of employment (a) was at the request of a third party who has taken
steps reasonably calculated to effect a Change in Control or (b) otherwise arose
in anticipation of a Change in Control. The Executive's employment shall be
deemed to have been terminated by the Executive for Good Reason during the
Coverage Period if the Executive terminates his employment with Good Reason
prior to a Change in Control if the circumstance or event which constitutes Good
Reason occurs (a) at the request of a third party who has taken steps reasonably
calculated to effect a Change in Control or (b) otherwise arose in anticipation
of a Change in Control. In the event of a termination of employment described in
this Section 2.11, the Executive shall be entitled to all payments and other
benefits to which the Executive would have been entitled had such termination
occurred during the Coverage Period (other than salary pursuant to Section
2.6(A)(i) hereof for any period after the actual date of termination) and the
Executive shall be entitled to an additional payment in an amount which shall
compensate the Executive to the extent that the Executive was deprived by such
termination of the opportunity prior to termination of employment to exercise
stock options granted to him under the KESOP or DSOP at the highest market
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price of the Company's Common Stock reached in connection with the Change in
Control. Notwithstanding the provisions of Section 2.13 hereof, for purposes of
this Section 2.11 only, the burden of proving that the requirements of clauses
(a) and (b) of the first and second sentences of this Section 2.11 have been met
shall be on the Executive and the standard of proof to be met by the Executive
shall be clear and convincing evidence, except that, in the event that the
termination of employment occurs following a Potential Change in Control or
within two (2) months prior to a Change in Control, the burden of proving that
the requirements of clauses (a) and (b) of the first and second sentences of
this Section 2.11 have not been met shall be upon the Company, and the standard
of proof to be met by the Company shall be clear and convincing evidence.
11.12 Reduction of Benefits By Legally Required Benefits.
--------------------------------------------------
Notwithstanding any other provision of this Agreement to the contrary, if the
Company is obligated by law or by contract (other than under this Agreement) to
pay severance pay, a termination indemnity, notice pay, or the like, or if the
Company is obligated by law or by contract to provide advance notice of
separation ("Notice Period"), then any Severance Benefits hereunder shall be
reduced by the amount of any such severance pay, termination indemnity, notice
pay or the like, as applicable, and by the amount of any pay received during any
Notice Period.
11.13 Burden and Standard of Proof. Except as otherwise expressly
----------------------------
provided in Section 2.11 hereof, in any proceeding (regardless of who initiates
such proceeding) in which the payment of Severance Benefits or other benefits
under Section 2 of this Agreement is at issue, the burden of proof as to whether
there exists either Cause or Good Reason for purposes of this Agreement shall be
upon the Company or its successor, and the standard of proof to be met with
respect thereto shall be clear and convincing evidence.
11.14 Definitions
-----------
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(A) "Annual Base Salary" means the higher of (a) the Executive's
------------------
highest annual base salary in effect during the one (1) year period preceding a
Change in Control, or (b) the Executive's highest annual base salary in effect
during the one year period preceding the Executive's Date of Termination.
(B) "Annual Bonus" means the highest of (a) the average of the
------------
three highest bonuses paid or payable, including any bonus or portion thereof
which has been earned but deferred, to the Executive by the Company in respect
of the five fiscal years (or such shorter period during which the Executive has
been employed by the Company) immediately preceding the fiscal year in which a
Change in Control occurs (annualized for any fiscal year during such period
consisting of less than twelve full months or with respect to which the
Executive has been employed by the Company for less than twelve full months),
(b) the bonus paid or payable (annualized as described above), including any
bonus or portion thereof which has been earned but deferred, to the Executive by
the Company in respect of the most recently completed fiscal year prior to the
Change in Control, (c) the bonus paid or payable (annualized as described
above), including any bonus or portion thereof which has been earned or
deferred, for the most recently completed fiscal year preceding the Executive's
Date of Termination, and (d) 100% of the Executive's target bonus award amount
for the year including the Executive's Date of Termination.
(C) "Base Amount" shall have the meaning ascribed to such term in
-----------
Section 280G(b)(3) of the Code.
(D) "Cause" means:
-----
(i) The willful and continued failure of the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief
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Executive Officer believes that the Executive has not substantially performed
the Executive's duties;
(ii) the willful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious to the
Company;
(iii) personal dishonesty or breach of fiduciary duty to the
Company that in either case results or was intended to result in personal profit
to the Executive at the expense of the Company; or
(iv) willful violation of any law, rule or regulation (other
than traffic violations, misdemeanors or similar offenses) or cease-and-desist
order, court order, judgment or supervisory agreement, which violation is
materially and demonstrably injurious to the Company.
For purposes of the preceding clauses, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith and without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon prior approval given by the Board or upon the
instructions or with the approval of the Chief Executive Officer or the
Executive's superior or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of employment
of the Executive shall not be deemed to be for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in
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clauses (i) through (iv) above, and specifying the particulars thereof in
detail.
(E) A "Change in Control" means: a change of control of the
-----------------
Company of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on
any similar schedule or form) promulgated under the Exchange Act, whether or not
the Company is then subject to such reporting requirement; provided, however,
that without limitation, a Change in Control shall be deemed to have occurred
if:
(i) any Person is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act or any successor
provisions thereto), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities;
(ii) a merger or consolidation of the Company is consummated
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least fifty percent
(50%) of the combined voting power either of the Company's then outstanding
securities or of such surviving entity's securities outstanding immediately
after such merger or consolidation;
(iii) the Company's shareholders approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the combined voting power
either of the Company's then outstanding securities or of such surviving
entity's securities
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outstanding immediately after such merger or consolidation, provided however
that, in the event that such merger or con-solidation has not been consummated
by a date which is 180 days after the date of the shareholder vote to approve
such merger or consolidation, no Change in Control shall be deemed to have
occurred pursuant to this subsection 2.14(E)(iii), without prejudice to the
Executive's rights, if any, pursuant to Section 2.11 hereof or, in the event of
a subsequent consummation of such merger or consolidation, pursuant to
Subsection 2.14(E)(ii) hereof;
(iv) the shareholders of the Company approve a plan of
complete liquidation or an agreement for the sale or disposition (in one
transaction or a series of transactions) of all or substantially all of the
Company's assets;
(v) as a result of a proxy contest, individuals who prior to
the conclusion thereof constituted the Board (including for this purpose any new
director whose election or nomination for election by the Company's shareholders
in connection with such proxy contest was approved by a vote of at least two-
thirds of the directors then still in office who were directors prior to such
proxy contest) cease to constitute at least a majority of the Board; or
(vi) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constituted the Board (including
for this purpose any new director whose election or nomination for election by
the Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
(F) "Code" means the Internal Revenue Code of 1986, as amended
----
from time to time.
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(G) "Coverage Period" means the period, commencing on the date on
---------------
which a Change in Control occurs and ending on the second anniversary date
thereof.
(H) "Date of Termination" has the meaning assigned to such term in
-------------------
Section 2.9(B) hereof.
(I) "DSOP" means the ValliCorp Holdings, Inc. Amended and Restated
----
Directors' Stock Option Plan, as last amended effective on May 20, 1996, and any
successor or replacement plan thereof.
(J) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended from time to time.
(K) "Excise Tax" means any excise tax imposed under Section 4999
----------
of the Code.
(L) "Good Reason" means:
-----------
(i) the assignment to the Executive of any duties inconsistent
in any respect with the Executive's position (including status, offices, titles
and reporting requirements), authority, duties or responsibilities immediately
prior to either the Potential Change in Control which precedes the Change in
Control or the Change in Control or any other action by the Company which
results in a diminution in any respect in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased from time
to time;
(iii) the failure by the Company to increase the Executive's
base salary each year after a Change in Control by an amount which at least
equals, on a percentage basis, the
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mean average percentage increase in base salary for all officers of the Company
during the two full calendar years immediately preceding a Change in Control;
(iv) the Company's requiring the Executive to be based at any
office or location that is more than forty (40) miles from the Executive's
office or location immediately prior to either the Potential Change in Control
which precedes the Change in Control or the Change in Control but only if such
change involves a material increase in the employee's cost of living and is not
accompanied by a commensurate increase in compensation and benefits;
(v) the Company's requiring the Executive to travel on Company
business to a substantially greater extent than required immediately prior to
either the Potential Change in Control which precedes the Change in Control or
the Change in Control;
(vi) the failure by the Company, without the Executive's
consent, to pay to the Executive any portion of the Executive's current
compensation, or to pay to the Executive any portion of an installment of
deferred compensation under any deferred compensation program of the Company
within seven (7) days of the date such compensation is due;
(vii) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately prior to
either the Potential Change in Control preceding the Change in Control or the
Change in Control which is material to the Executive's total compensation,
including but not limited to the KESOP or DSOP or any substitute or alternative
plans adopted prior to either the Potential Change in Control preceding the
Change in Control or the Change in Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to continue the Executive's
participation therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of
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benefits provided and the level of the Executive's participation relative to
other participants, as existed at the time of the Change in Control;
(viii) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the Executive
under any of the Company's pension, life insurance, medical, health and
accident, disability or other welfare plans, including this Agreement, in which
the Executive was participating at the time of the Change in Control, the taking
of any action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any material fringe
benefit enjoyed by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the number of paid vacation
days to which the Executive is entitled on the basis of years of service with
the Company in accordance with the Company's normal vacation policy in effect at
the time of the Change in Control;
(ix) any purported termination by the Company of the
Executive's employment after a Change in Control otherwise than in accordance
with the termination procedures of Sections 2.9(A) through 2.9(D) hereof; or
(x) any failure by the Company to comply with and satisfy
Section 3.3 of this Agreement.
(M) "KESOP" means the ValliCorp Holdings, Inc. Amended and
-----
Restated Key Employee Stock Option Plan, as last amended effective on May 20,
1996, and any successor or replacement plan thereof.
(N) "Notice of Intent to Terminate" shall have the meaning
-----------------------------
assigned to such term in Section 2.9(A) hereof.
(O) "Person" shall have the meaning given in Section 3(a)(9) of
------
the Exchange Act, as modified and used in Section 13(d)(3) thereof.
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(P) "Potential Change in Control" means the occurrence of any of
---------------------------
the following:
(i) the Board approves a transaction described in Subsection
(ii) or (iv) of the definition of Change in Control contained herein;
(ii) the commencement of a proxy contest in which any Person
seeks to replace or remove a majority of the members of the Board; or
(iii) any Person files an application with the Board of
Governors of the Federal Reserve System for approval of the acquisition of more
than five percent (5%) of the Company's voting securities, or of any class
thereof, under the Bank Holding Company Act of 1956, as amended, or any
successor statute thereto, or files a notice of intent to acquire ten percent
(10%) or more of the Company's outstanding voting securities, or any class
thereof, pursuant to the Change in Bank Control Act or any successor statute
thereto.
(Q) "Severance Benefits" has the meaning assigned to such term in
------------------
Section 2.6(B) hereof.
(R) "Vested Bonus Amount" shall have the meaning assigned to such
-------------------
term in Section 2.5 hereof.
SECTION 12. GENERAL
- ------- -------
12.1 Non-Competition Clause. In addition to his obligations as an
----------------------
executive and whether or not he remains an executive of the Company, the
Executive agrees that during the period commencing with the Commencement Date
and ending upon termination of employment with the Company, however caused, he
will not, without the prior written consent of the Company, engage, directly or
indirectly, in any business that competes with the Company for customers of the
Company. In the event of a breach by the Executive of this Section 3.1, in
addition to other remedies provided by applicable law, the Company will be
entitled
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to issuance of a temporary restraining order or preliminary injunction enforcing
its rights under this Section 3.1.
12.2 Proprietary Information.
-----------------------
(A) The Executive agrees to comply fully with the Company's
policies relating to nondisclosure of the Company's trade secrets and
proprietary information and processes. Without limiting the generality of the
foregoing, the Executive will not, during the term of his employment by the
Company, disclose any such secrets, information, or processes to any person,
firm, corporation, association, or other entity for any reason or purpose
whatsoever, nor shall the Executive make use of any such property for his own
purposes or for the benefit of any person, firm, corporation, or other entity
(except the Company) under any circumstances during or after the term of his
employment, provided that after the term of his employment, this provision shall
not apply to secrets, information, and processes that are then in the public
domain (provided that the Executive was not responsible, directly or indirectly,
for such secrets, information, or processes entering the public domain without
the Company's consent).
(B) The Executive hereby sells, transfers, and assigns to the
Company all of the entire right, title, and interest of the Executive in and to
all inventions, ideas, disclosures, and improvements, whether patented or
unpatented, and copyrightable material, to the extent made or conceived by the
Executive, solely or jointly, during the term of this Agreement, except to the
extent prohibited by Section 2870 of the California Labor Code, a copy of which
is attached hereto as Exhibit A. The Executive shall communicate promptly and
disclose to the Company, in such form as the Company requests, all information,
details, and data pertaining to the aforementioned inventions, ideas,
disclosures, and improvements; and, whether during the term hereof or
thereafter, the Executive shall execute and deliver to the Company such formal
transfers and assignments and such other papers and documents as may be required
of the Executive to permit the Company to file and prosecute any patent
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applications relating to such inventions, ideas, disclosures, and improvements
and, as to copyrightable material, to obtain copyright thereon.
(C) Trade secrets, proprietary information, and processes shall
not be deemed to include information which is:
(i) known to the Executive at the time of the disclosure;
(ii) publicly known (or becomes publicly known) without the
fault or negligence of the Executive;
(iii) received from a third party without restriction and
without breach of this Agreement;
(iv) approved for release by written authorization of the
Company; or
(v) required to be disclosed by law; provided, however, that
-------- -------
in the event of a proposed disclosure pursuant to this subsection 3.2(C)(v), the
recipient shall give the Company prior written notice before such disclosure is
made.
In the event of a breach by the Executive of this Section 3.2, in
addition to other remedies provided by applicable law, the Company will be
entitled to issuance of a temporary restraining order or preliminary injunction
enforcing its rights under this Section 3.2.
12.3 Successors. In addition to any obligations imposed by law upon
----------
any successor to the Company, the Company shall be obligated to require any
successor (whether direct or indirect, by purchase, merger, consolidation,
operation of law, or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption
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and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation and
benefits from the Company in the same amount and on the same terms as the
Executive would be entitled to hereunder if the Executive were to terminate the
Executive's employment for Good Reason during the Coverage Period, except that,
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
12.4 Incompetency. Any benefit payable to or for the benefit of the
------------
Executive, if legally incompetent, or incapable of giving a receipt therefor,
shall be deemed paid when paid to the Executive's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Company.
12.5 Death. Except as otherwise provided herein, this Agreement shall
-----
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still
be payable to the Executive hereunder (other than amounts which, by their terms,
terminate upon the death of the Executive) if the Executive had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
12.6 Notices. For the purpose of this Agreement, notices and all
-------
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon actual receipt:
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To the Company:
ValliCorp Holdings, Inc.
8405 North Fresno Street
Fresno, California 93720
Attention:
Executive Vice President and General Counsel
To the Executive:
WOLFGANG T.N. MUELLECK
ValliCorp Holdings, Inc.
8405 North Fresno Street
Fresno, CA 93720
12.7 Modification, Waiver. No provision of this Agreement may be
--------------------
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
12.8 Entire Agreement. No agreements or representations, oral or
----------------
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
This Agreement supercedes and replaces the Agreement dated as of July 1, 1995,
between the Company and the Executive.
12.9 Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
Delaware.
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12.10 Statutory Changes. All references to sections of the Exchange
-----------------
Act or the Code shall be deemed also to refer to any successor provisions to
such sections.
12.11 Withholding. Any payments provided for hereunder shall be paid
-----------
net of any applicable withholding required under federal, state or local law and
any additional withholding to which the Executive has agreed.
12.12 Savings Clause. If any term, covenant, or condition of this
--------------
Agreement or the application thereof to any person or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term, covenant, or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant, or condition of this Agreement shall
be valid and enforced to the fullest extent permitted by law.
12.13 Authority to Contract. The Company warrants and represents that
---------------------
it has full authority to enter into this Agreement and to consummate the
transactions contemplated hereby and that this Agreement is not in conflict with
any other agreement to which the Company is a party or by which it may be bound.
The Company hereto further warrants and represents that the individuals
executing this Agreement on behalf of the Company have the full power and
authority to bind the Company to the terms hereof and have been authorized to do
so in accordance with the Company's corporate organization.
12.14 No Assignment of Benefits. Except as otherwise provided herein
-------------------------
or by law, no right or interest of the Executive under the Agreement shall be
assignable or transferable, in whole or in part, either directly or by operation
of law or otherwise, including without limitation by execution, levy,
garnishment, attachment, pledge or in any manner; no attempted assignment or
transfer thereof shall be effective; and no right or interest of the Executive
under this Agreement shall be liable for, or subject to, any obligation or
liability of the Executive.
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12.15 Headings. The headings and captions herein are provided for
--------
reference and convenience only, shall not be considered part of the Agreement,
and shall not be employed in the construction of the Agreement.
12.16 Force Majeure. Neither party shall be liable to the other for
-------------
any delay or failure to perform hereunder, which delay or failure is due to
causes beyond the control of said party, including, but not limited to: acts of
God; acts of the public enemy; acts of the United States of America, or any
State territory, or political subdivision thereof or of the District of
Columbia; fires; floods; epidemics; quarantine restrictions; strikes; or freight
embargoes. Notwithstanding the foregoing provisions of this Section, in every
case the delay or failure to perform must be beyond the control and without the
fault or negligence of the party claiming excusable delay.
12.17 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
12.18 Definitions
-----------
(A) "Company" means ValliCorp Holdings, Inc., a Delaware
-------
corporation. If the Executive becomes employed by a direct or indirect
Subsidiary of ValliCorp Holdings, Inc., the "Company" shall be deemed to refer
to the Subsidiary thereof by which the Executive is employed. In such case,
references to payments, benefits, privileges or other rights to be accorded by
"the Company" shall be deemed to refer to such payments, benefits, privileges or
other rights to be provided by the Subsidiary by which the Executive is employed
or to ValliCorp Holdings, Inc., as the case may be, to correspond to the
corporate entity obligated to make payments or provide benefits, privileges or
other rights pursuant to employee benefit plans affected by the provisions
hereof, and in the absence of any such existing plans or provisions, such
reference shall be deemed to be to ValliCorp Holdings, Inc.
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(B) "Disability" means that the Executive has been unable to
perform his duties under this Agreement for a period of three (3) consecutive
months as the result of his incapacity due to physical or mental illness.
(C) "Subsidiary" means any corporation controlled by the Company,
----------
directly or indirectly.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its officer, thereunto duly authorized, and the Executive has
executed this Agreement, all as of the day and year first above written.
VALLICORP HOLDINGS, INC.
By___________________________
Name: J. MIKE McGOWAN
Title: Chairman and Chief
Executive Officer
------------------------------
WOLFGANG T.N. MUELLECK
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EXHIBIT A
---------
Section 2870. Application of provision providing that employee shall assign or
offer to assign rights in invention to employer
(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of his rights in an invention to his
employer shall not apply to an invention that the employee developed entirely on
his own time without using the employer's equipment, supplies, facilities, or
trade secret information except for those inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to require an
employee to assign an invention otherwise excluded from being required to be
assigned under subdivision (a), the provision is against the public policy of
this state and is unenforceable.
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT - JERRY A. MELTON
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<PAGE>
AGREEMENT
---------
THIS AGREEMENT dated July 1, 1996, is made by and between ValliCorp
Holdings, Inc., a Delaware corporation (the "Company"), and JERRY A. MELTON (the
"Executive").
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company, on the terms set forth herein; and
WHEREAS, the Board of Directors of the Company (the "Board")
recognizes that the possibility of a Change in Control (as defined in Section
2.14(E) hereof) exists, as in the case of any publicly-held corporation, and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders; and
WHEREAS, as a part of the terms of the Executive's employment the
Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of the Executive to his
assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control.
NOW THEREFORE, in consideration of the promises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
SECTION 13. EMPLOYMENT
- ------- ----------
13.1 Employment. The Company hereby employs the Executive and the
----------
Executive hereby accepts employment during the Term of Employment upon the terms
and conditions set forth herein.
13.2 Term of Employment. The "Term of Employment" is the period
------------------
beginning on July 1, 1996 (the "Commencement Date") and ending on June 30, 2000.
The Term of Employment may
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terminate earlier or be extended as provided in this Agreement; provided
however, that this Agreement shall not terminate earlier than the date that the
provisions of Section 2 hereof cease to be applicable.
13.3 Renewal. The Term of Employment shall be extended for one
-------
year on each anniversary of the Commencement Date unless (a) the Company or the
Executive has given three (3) months' written notice of its or his intent not to
extend the termination date or (b) the Term of Employment has been terminated
under the provisions of Section 1.9 or 1.10.
13.4 Duties. The Executive is employed as Executive Vice
------
President and Chief Credit Officer of the Company and, under the direction of
the Board and Chief Operating Officer, shall perform and discharge well and
faithfully the duties that may be assigned to him from time to time by the Chief
Operating Officer in connection with the conduct of the Company's business.
13.5 Extent of Services. The Executive shall devote his entire
------------------
business time, attention, and energies to the business of the Company during the
term of the Executive's employment with the Company. The foregoing, however,
shall not preclude the Executive from engaging in appropriate civic, charitable,
or religious activities or from devoting a reasonable amount of time to private
investments or from serving on boards of directors of other entities, as long as
such activities and services do not interfere or conflict with his
responsibilities to the Company.
13.6 Locations of Performance. The Executive's services shall be
------------------------
performed primarily in the vicinity of Fresno, California. The parties
acknowledge, however, that the Executive may be required to travel in connection
with the performance of his duties hereunder.
13.7 Compensation.
------------
(A) Salary. During the Term of Employment, the Company shall
------
pay the Executive a monthly salary of $12,083.34,
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payable in arrears in installments on the 15th and the last day of each month.
The Executive's salary shall be adjusted annually, on the anniversary of this
Agreement, to reflect such changes as the Board determines appropriate, based on
the Executive's performance for the most recent performance period.
(B) Incentive Programs. During the Term of Employment, the
------------------
Executive shall be entitled to participate in any annual and long-term incentive
programs adopted by the Company and which cover employees in positions
comparable to that of the Executive.
(C) Expenses. The Executive shall be entitled to prompt
--------
reimbursement of all reasonable business expenses incurred by him in the
performance of his duties during the Term of Employment, subject to the
presenting of appropriate vouchers and receipts in accordance with the Company's
policies.
13.8 Employee Benefits. During the Term of Employment, the
-----------------
Executive shall be entitled to participate in employee benefit plans or programs
of the Company, if any, to the extent that his position, tenure, salary, age,
health, and other qualifications make him eligible to participate, subject to
the rules and regulations applicable thereto.
13.9 Termination by the Company; Death. Notwithstanding the
---------------------------------
provisions of Sections 1.2 and 1.3, and except for situations in which the
termination of employment provisions of Section 2 apply, the Term of Employment
and the Executive's employment hereunder may be terminated by the Company
without any breach of this Agreement under the following circumstances:
(A) Involuntary Termination. The Executive's employment is at
-----------------------
will. The Company reserves the right to terminate the Executive's employment at
any time whatsoever, with or without cause, with thirty (30) days' written
notice to the Executive. The Term of Employment shall terminate on the last day
of the notice period, but the Company may require the
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Executive to cease performing services at any time once the notice is given.
(B) Involuntary Termination for Just Cause. The Company
--------------------------------------
reserves the right to terminate the Executive's employment for Just Cause. "Just
Cause" shall exist if the Executive has: (i) willfully breached or habitually
neglected the duties which he was required to perform under the terms of this
Agreement, or (ii) committed act(s) of dishonesty, theft, embezzlement, fraud,
misrepresentation, or other act(s) of moral turpitude against the Company, its
subsidiaries or affiliates, its shareholders, or its employees. The Company
shall give the Executive written notice of the termination and the reasons
therefor. The Term of Employment shall terminate immediately upon receipt of the
notice.
(C) Disability. The Term of Employment shall terminate three (3)
----------
months after the Company gives the Executive written notice that it intends to
terminate his employment on account of Disability or on such later date as the
Company specifies in such notice. If the Executive resumes the performance of
substantially all of his duties under this Agreement before the termination
becomes effective, the notice of intent to terminate shall be deemed to have
been revoked.
(D) Death. The Term of Employment shall terminate upon the
-----
Executive's death.
13.10 Termination By The Executive. Notwithstanding the provisions
----------------------------
of Sections 1.2 and 1.3, the Term of Employment and the Executive's employment
hereunder may be terminated without any breach of this Agreement by the
Executive under the following circumstances:
(A) Voluntary Termination. Subject to Section 2.4 hereof, the
---------------------
Executive may terminate his employment with the Company at any time with three
(3) months' written notice to the Company. The Term of Employment shall end on
the last day on which the Executive performs services for the Company.
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(B) Termination for Good Cause. The Executive may terminate his
--------------------------
employment with the Company for Good Cause by giving the Company thirty (30)
days' notice of its breach, the reasons why the breach constitutes Good Cause
and of his intent to terminate on such basis. If the Company cures its breach
within the thirty (30) day period, the Executive may rescind his notice of
intent to terminate, or terminate his employment under Section 1.10(A) hereof as
though his notice of breach was the notice provided for under Section 1.10(A).
If the Company fails to cure its breach within the thirty (30) day period, the
Term of Employment shall end on the last day of the notice period.
The term "Good Cause" as used herein means a material reduction in the
Executive's compensation under Section 1.7 or benefits under Section 1.8, a
material reduction in the Executive's title or responsibilities, or a relocation
of the Executive's primary place of employment so that the Executive's one-way
commute distance is increased by more than (40) miles.
13.11 Benefits on Termination of Employment. Except as provided in
-------------------------------------
Section 2.1 hereof, if the Executive's employment is terminated during the Term
of Employment, the Executive shall be entitled to receive the following
benefits:
(A) Death; Disability; Voluntary Termination; Termination for Just
--------------------------------------------------------------
Cause. If employment is terminated under Section 1.9 (B), (C), or (D), or
- -----
Section 1.10(A), the Executive shall receive (i) salary through the Term of
Employment; (ii) any incentive compensation earned but not yet paid; and (iii)
reimbursement of expenses incurred under Section 1.7(C) but not yet reimbursed.
All other employee benefits and compensation shall cease on the last day on
which the Executive performs services as an employee, except to the extent that
continued coverage is required by law.
(B) Involuntary Termination; Termination For Good Cause. If the
---------------------------------------------------
Executive's employment is terminated under the provisions of Sections 1.9(A) or
1.10(B), the Executive shall receive in a lump sum payment an amount equal to
the sum of
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clauses (i) through (iii) in Section 1.11(A), and, in addition, twelve (12)
months of salary under Section 1.7(A) computed with reference to the annual
salary in effect immediately preceding the date of termination.
All other employee benefits and compensation, including any incentive benefits
for the year in which the Term of Employment ends, shall cease on the last day
on which the Executive performs services as an employee of the Company except to
the extent that continued coverage is required by law.
13.12 Non-Renewal. If the Executive or the Company gives notice of
-----------
intent not to extend the Term of Employment under Section 1.3, the Executive's
salary and benefits shall cease on the last day of the Term of Employment,
except to the extent that continued coverage is required by law.
13.13 Recovery of Litigation Costs. If any legal action or other
----------------------------
preceding is brought for the enforcement of any provision under Section 1 of
this Agreement (or Section 3 of this Agreement in connection with its
applicability under Section 1 of this Agreement) or any agreement or instrument
delivered under or in connection with Section 1 of this Agreement (or Section 3
of this Agreement in connection with its applicability under Section 1 of this
Agreement), or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of Section 1 of this
Agreement (or Section 3 of this Agreement in connection with its applicability
under Section 1 of this Agreement), the successful or prevailing party or
parties shall be entitled to recover reasonable attorney's fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled.
SECTION 14. TERMINATION OF EMPLOYMENT IN CONNECTION WITH A CHANGE IN CONTROL
- ------- ----------------------------------------------------------------
14.1 Applicability of Section 2. No payments will be required under
--------------------------
Section 1.11 of this Agreement in connection with the Executive's Termination of
Employment to the extent that the
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payments and benefits provided for by Section 2 of this Agreement are paid or
provided to the Executive.
14.2 Term of Change in Control Provisions. Either the Company or
------------------------------------
the Executive may terminate the applicability of the provisions of this Section
2 by giving the other at least one (1) year advance written notice of
termination thereof; provided, however, that if a Change in Control shall have
occurred during the term of this Agreement, the provisions of Section 2
hereunder shall continue in effect until all obligations of either party hereto
have been performed in full. Notwithstanding the foregoing, the provisions of
this Section 2 shall terminate upon the Executive's attaining age sixty-five
(65), except as to obligations of the Company hereunder arising from a Change in
Control and/or a termination of the Executive's employment prior to his having
reached such age.
14.3 Company's Covenants Summarized. In order to induce the
------------------------------
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants set forth in Section 2.4 hereof, the Company agrees, under
the terms and conditions set forth herein, that, upon a Change in Control during
the term of this Agreement, certain benefits shall thereupon become vested as
set forth in Section 2.5 hereof, and paid in accordance with the provisions
thereof, and, in the event that the Executive's employment with the Company is
terminated thereafter during the Coverage Period, the Company shall pay the
Executive the amounts provided for in Section 2.6 hereof.
14.4 The Executive's Covenant. The Executive agrees that, subject
------------------------
to the terms and conditions of this Agreement, and notwithstanding the
provisions in Section 1.10(A) of this Agreement, in the event of a Potential
Change in Control, the Executive will remain in the employ of the Company until
the earliest of (a) a date which is nine (9) months after the date of such
Potential Change of Control, (b) the date of a Change in Control, (c) the date
of termination by the Executive of the Executive's employment for Good Reason
(determined by treating the Potential Change in Control for this purpose as a
Change in
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Control in applying the definition of Good Reason) or by reason of
death or Disability, (d) the termination by the Company of the Executive's
employment for any reason, or (e) the Executive's attaining age sixty-five (65).
14.5 Vesting of Bonus in the Event of a Change in Control. Upon the
----------------------------------------------------
occurrence of a Change in Control, the Executive shall have a vested and
nonforfeitable right to receive in cash an amount equal to the target bonus
amount which the Executive could earn for the year in which the Change in
Control occurs pursuant to the ValliCorp Holdings, Inc. Executive Management
Committee's Management Bonus Program for such year, or under any other
management incentive plan or program in effect in such year, as if 100% of all
objectives provided for thereunder had been met for that year (the "Vested Bonus
Amount"). The Executive's Vested Bonus Amount pursuant to the preceding sentence
shall be promptly paid to the Executive at the date on which such bonus would
have been paid pursuant to such plan or program if no Change in Control had
occurred. Notwithstanding the foregoing, however, in the event that the
Executive's Date of Termination after a Change in Control falls in the fiscal
year in which such Change in Control occurs, the Executive shall not be entitled
to receive a bonus pursuant to this Section 2.5, but shall instead be entitled
to the bonus amount as provided in Section 2.6(B)(iii) hereof.
14.6 Benefits and Rights upon Termination of Employment.
--------------------------------------------------
(A) General Termination Rights and Benefits. If the Executive's
---------------------------------------
employment by the Company is terminated after a Change in Control for any reason
(whether by the Company or the Executive), the Company shall pay to the
Executive the payments described in Subsections (i) through (iii) below.
(i) Previously Earned Salary. The Company shall pay the
------------------------
Executive's full salary to the Executive through the Date of Termination at the
highest rate in effect during the sixty (60) day period preceding the date the
Notice of Intent to
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Terminate is given, together with all compensation and benefits payable to the
Executive through the Date of Termination under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period.
(ii) Previously Earned Benefits. The Company shall pay the
--------------------------
Executive's normal post-termination compensation and benefits to the Executive
as such payments become due. Such post-termination compensation and benefits
shall be determined under, and paid in accordance with, the Company's
retirement, insurance, pension, welfare and other compensation or benefit plans,
programs and arrangements.
(iii) Payment of Vested Bonus Amount. Except to the
------------------------------
extent that the Company has previously paid to the Executive all or a portion of
his Vested Bonus Amount pursuant to Section 2.5 hereof, the Company shall pay to
the Executive a lump sum cash payment equal to the Executive's Vested Bonus
Amount.
(B) Severance Benefits. In addition to the payments provided
------------------
for by Section 2.6(A) hereof, the Company shall pay to the Executive the
payments described in Subsections (i) through (iii) below (the "Severance
Benefits") upon termination of the Executive's employment with the Company
during the Coverage Period, unless such termination is (a) by the Company for
Cause, (b) by reason of the Executive's death or Disability or after the
Executive attains age sixty-five (65) or (c) by the Executive without Good
Reason.
(i) Lump-Sum Severance Payment. In lieu of any further
--------------------------
salary payments to the Executive for periods subsequent to the Date of
Termination, the Company shall pay to the Executive a lump sum severance
payment, in cash, equal to two (2) (or, if less, the number of years, including
fractions, from the Date of Termination until the Executive would have reached
age sixty-five (65)) times the sum of (a) the Executive's Annual Base Salary and
(b) the Executive's Annual Bonus. Notwithstanding the preceding sentence, the
amount of the lump sum payment provided for therein shall be reduced by any lump
sum cash severance
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payment which is actually paid by the Company to the Executive pursuant to any
other plan or agreement on or prior to the date on which the payment pursuant to
this Subsection 2.6(B)(i) is required to be paid.
(ii) Continued Benefits. For a twenty-four (24) month
------------------
period (or, if less, the number of months from the Date of Termination until the
Executive would have reached age sixty-five (65)) after the Date of Termination
(the "Benefits Period"), the Company shall provide the Executive with group term
life insurance, health insurance and long-term disability insurance benefits
("Welfare Benefits") substantially similar in all respects to those which the
Executive is receiving immediately prior to the Notice of Termination (without
giving effect to any reduction in such benefits subsequent to a Change in
Control which reduction constitutes or may constitute Good Reason). Benefits
otherwise receivable by the Executive pursuant to this Section 2.6(B)(ii) shall
be reduced to the extent substantially similar benefits are actually received by
or made available to the Executive by any other employer during the same time
period for which such benefits would be provided pursuant to this Section
2.6(B)(ii) at a cost to the Executive that is commensurate with the cost
incurred by the Executive immediately prior to the Executive's Date of
Termination (without giving effect to any increased costs paid by the Executive
after the Change in Control which constituted or might have constituted Good
Reason); provided, however, that if the Executive becomes employed by a new
employer which maintains a medical plan that either (i) does not cover the
Executive or a family member or dependent with respect to a preexisting
condition which was covered under the applicable Company medical plan, or (ii)
does not cover the Executive or a family member or dependent for a designated
waiting period, the Executive's coverage under the applicable Company medical
plan shall continue (but shall be limited in the event of noncoverage due to a
preexisting condition, to such preexisting condition) until the earlier of the
end of the applicable period of noncoverage under the new employer's plan or the
end of the Benefits Period. The Executive agrees to report to the Company any
coverage and benefits
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actually received by the Executive from such other employer(s). The Executive
shall be entitled to elect to change his level of coverage and/or his choice of
coverage options (such as the Executive only or family medical coverage) with
respect to the Welfare Benefits to be provided by the Company to the Executive
to the same extent that actively employed senior executives of the Company are
permitted to make such changes; provided, however, that in the event of any such
changes the Executive shall pay the amount of any cost increase that would
actually be paid by an actively employed executive of the Company by reason of
making the same change in his level of coverage or coverage options.
(iii) Bonus for Year in Which Date of Termination Occurs.
--------------------------------------------------
The Company shall pay to the Executive a lump sum cash amount equal to the
product of (x) and (y), where (x) is an amount equal to the target bonus amount
which the Executive could earn for the year in which the Date of Termination
occurs pursuant to the ValliCorp Holdings, Inc. Executive Management Committee's
Management Bonus Program for such year, or under any other management incentive
plan or program in effect in such year, as if 100% of all objectives provided
for thereunder had been met for that year, and (y) is a fraction the numerator
of which is the number of days from and including the first day of the year in
which the Date of Termination occurs until (and including) the Executive's Date
of Termination and the denominator of which is 365 days.
(C) Gross-Up Payment. In the event that the Executive becomes
----------------
entitled to the Severance Benefits or any other benefits or payments under
Section 2 of this Agreement (other than pursuant to this Section 2.6(C)) or the
KESOP or DSOP by reason of the accelerated vesting of stock options thereunder
(together, the "Total Benefits"), and in the event that any of the Total
Benefits will be subject to the Excise Tax, the Company shall pay to the
Executive an additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of any Excise Tax on the Total
Benefits and any federal, state and local income tax, Excise Taxes and FICA and
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Medicare withholding taxes upon the payment provided for by this Section 2.6(C),
shall be equal to the Total Benefits.
For purposes of determining whether any of the Total Benefits will be
subject to the Excise Tax and the amount of such Excise Tax, (i) any other
payments or benefits received or to be received by the Executive in connection
with a Change in Control or the Executive's termination of employment (whether
pursuant to the terms of this Agreement or any other agreement, plan or
arrangement with the Company, any Person whose actions result in a Change in
Control or any Person affiliated with the Company or such Person) shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion
of tax counsel ("Tax Counsel") selected by the Company's independent auditors
and acceptable to the Executive, such other payments or benefits (in whole or in
part) do not constitute parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in excess of the
Base Amount, or are otherwise not subject to the Excise Tax, (ii) the amount of
the Total Benefits which shall be treated as subject to the Excise Tax shall be
equal to the lesser of (A) the total amount of the Total Benefits reduced by the
amount of such Total Benefits that in the opinion of Tax Counsel are not
parachute payments, or (B) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the
value of any non-cash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with the
principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's residence on the Date of Termination, net of the
reduction in federal income taxes
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which could be obtained from deduction of such state and local taxes (calculated
by assuming that any reduction under Section 68 of the Code in the amount of
itemized deductions allowable to the Executive applies first to reduce the
amount of such state and local income taxes that would otherwise be deductible
by the Executive).
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable to such reduction
(plus that portion of the Gross-Up Payment attributable to the Excise Tax,
federal, state and local income taxes and FICA and Medicare withholding taxes
imposed on the Gross-Up Payment being repaid by the Executive to the extent that
such repayment results in a reduction in Excise Tax, FICA and Medicare
withholding taxes and/or a federal, state or local income tax deduction) plus
interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder at the time of the termination of
the Executive's employment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional Gross-Up Payment to the Executive in respect of
such excess (plus any interest, penalties or additions payable by the Executive
with respect to such excess) at the time that the amount of such excess is
finally determined.
14.7 Timing of Payments. The payments provided for in Sections
------------------
2.6(A) through 2.6(C) (other than Section 2.6(B)(ii) hereof) shall be made on
the Date of Termination, provided, however, that if the amounts of such payments
cannot be finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the
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rate provided in Section 1274(b)(2)(B) of the Code from the fifth (5th) day
following the Date of Termination to the payment of such remainder) as soon as
the amount thereof can be determined but in no event later than the thirtieth
(30th) day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) business day after demand by the Company (together with interest
at the rate provided in Section 1274(b)(2)(B) of the Code from the fifth (5th)
day following the Date of Termination to the repayment of such excess).
14.8 Reimbursement of Legal Costs. The Company shall pay to the
----------------------------
Executive all legal fees and expenses incurred by the Executive as a result of a
termination which entitles the Executive to any payments under Section 2 of this
Agreement, including all such fees and expenses, if any, incurred in contesting
or disputing any Notice of Intent to Terminate under Section 2.9(C) hereof or in
seeking to obtain or enforce any right or benefit provided by Section 2 of this
Agreement (or Section 3 of this Agreement in connection with its applicability
under Section 2 of this Agreement), or in connection with any tax audit or
proceeding to the extent attributable to the application of section 4999 of the
Code to any payment or benefit provided hereunder. Such payments shall be made
within five (5) business days after delivery of the Executive's respective
written requests for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
14.9 Termination Procedures and Compensation During Dispute
------------------------------------------------------
(A) Notice of Intent To Terminate. After a Change in Control,
-----------------------------
any purported termination of the Executive's employment (other than by reason of
death) must be preceded by a written Notice of Intent to Terminate from one
party hereto to the other party hereto in accordance with Section 3.6 hereof.
For purposes of this Agreement, a "Notice of Intent to Terminate"
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shall mean a notice which shall indicate the notifying party's opinion regarding
the specific provisions of this Agreement that will apply upon such termination
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for the application of the provisions indicated. Further, a
Notice of Intent to Terminate for Cause is required to include a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting of the Board which was
called and held for the purpose of considering such termination (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive was guilty of
conduct set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
(B) Date of Termination. "Date of Termination", with respect
-------------------
to any purported termination of the Executive's employment after a Change in
Control, shall mean, except as provided in Section 2.9(C) hereof, (a) if the
Executive's employment is terminated for Disability, three (3) months after
Notice of Intent to Terminate is given (provided that the Executive shall not
have returned to the full-time performance of the Executive's duties during such
three (3) month period), and (b) if the Executive's employment is terminated for
any other reason, the date specified in the Notice of Intent to Terminate
(which, in the case of a termination by the Company, shall not be less than
thirty (30) days after Notice of Intent to Terminate is given (except in the
case of a termination for Cause in which case it shall not be less than ten (10)
days after Notice of Intent to Terminate is given, provided that the Company may
require the Executive not to report to work during such ten (10) day period),
and, in the case of a termination by the Executive, shall not be less than
fifteen (15) days nor more than sixty (60) days, respectively, from the date
such Notice of Intent to Terminate is given).
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(C) Dispute Concerning Termination. If within fifteen (15)
------------------------------
days after any Notice of Intent to Terminate is given, or, if later, prior to
the Date of Termination (as determined without regard to this Section 2.9(C)),
the party receiving such Notice of Intent to Terminate notifies the other party
that a dispute exists concerning the termination or the provisions of this
Agreement that apply to such termination, the Date of Termination shall be the
date on which the dispute is finally resolved, either by mutual written
agreement of the parties or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
(D) Compensation During Dispute. If a purported termination
---------------------------
occurs following a Change in Control and such termination or the provisions of
Section 2 of this Agreement that apply upon such termination is disputed in
accordance with Section 2.9(C) hereof, the Company shall continue to pay the
Executive the full compensation (including, but not limited to, salary) at the
highest rate in effect during the sixty (60) day period preceding the date that
the Notice of Intent to Terminate was given and continue the Executive as a
participant in all compensation, benefit, insurance and pension and welfare
benefit plans in which the Executive was participating when the Notice of Intent
to Terminate was given (not taking into account any reductions in compensation,
benefits or insurance under such plans occurring during the sixty (60) day
period preceding the date that the Notice of Intent to Terminate was given),
until the dispute is finally resolved in accordance with Section 2.9(C) hereof.
Amounts paid under this Section 2.9(D) are in addition to all other amounts due
under Section 2 of this Agreement (other than those due under Section 2.6(A)(i)
hereof) and shall not be offset against or reduce any other amounts due under
this Agreement.
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14.10 No Mitigation. The Company agrees that, if the Executive's
-------------
employment by the Company is terminated during the Coverage Period, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to this
Agreement. Further, the amount of any payment or benefit provided for under this
Agreement (other than to the extent provided in Section 2.6(B)(ii) and Section
2.6(B)(iii)) shall not be reduced by any compensation earned by the Executive as
the result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Executive to the Company, or
otherwise.
14.11 Terminations in Anticipation of Change in Control. The
-------------------------------------------------
Executive's employment shall be deemed to have been terminated by the Company
without Cause during the Coverage Period if the Executive's employment is
terminated by the Company without Cause prior to a Change in Control and such
termination of employment (a) was at the request of a third party who has taken
steps reasonably calculated to effect a Change in Control or (b) otherwise arose
in anticipation of a Change in Control. The Executive's employment shall be
deemed to have been terminated by the Executive for Good Reason during the
Coverage Period if the Executive terminates his employment with Good Reason
prior to a Change in Control if the circumstance or event which constitutes Good
Reason occurs (a) at the request of a third party who has taken steps reasonably
calculated to effect a Change in Control or (b) otherwise arose in anticipation
of a Change in Control. In the event of a termination of employment described in
this Section 2.11, the Executive shall be entitled to all payments and other
benefits to which the Executive would have been entitled had such termination
occurred during the Coverage Period (other than salary pursuant to Section
2.6(A)(i) hereof for any period after the actual date of termination) and the
Executive shall be entitled to an additional payment in an amount which shall
compensate the Executive to the extent that the Executive was deprived by such
termination of the opportunity prior to termination of employment to exercise
stock options granted to him under the KESOP or DSOP at the highest market
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price of the Company's Common Stock reached in connection with the Change in
Control. Notwithstanding the provisions of Section 2.13 hereof, for purposes of
this Section 2.11 only, the burden of proving that the requirements of clauses
(a) and (b) of the first and second sentences of this Section 2.11 have been met
shall be on the Executive and the standard of proof to be met by the Executive
shall be clear and convincing evidence, except that, in the event that the
termination of employment occurs following a Potential Change in Control or
within two (2) months prior to a Change in Control, the burden of proving that
the requirements of clauses (a) and (b) of the first and second sentences of
this Section 2.11 have not been met shall be upon the Company, and the standard
of proof to be met by the Company shall be clear and convincing evidence.
14.12 Reduction of Benefits By Legally Required Benefits.
--------------------------------------------------
Notwithstanding any other provision of this Agreement to the contrary, if the
Company is obligated by law or by contract (other than under this Agreement) to
pay severance pay, a termination indemnity, notice pay, or the like, or if the
Company is obligated by law or by contract to provide advance notice of
separation ("Notice Period"), then any Severance Benefits hereunder shall be
reduced by the amount of any such severance pay, termination indemnity, notice
pay or the like, as applicable, and by the amount of any pay received during any
Notice Period.
14.13 Burden and Standard of Proof. Except as otherwise expressly
----------------------------
provided in Section 2.11 hereof, in any proceeding (regardless of who initiates
such proceeding) in which the payment of Severance Benefits or other benefits
under Section 2 of this Agreement is at issue, the burden of proof as to whether
there exists either Cause or Good Reason for purposes of this Agreement shall be
upon the Company or its successor, and the standard of proof to be met with
respect thereto shall be clear and convincing evidence.
14.14 Definitions
-----------
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(A) "Annual Base Salary" means the higher of (a) the Executive's
------------------
highest annual base salary in effect during the one (1) year period preceding a
Change in Control, or (b) the Executive's highest annual base salary in effect
during the one year period preceding the Executive's Date of Termination.
(B) "Annual Bonus" means the highest of (a) the average of
------------
the three highest bonuses paid or payable, including any bonus or portion
thereof which has been earned but deferred, to the Executive by the Company in
respect of the five fiscal years (or such shorter period during which the
Executive has been employed by the Company) immediately preceding the fiscal
year in which a Change in Control occurs (annualized for any fiscal year during
such period consisting of less than twelve full months or with respect to which
the Executive has been employed by the Company for less than twelve full
months), (b) the bonus paid or payable (annualized as described above),
including any bonus or portion thereof which has been earned but deferred, to
the Executive by the Company in respect of the most recently completed fiscal
year prior to the Change in Control, (c) the bonus paid or payable (annualized
as described above), including any bonus or portion thereof which has been
earned or deferred, for the most recently completed fiscal year preceding the
Executive's Date of Termination, and (d) 100% of the Executive's target bonus
award amount for the year including the Executive's Date of Termination.
(C) "Base Amount" shall have the meaning ascribed to such term in
-----------
Section 280G(b)(3) of the Code.
(D) "Cause" means:
-----
(i) The willful and continued failure of the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief
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Executive Officer believes that the Executive has not substantially performed
the Executive's duties;
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company;
(iii) personal dishonesty or breach of fiduciary duty to
the Company that in either case results or was intended to result in personal
profit to the Executive at the expense of the Company; or
(iv) willful violation of any law, rule or regulation
(other than traffic violations, misdemeanors or similar offenses) or cease-and-
desist order, court order, judgment or supervisory agreement, which violation is
materially and demonstrably injurious to the Company.
For purposes of the preceding clauses, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith and without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon prior approval given by the Board or upon the
instructions or with the approval of the Chief Executive Officer or the
Executive's superior or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of employment
of the Executive shall not be deemed to be for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in
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<PAGE>
clauses (i) through (iv) above, and specifying the particulars thereof in
detail.
(E) A "Change in Control" means: a change of control of the
-----------------
Company of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on
any similar schedule or form) promulgated under the Exchange Act, whether or not
the Company is then subject to such reporting requirement; provided, however,
that without limitation, a Change in Control shall be deemed to have occurred
if:
(i) any Person is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act or any successor
provisions thereto), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities;
(ii) a merger or consolidation of the Company is
consummated with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least fifty percent (50%) of the combined voting power either of the
Company's then outstanding securities or of such surviving entity's securities
outstanding immediately after such merger or consolidation;
(iii) the Company's shareholders approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the combined voting power
either of the Company's then outstanding securities or of such surviving
entity's securities
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<PAGE>
outstanding immediately after such merger or consolidation, provided however
that, in the event that such merger or consolidation has not been consummated
by a date which is 180 days after the date of the shareholder vote to approve
such merger or consolidation, no Change in Control shall be deemed to have
occurred pursuant to this subsection 2.14(E)(iii), without prejudice to the
Executive's rights, if any, pursuant to Section 2.11 hereof or, in the event of
a subsequent consummation of such merger or consolidation, pursuant to
Subsection 2.14(E)(ii) hereof;
(iv) the shareholders of the Company approve a plan of
complete liquidation or an agreement for the sale or disposition (in one
transaction or a series of transactions) of all or substantially all of the
Company's assets;
(v) as a result of a proxy contest, individuals who prior
to the conclusion thereof constituted the Board (including for this purpose any
new director whose election or nomination for election by the Company's
shareholders in connection with such proxy contest was approved by a vote of at
least two-thirds of the directors then still in office who were directors prior
to such proxy contest) cease to constitute at least a majority of the Board; or
(vi) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constituted the Board (including
for this purpose any new director whose election or nomination for election by
the Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
(F) "Code" means the Internal Revenue Code of 1986, as amended
----
from time to time.
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(G) "Coverage Period" means the period, commencing on the date on
---------------
which a Change in Control occurs and ending on the second anniversary date
thereof.
(H) "Date of Termination" has the meaning assigned to such term
-------------------
in Section 2.9(B) hereof.
(I) "DSOP" means the ValliCorp Holdings, Inc. Amended and
----
Restated Directors' Stock Option Plan, as last amended effective on May 20,
1996, and any successor or replacement plan thereof.
(J) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended from time to time.
(K) "Excise Tax" means any excise tax imposed under Section 4999
----------
of the Code.
(L) "Good Reason" means:
-----------
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities immediately prior to either the Potential Change in Control
which precedes the Change in Control or the Change in Control or any other
action by the Company which results in a diminution in any respect in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) a reduction by the Company in the Executive's annual
base salary as in effect on the date hereof or as the same may be increased from
time to time;
(iii) the failure by the Company to increase the Executive's
base salary each year after a Change in Control by an amount which at least
equals, on a percentage basis, the
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mean average percentage increase in base salary for all officers of the Company
during the two full calendar years immediately preceding a Change in Control;
(iv) the Company's requiring the Executive to be based at
any office or location that is more than forty (40) miles from the Executive's
office or location immediately prior to either the Potential Change in Control
which precedes the Change in Control or the Change in Control but only if such
change involves a material increase in the employee's cost of living and is not
accompanied by a commensurate increase in compensation and benefits;
(v) the Company's requiring the Executive to travel on
Company business to a substantially greater extent than required immediately
prior to either the Potential Change in Control which precedes the Change in
Control or the Change in Control;
(vi) the failure by the Company, without the Executive's
consent, to pay to the Executive any portion of the Executive's current
compensation, or to pay to the Executive any portion of an installment of
deferred compensation under any deferred compensation program of the Company
within seven (7) days of the date such compensation is due;
(vii) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately prior to
either the Potential Change in Control preceding the Change in Control or the
Change in Control which is material to the Executive's total compensation,
including but not limited to the KESOP or DSOP or any substitute or alternative
plans adopted prior to either the Potential Change in Control preceding the
Change in Control or the Change in Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to continue the Executive's
participation therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of
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benefits provided and the level of the Executive's participation relative to
other participants, as existed at the time of the Change in Control;
(viii) the failure by the Company to continue to provide
the Executive with benefits substantially similar to those enjoyed by the
Executive under any of the Company's pension, life insurance, medical, health
and accident, disability or other welfare plans, including this Agreement, in
which the Executive was participating at the time of the Change in Control, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive the Executive of any material
fringe benefit enjoyed by the Executive at the time of the Change in Control, or
the failure by the Company to provide the Executive with the number of paid
vacation days to which the Executive is entitled on the basis of years of
service with the Company in accordance with the Company's normal vacation policy
in effect at the time of the Change in Control;
(ix) any purported termination by the Company of the
Executive's employment after a Change in Control otherwise than in accordance
with the termination procedures of Sections 2.9(A) through 2.9(D) hereof; or
(x) any failure by the Company to comply with and satisfy
Section 3.3 of this Agreement.
(M) "KESOP" means the ValliCorp Holdings, Inc. Amended and
-----
Restated Key Employee Stock Option Plan, as last amended effective on May 20,
1996, and any successor or replacement plan thereof.
(N) "Notice of Intent to Terminate" shall have the meaning
-----------------------------
assigned to such term in Section 2.9(A) hereof.
(O) "Person" shall have the meaning given in Section 3(a)(9) of
------
the Exchange Act, as modified and used in Section 13(d)(3) thereof.
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(P) "Potential Change in Control" means the occurrence of any of
---------------------------
the following:
(i) the Board approves a transaction described in Subsection
(ii) or (iv) of the definition of Change in Control contained herein;
(ii) the commencement of a proxy contest in which any Person
seeks to replace or remove a majority of the members of the Board; or
(iii) any Person files an application with the Board of
Governors of the Federal Reserve System for approval of the acquisition of more
than five percent (5%) of the Company's voting securities, or of any class
thereof, under the Bank Holding Company Act of 1956, as amended, or any
successor statute thereto, or files a notice of intent to acquire ten percent
(10%) or more of the Company's outstanding voting securities, or any class
thereof, pursuant to the Change in Bank Control Act or any successor statute
thereto.
(Q) "Severance Benefits" has the meaning assigned to such term in
------------------
Section 2.6(B) hereof.
(R) "Vested Bonus Amount" shall have the meaning assigned to such
-------------------
term in Section 2.5 hereof.
SECTION 15. GENERAL
- ------- -------
15.1 Non-Competition Clause. In addition to his obligations as an
----------------------
executive and whether or not he remains an executive of the Company, the
Executive agrees that during the period commencing with the Commencement Date
and ending upon termination of employment with the Company, however caused, he
will not, without the prior written consent of the Company, engage, directly or
indirectly, in any business that competes with the Company for customers of the
Company. In the event of a breach by the Executive of this Section 3.1, in
addition to other remedies provided by applicable law, the Company will be
entitled
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to issuance of a temporary restraining order or preliminary injunction enforcing
its rights under this Section 3.1.
15.2 Proprietary Information.
-----------------------
(A) The Executive agrees to comply fully with the Company's
policies relating to nondisclosure of the Company's trade secrets and
proprietary information and processes. Without limiting the generality of the
foregoing, the Executive will not, during the term of his employment by the
Company, disclose any such secrets, information, or processes to any person,
firm, corporation, association, or other entity for any reason or purpose
whatsoever, nor shall the Executive make use of any such property for his own
purposes or for the benefit of any person, firm, corporation, or other entity
(except the Company) under any circumstances during or after the term of his
employment, provided that after the term of his employment, this provision shall
not apply to secrets, information, and processes that are then in the public
domain (provided that the Executive was not responsible, directly or indirectly,
for such secrets, information, or processes entering the public domain without
the Company's consent).
(B) The Executive hereby sells, transfers, and assigns to the
Company all of the entire right, title, and interest of the Executive in and to
all inventions, ideas, disclosures, and improvements, whether patented or
unpatented, and copyrightable material, to the extent made or conceived by the
Executive, solely or jointly, during the term of this Agreement, except to the
extent prohibited by Section 2870 of the California Labor Code, a copy of which
is attached hereto as Exhibit A. The Executive shall communicate promptly and
disclose to the Company, in such form as the Company requests, all information,
details, and data pertaining to the aforementioned inventions, ideas,
disclosures, and improvements; and, whether during the term hereof or
thereafter, the Executive shall execute and deliver to the Company such formal
transfers and assignments and such other papers and documents as may be required
of the Executive to permit the Company to file and prosecute any patent
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applications relating to such inventions, ideas, disclosures, and improvements
and, as to copyrightable material, to obtain copyright thereon.
(C) Trade secrets, proprietary information, and processes shall
not be deemed to include information which is:
(i) known to the Executive at the time of the disclosure;
(ii) publicly known (or becomes publicly known) without the
fault or negligence of the Executive;
(iii) received from a third party without restriction and
without breach of this Agreement;
(iv) approved for release by written authorization of the
Company; or
(v) required to be disclosed by law; provided, however,
-------- -------
that in the event of a proposed disclosure pursuant to this subsection
3.2(C)(v), the recipient shall give the Company prior written notice before such
disclosure is made.
In the event of a breach by the Executive of this Section 3.2, in
addition to other remedies provided by applicable law, the Company will be
entitled to issuance of a temporary restraining order or preliminary injunction
enforcing its rights under this Section 3.2.
15.3 Successors. In addition to any obligations imposed by law
----------
upon any successor to the Company, the Company shall be obligated to require any
successor (whether direct or indirect, by purchase, merger, consolidation,
operation of law, or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption
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and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation and
benefits from the Company in the same amount and on the same terms as the
Executive would be entitled to hereunder if the Executive were to terminate the
Executive's employment for Good Reason during the Coverage Period, except that,
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
15.4 Incompetency. Any benefit payable to or for the benefit of the
------------
Executive, if legally incompetent, or incapable of giving a receipt therefor,
shall be deemed paid when paid to the Executive's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Company.
15.5 Death. Except as otherwise provided herein, this Agreement
-----
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive shall die while any amount
would still be payable to the Executive hereunder (other than amounts which, by
their terms, terminate upon the death of the Executive) if the Executive had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
15.6 Notices. For the purpose of this Agreement, notices and
-------
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth below, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of change of address shall be effective only upon actual receipt:
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To the Company:
ValliCorp Holdings, Inc.
8405 North Fresno Street
Fresno, California 93720
Attention:
Executive Vice President and General Counsel
To the Executive:
JERRY A. MELTON
ValliCorp Holdings, Inc.
8405 North Fresno Street
Fresno, CA 93720
15.7 Modification, Waiver. No provision of this Agreement may be
--------------------
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
15.8 Entire Agreement. No agreements or representations, oral or
----------------
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
This Agreement supercedes and replaces the Agreement dated as of July 1, 1995,
between the Company and the Executive.
15.9 Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
Delaware.
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15.10 Statutory Changes. All references to sections of the Exchange
-----------------
Act or the Code shall be deemed also to refer to any successor provisions to
such sections.
15.11 Withholding. Any payments provided for hereunder shall be
-----------
paid net of any applicable withholding required under federal, state or local
law and any additional withholding to which the Executive has agreed.
15.12 Savings Clause. If any term, covenant, or condition of this
--------------
Agreement or the application thereof to any person or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term, covenant, or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant, or condition of this Agreement shall
be valid and enforced to the fullest extent permitted by law.
15.13 Authority to Contract. The Company warrants and represents
---------------------
that it has full authority to enter into this Agreement and to consummate the
transactions contemplated hereby and that this Agreement is not in conflict with
any other agreement to which the Company is a party or by which it may be bound.
The Company hereto further warrants and represents that the individuals
executing this Agreement on behalf of the Company have the full power and
authority to bind the Company to the terms hereof and have been authorized to do
so in accordance with the Company's corporate organization.
15.14 No Assignment of Benefits. Except as otherwise provided
-------------------------
herein or by law, no right or interest of the Executive under the Agreement
shall be assignable or transferable, in whole or in part, either directly or by
operation of law or otherwise, including without limitation by execution, levy,
garnishment, attachment, pledge or in any manner; no attempted assignment or
transfer thereof shall be effective; and no right or interest of the Executive
under this Agreement shall be liable for, or subject to, any obligation or
liability of the Executive.
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15.15 Headings. The headings and captions herein are provided for
--------
reference and convenience only, shall not be considered part of the Agreement,
and shall not be employed in the construction of the Agreement.
15.16 Force Majeure. Neither party shall be liable to the other
-------------
for any delay or failure to perform hereunder, which delay or failure is due to
causes beyond the control of said party, including, but not limited to: acts of
God; acts of the public enemy; acts of the United States of America, or any
State territory, or political subdivision thereof or of the District of
Columbia; fires; floods; epidemics; quarantine restrictions; strikes; or freight
embargoes. Notwithstanding the foregoing provisions of this Section, in every
case the delay or failure to perform must be beyond the control and without the
fault or negligence of the party claiming excusable delay.
15.17 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
15.18 Definitions
-----------
(A) "Company" means ValliCorp Holdings, Inc., a Delaware
-------
corporation. If the Executive becomes employed by a direct or indirect
Subsidiary of ValliCorp Holdings, Inc., the "Company" shall be deemed to refer
to the Subsidiary thereof by which the Executive is employed. In such case,
references to payments, benefits, privileges or other rights to be accorded by
"the Company" shall be deemed to refer to such payments, benefits, privileges or
other rights to be provided by the Subsidiary by which the Executive is employed
or to ValliCorp Holdings, Inc., as the case may be, to correspond to the
corporate entity obligated to make payments or provide benefits, privileges or
other rights pursuant to employee benefit plans affected by the provisions
hereof, and in the absence of any such existing plans or provisions, such
reference shall be deemed to be to ValliCorp Holdings, Inc.
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(B) "Disability" means that the Executive has been unable to
----------
perform his duties under this Agreement for a period of three (3) consecutive
months as the result of his incapacity due to physical or mental illness.
(C) "Subsidiary" means any corporation controlled by the Company,
----------
directly or indirectly.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its officer, thereunto duly authorized, and the Executive has
executed this Agreement, all as of the day and year first above written.
VALLICORP HOLDINGS, INC.
By
___________________________
Name: J. MIKE McGOWAN
Title: Chairman and Chief
Executive Officer
---------------------------
JERRY A. MELTON
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EXHIBIT A
---------
Section 2870. Application of provision providing that employee shall assign or
offer to assign rights in invention to employer
(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of his rights in an invention to his
employer shall not apply to an invention that the employee developed entirely on
his own time without using the employer's equipment, supplies, facilities, or
trade secret information except for those inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to require an
employee to assign an invention otherwise excluded from being required to be
assigned under subdivision (a), the provision is against the public policy of
this state and is unenforceable.
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT - JOHN H. TAIT
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<PAGE>
AGREEMENT
---------
THIS AGREEMENT dated July 1, 1996, is made by and between ValliCorp
Holdings, Inc., a Delaware corporation (the "Company"), and JOHN H. TAIT (the
"Executive").
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company, on the terms set forth herein; and
WHEREAS, the Board of Directors of the Company (the "Board")
recognizes that the possibility of a Change in Control (as defined in Section
2.14(E) hereof) exists, as in the case of any publicly-held corporation, and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders; and
WHEREAS, as a part of the terms of the Executive's employment the
Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of the Executive to his
assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control.
NOW THEREFORE, in consideration of the promises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
SECTION 16. EMPLOYMENT
- ------- ----------
16.1 Employment. The Company hereby employs the Executive and the
----------
Executive hereby accepts employment during the Term of Employment upon the terms
and conditions set forth herein.
16.2 Term of Employment. The "Term of Employment" is the period
------------------
beginning on July 1, 1996 (the "Commencement Date") and ending on June 30, 2000.
The Term of Employment may
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terminate earlier or be extended as provided in this Agreement; provided
however, that this Agreement shall not terminate earlier than the date that the
provisions of Section 2 hereof cease to be applicable.
16.3 Renewal. The Term of Employment shall be extended for one year
-------
on each anniversary of the Commencement Date unless (a) the Company or the
Executive has given three (3) months' written notice of its or his intent not to
extend the termination date or (b) the Term of Employment has been terminated
under the provisions of Section 1.9 or 1.10.
16.4 Duties. The Executive is employed as Executive Vice President,
------
Community Banking of the Company and, under the direction of the Board and Chief
Operating Officer, shall perform and discharge well and faithfully the duties
that may be assigned to him from time to time by the Chief Operating Officer in
connection with the conduct of the Company's business.
16.5 Extent of Services. The Executive shall devote his entire
------------------
business time, attention, and energies to the business of the Company during the
term of the Executive's employment with the Company. The foregoing, however,
shall not preclude the Executive from engaging in appropriate civic, charitable,
or religious activities or from devoting a reasonable amount of time to private
investments or from serving on boards of directors of other entities, as long as
such activities and services do not interfere or conflict with his
responsibilities to the Company.
16.6 Locations of Performance. The Executive's services shall be
------------------------
performed primarily in the vicinity of Fresno, California. The parties
acknowledge, however, that the Executive may be required to travel in connection
with the performance of his duties hereunder.
16.7 Compensation.
-----------
(A) Salary. During the Term of Employment, the Company shall
------
pay the Executive a monthly salary of $13,333.34,
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payable in arrears in installments on the 15th and the last day of each month.
The Executive's salary shall be adjusted annually, on the anniversary of this
Agreement, to reflect such changes as the Board determines appropriate, based on
the Executive's performance for the most recent performance period.
(B) Incentive Programs. During the Term of Employment, the
------------------
Executive shall be entitled to participate in any annual and long-term incentive
programs adopted by the Company and which cover employees in positions
comparable to that of the Executive.
(C) Expenses. The Executive shall be entitled to prompt
--------
reimbursement of all reasonable business expenses incurred by him in the
performance of his duties during the Term of Employment, subject to the
presenting of appropriate vouchers and receipts in accordance with the Company's
policies.
16.8 Employee Benefits. During the Term of Employment, the
-----------------
Executive shall be entitled to participate in employee benefit plans or
programs of the Company, if any, to the extent that his position, tenure,
salary, age, health, and other qualifications make him eligible to participate,
subject to the rules and regulations applicable thereto.
16.9 Termination by the Company; Death. Notwithstanding the
---------------------------------
provisions of Sections 1.2 and 1.3, and except for situations in which the
termination of employment provisions of Section 2 apply, the Term of Employment
and the Executive's employment hereunder may be terminated by the Company
without any breach of this Agreement under the following circumstances:
(A) Involuntary Termination. The Executive's employment is at
-----------------------
will. The Company reserves the right to terminate the Executive's employment at
any time whatsoever, with or without cause, with thirty (30) days' written
notice to the Executive. The Term of Employment shall terminate on the last day
of the notice period, but the Company may require the
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Executive to cease performing services at any time once the notice is given.
(B) Involuntary Termination for Just Cause. The Company
--------------------------------------
reserves the right to terminate the Executive's employment for Just Cause. "Just
Cause" shall exist if the Executive has: (i) willfully breached or habitually
neglected the duties which he was required to perform under the terms of this
Agreement, or (ii) committed act(s) of dishonesty, theft, embezzlement, fraud,
misrepresentation, or other act(s) of moral turpitude against the Company, its
subsidiaries or affiliates, its shareholders, or its employees. The Company
shall give the Executive written notice of the termination and the reasons
therefor. The Term of Employment shall terminate immediately upon receipt of the
notice.
(C) Disability. The Term of Employment shall terminate three
----------
(3) months after the Company gives the Executive written notice that it intends
to terminate his employment on account of Disability or on such later date as
the Company specifies in such notice. If the Executive resumes the performance
of substantially all of his duties under this Agreement before the termination
becomes effective, the notice of intent to terminate shall be deemed to have
been revoked.
(D) Death. The Term of Employment shall terminate upon the
-----
Executive's death.
16.10 Termination By The Executive. Notwithstanding the provisions
----------------------------
of Sections 1.2 and 1.3, the Term of Employment and the Executive's employment
hereunder may be terminated without any breach of this Agreement by the
Executive under the following circumstances:
(A) Voluntary Termination. Subject to Section 2.4 hereof, the
---------------------
Executive may terminate his employment with the Company at any time with three
(3) months' written notice to the Company. The Term of Employment shall end on
the last day on which the Executive performs services for the Company.
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(B) Termination for Good Cause. The Executive may terminate his
--------------------------
employment with the Company for Good Cause by giving the Company thirty (30)
days' notice of its breach, the reasons why the breach constitutes Good Cause
and of his intent to terminate on such basis. If the Company cures its breach
within the thirty (30) day period, the Executive may rescind his notice of
intent to terminate, or terminate his employment under Section 1.10(A) hereof as
though his notice of breach was the notice provided for under Section 1.10(A).
If the Company fails to cure its breach within the thirty (30) day period, the
Term of Employment shall end on the last day of the notice period.
The term "Good Cause" as used herein means a material reduction in the
Executive's compensation under Section 1.7 or benefits under Section 1.8, a
material reduction in the Executive's title or responsibilities, or a relocation
of the Executive's primary place of employment so that the Executive's one-way
commute distance is increased by more than (40) miles.
16.11 Benefits on Termination of Employment. Except as provided in
-------------------------------------
Section 2.1 hereof, if the Executive's employment is terminated during the Term
of Employment, the Executive shall be entitled to receive the following
benefits:
(A) Death; Disability; Voluntary Termination; Termination for
---------------------------------------------------------
Just Cause. If employment is terminated under Section 1.9 (B), (C), or (D), or
- ----------
Section 1.10(A), the Executive shall receive (i) salary through the Term of
Employment; (ii) any incentive compensation earned but not yet paid; and (iii)
reimbursement of expenses incurred under Section 1.7(C) but not yet reimbursed.
All other employee benefits and compensation shall cease on the last day on
which the Executive performs services as an employee, except to the extent that
continued coverage is required by law.
(B) Involuntary Termination; Termination For Good Cause. If the
---------------------------------------------------
Executive's employment is terminated under the provisions of Sections 1.9(A) or
1.10(B), the Executive shall receive in a lump sum payment an amount equal to
the sum of
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clauses (i) through (iii) in Section 1.11(A), and, in addition, twelve (12)
months of salary under Section 1.7(A) computed with reference to the annual
salary in effect immediately preceding the date of termination.
All other employee benefits and compensation, including any incentive benefits
for the year in which the Term of Employment ends, shall cease on the last day
on which the Executive performs services as an employee of the Company except to
the extent that continued coverage is required by law.
16.12 Non-Renewal. If the Executive or the Company gives notice of
-----------
intent not to extend the Term of Employment under Section 1.3, the Executive's
salary and benefits shall cease on the last day of the Term of Employment,
except to the extent that continued coverage is required by law.
16.13 Recovery of Litigation Costs. If any legal action or other
----------------------------
preceding is brought for the enforcement of any provision under Section 1 of
this Agreement (or Section 3 of this Agreement in connection with its
applicability under Section 1 of this Agreement) or any agreement or instrument
delivered under or in connection with Section 1 of this Agreement (or Section 3
of this Agreement in connection with its applicability under Section 1 of this
Agreement), or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of Section 1 of this
Agreement (or Section 3 of this Agreement in connection with its applicability
under Section 1 of this Agreement), the successful or prevailing party or
parties shall be entitled to recover reasonable attorney's fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled.
SECTION 17. TERMINATION OF EMPLOYMENT IN CONNECTION WITH A CHANGE IN CONTROL
- ------- ----------------------------------------------------------------
17.1 Applicability of Section 2. No payments will be required under
--------------------------
Section 1.11 of this Agreement in connection with the Executive's Termination of
Employment to the extent that the
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payments and benefits provided for by Section 2 of this Agreement are paid or
provided to the Executive.
17.2 Term of Change in Control Provisions. Either the Company or the
------------------------------------
Executive may terminate the applicability of the provisions of this Section 2 by
giving the other at least one (1) year advance written notice of termination
thereof; provided, however, that if a Change in Control shall have occurred
during the term of this Agreement, the provisions of Section 2 hereunder shall
continue in effect until all obligations of either party hereto have been
performed in full. Notwithstanding the foregoing, the provisions of this Section
2 shall terminate upon the Executive's attaining age sixty-five (65), except as
to obligations of the Company hereunder arising from a Change in Control and/or
a termination of the Executive's employment prior to his having reached such
age.
17.3 Company's Covenants Summarized. In order to induce the
------------------------------
Executive to remain in the employ of the Company and in consideration of the
Executive's covenants set forth in Section 2.4 hereof, the Company agrees, under
the terms and conditions set forth herein, that, upon a Change in Control during
the term of this Agreement, certain benefits shall thereupon become vested as
set forth in Section 2.5 hereof, and paid in accordance with the provisions
thereof, and, in the event that the Executive's employment with the Company is
terminated thereafter during the Coverage Period, the Company shall pay the
Executive the amounts provided for in Section 2.6 hereof.
17.4 The Executive's Covenant. The Executive agrees that, subject
------------------------
to the terms and conditions of this Agreement, and notwithstanding the
provisions in Section 1.10(A) of this Agreement, in the event of a Potential
Change in Control, the Executive will remain in the employ of the Company until
the earliest of (a) a date which is nine (9) months after the date of such
Potential Change of Control, (b) the date of a Change in Control, (c) the date
of termination by the Executive of the Executive's employment for Good Reason
(determined by treating the Potential Change in Control for this purpose as a
Change in
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Control in applying the definition of Good Reason) or by reason of death or
Disability, (d) the termination by the Company of the Executive's employment for
any reason, or (e) the Executive's attaining age sixty-five (65).
17.5 Vesting of Bonus in the Event of a Change in Control. Upon the
----------------------------------------------------
occurrence of a Change in Control, the Executive shall have a vested and
nonforfeitable right to receive in cash an amount equal to the target bonus
amount which the Executive could earn for the year in which the Change in
Control occurs pursuant to the ValliCorp Holdings, Inc. Executive Management
Committee's Management Bonus Program for such year, or under any other
management incentive plan or program in effect in such year, as if 100% of all
objectives provided for thereunder had been met for that year (the "Vested Bonus
Amount"). The Executive's Vested Bonus Amount pursuant to the preceding sentence
shall be promptly paid to the Executive at the date on which such bonus would
have been paid pursuant to such plan or program if no Change in Control had
occurred. Notwithstanding the foregoing, however, in the event that the
Executive's Date of Termination after a Change in Control falls in the fiscal
year in which such Change in Control occurs, the Executive shall not be entitled
to receive a bonus pursuant to this Section 2.5, but shall instead be entitled
to the bonus amount as provided in Section 2.6(B)(iii) hereof.
17.6 Benefits and Rights upon Termination of Employment.
--------------------------------------------------
(A) General Termination Rights and Benefits. If the Executive's
---------------------------------------
employment by the Company is terminated after a Change in Control for any reason
(whether by the Company or the Executive), the Company shall pay to the
Executive the payments described in Subsections (i) through (iii) below.
(i) Previously Earned Salary. The Company shall pay the
------------------------
Executive's full salary to the Executive through the Date of Termination at the
highest rate in effect during the sixty (60) day period preceding the date the
Notice of Intent to
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Terminate is given, together with all compensation and benefits payable to the
Executive through the Date of Termination under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period.
(ii) Previously Earned Benefits. The Company shall pay the
--------------------------
Executive's normal post-termination compensation and benefits to the Executive
as such payments become due. Such post-termination compensation and benefits
shall be determined under, and paid in accordance with, the Company's
retirement, insurance, pension, welfare and other compensation or benefit plans,
programs and arrangements.
(iii) Payment of Vested Bonus Amount. Except to the extent
------------------------------
that the Company has previously paid to the Executive all or a portion of his
Vested Bonus Amount pursuant to Section 2.5 hereof, the Company shall pay to the
Executive a lump sum cash payment equal to the Executive's Vested Bonus Amount.
(B) Severance Benefits. In addition to the payments provided
------------------
for by Section 2.6(A) hereof, the Company shall pay to the Executive the
payments described in Subsections (i) through (iii) below (the "Severance
Benefits") upon termination of the Executive's employment with the Company
during the Coverage Period, unless such termination is (a) by the Company for
Cause, (b) by reason of the Executive's death or Disability or after the
Executive attains age sixty-five (65) or (c) by the Executive without Good
Reason.
(i) Lump-Sum Severance Payment. In lieu of any further
--------------------------
salary payments to the Executive for periods subsequent to the Date of
Termination, the Company shall pay to the Executive a lump sum severance
payment, in cash, equal to two (2) (or, if less, the number of years, including
fractions, from the Date of Termination until the Executive would have reached
age sixty-five (65)) times the sum of (a) the Executive's Annual Base Salary and
(b) the Executive's Annual Bonus. Notwithstanding the preceding sentence, the
amount of the lump sum payment provided for therein shall be reduced by any lump
sum cash severance
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payment which is actually paid by the Company to the Executive pursuant to any
other plan or agreement on or prior to the date on which the payment pursuant to
this Subsection 2.6(B)(i) is required to be paid.
(ii) Continued Benefits. For a twenty-four (24) month
------------------
period (or, if less, the number of months from the Date of Termination until the
Executive would have reached age sixty-five (65)) after the Date of Termination
(the "Benefits Period"), the Company shall provide the Executive with group term
life insurance, health insurance and long-term disability insurance benefits
("Welfare Benefits") substantially similar in all respects to those which the
Executive is receiving immediately prior to the Notice of Termination (without
giving effect to any reduction in such benefits subsequent to a Change in
Control which reduction constitutes or may constitute Good Reason). Benefits
otherwise receivable by the Executive pursuant to this Section 2.6(B)(ii) shall
be reduced to the extent substantially similar benefits are actually received by
or made available to the Executive by any other employer during the same time
period for which such benefits would be provided pursuant to this Section
2.6(B)(ii) at a cost to the Executive that is commensurate with the cost
incurred by the Executive immediately prior to the Executive's Date of
Termination (without giving effect to any increased costs paid by the Executive
after the Change in Control which constituted or might have constituted Good
Reason); provided, however, that if the Executive becomes employed by a new
employer which maintains a medical plan that either (i) does not cover the
Executive or a family member or dependent with respect to a preexisting
condition which was covered under the applicable Company medical plan, or (ii)
does not cover the Executive or a family member or dependent for a designated
waiting period, the Executive's coverage under the applicable Company medical
plan shall continue (but shall be limited in the event of noncoverage due to a
preexisting condition, to such preexisting condition) until the earlier of the
end of the applicable period of noncoverage under the new employer's plan or the
end of the Benefits Period. The Executive agrees to report to the Company any
coverage and benefits
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actually received by the Executive from such other employer(s). The Executive
shall be entitled to elect to change his level of coverage and/or his choice of
coverage options (such as the Executive only or family medical coverage) with
respect to the Welfare Benefits to be provided by the Company to the Executive
to the same extent that actively employed senior executives of the Company are
permitted to make such changes; provided, however, that in the event of any such
changes the Executive shall pay the amount of any cost increase that would
actually be paid by an actively employed executive of the Company by reason of
making the same change in his level of coverage or coverage options.
(iii) Bonus for Year in Which Date of Termination Occurs.
--------------------------------------------------
The Company shall pay to the Executive a lump sum cash amount equal to the
product of (x) and (y), where (x) is an amount equal to the target bonus amount
which the Executive could earn for the year in which the Date of Termination
occurs pursuant to the ValliCorp Holdings, Inc. Executive Management Committee's
Management Bonus Program for such year, or under any other management incentive
plan or program in effect in such year, as if 100% of all objectives provided
for thereunder had been met for that year, and (y) is a fraction the numerator
of which is the number of days from and including the first day of the year in
which the Date of Termination occurs until (and including) the Executive's Date
of Termination and the denominator of which is 365 days.
(C) Gross-Up Payment. In the event that the Executive becomes
----------------
entitled to the Severance Benefits or any other benefits or payments under
Section 2 of this Agreement (other than pursuant to this Section 2.6(C)) or the
KESOP or DSOP by reason of the accelerated vesting of stock options thereunder
(together, the "Total Benefits"), and in the event that any of the Total
Benefits will be subject to the Excise Tax, the Company shall pay to the
Executive an additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of any Excise Tax on the Total
Benefits and any federal, state and local income tax, Excise Taxes and FICA and
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Medicare withholding taxes upon the payment provided for by this Section 2.6(C),
shall be equal to the Total Benefits.
For purposes of determining whether any of the Total Benefits will be
subject to the Excise Tax and the amount of such Excise Tax, (i) any other
payments or benefits received or to be received by the Executive in connection
with a Change in Control or the Executive's termination of employment (whether
pursuant to the terms of this Agreement or any other agreement, plan or
arrangement with the Company, any Person whose actions result in a Change in
Control or any Person affiliated with the Company or such Person) shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion
of tax counsel ("Tax Counsel") selected by the Company's independent auditors
and acceptable to the Executive, such other payments or benefits (in whole or in
part) do not constitute parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in excess of the
Base Amount, or are otherwise not subject to the Excise Tax, (ii) the amount of
the Total Benefits which shall be treated as subject to the Excise Tax shall be
equal to the lesser of (A) the total amount of the Total Benefits reduced by the
amount of such Total Benefits that in the opinion of Tax Counsel are not
parachute payments, or (B) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the
value of any non-cash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with the
principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's residence on the Date of Termination, net of the
reduction in federal income taxes
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which could be obtained from deduction of such state and local taxes (calculated
by assuming that any reduction under Section 68 of the Code in the amount of
itemized deductions allowable to the Executive applies first to reduce the
amount of such state and local income taxes that would otherwise be deductible
by the Executive).
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax, federal, state
and local income taxes and FICA and Medicare withholding taxes imposed on the
Gross-Up Payment being repaid by the Executive to the extent that such repayment
results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or
a federal, state or local income tax deduction) plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of the Executive's employment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment to the Executive in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) at the time that the amount of such excess is finally determined.
17.7 Timing of Payments. The payments provided for in Sections
------------------
2.6(A) through 2.6(C) (other than Section 2.6(B)(ii) hereof) shall be made on
the Date of Termination, provided, however, that if the amounts of such payments
cannot be finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the
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rate provided in Section 1274(b)(2)(B) of the Code from the fifth (5th) day
following the Date of Termination to the payment of such remainder) as soon as
the amount thereof can be determined but in no event later than the thirtieth
(30th) day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) business day after demand by the Company (together with interest
at the rate provided in Section 1274(b)(2)(B) of the Code from the fifth (5th)
day following the Date of Termination to the repayment of such excess).
17.8 Reimbursement of Legal Costs. The Company shall pay to the
----------------------------
Executive all legal fees and expenses incurred by the Executive as a result of a
termination which entitles the Executive to any payments under Section 2 of this
Agreement, including all such fees and expenses, if any, incurred in contesting
or disputing any Notice of Intent to Terminate under Section 2.9(C) hereof or in
seeking to obtain or enforce any right or benefit provided by Section 2 of this
Agreement (or Section 3 of this Agreement in connection with its applicability
under Section 2 of this Agreement), or in connection with any tax audit or
proceeding to the extent attributable to the application of section 4999 of the
Code to any payment or benefit provided hereunder. Such payments shall be made
within five (5) business days after delivery of the Executive's respective
written requests for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
17.9 Termination Procedures and Compensation During Dispute
------------------------------------------------------
(A) Notice of Intent To Terminate. After a Change in Control,
-----------------------------
any purported termination of the Executive's employment (other than by reason of
death) must be preceded by a written Notice of Intent to Terminate from one
party hereto to the other party hereto in accordance with Section 3.6 hereof.
For purposes of this Agreement, a "Notice of Intent to Terminate"
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shall mean a notice which shall indicate the notifying party's opinion regarding
the specific provisions of this Agreement that will apply upon such termination
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for the application of the provisions indicated. Further, a
Notice of Intent to Terminate for Cause is required to include a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting of the Board which was
called and held for the purpose of considering such termination (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive was guilty of
conduct set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
(B) Date of Termination. "Date of Termination", with respect
-------------------
to any purported termination of the Executive's employment after a Change in
Control, shall mean, except as provided in Section 2.9(C) hereof, (a) if the
Executive's employment is terminated for Disability, three (3) months after
Notice of Intent to Terminate is given (provided that the Executive shall not
have returned to the full-time performance of the Executive's duties during such
three (3) month period), and (b) if the Executive's employment is terminated for
any other reason, the date specified in the Notice of Intent to Terminate
(which, in the case of a termination by the Company, shall not be less than
thirty (30) days after Notice of Intent to Terminate is given (except in the
case of a termination for Cause in which case it shall not be less than ten (10)
days after Notice of Intent to Terminate is given, provided that the Company may
require the Executive not to report to work during such ten (10) day period),
and, in the case of a termination by the Executive, shall not be less than
fifteen (15) days nor more than sixty (60) days, respectively, from the date
such Notice of Intent to Terminate is given).
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(C) Dispute Concerning Termination. If within fifteen (15)
------------------------------
days after any Notice of Intent to Terminate is given, or, if later, prior to
the Date of Termination (as determined without regard to this Section 2.9(C)),
the party receiving such Notice of Intent to Terminate notifies the other party
that a dispute exists concerning the termination or the provisions of this
Agreement that apply to such termination, the Date of Termination shall be the
date on which the dispute is finally resolved, either by mutual written
agreement of the parties or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
(D) Compensation During Dispute. If a purported termination
---------------------------
occurs following a Change in Control and such termination or the provisions of
Section 2 of this Agreement that apply upon such termination is disputed in
accordance with Section 2.9(C) hereof, the Company shall continue to pay the
Executive the full compensation (including, but not limited to, salary) at the
highest rate in effect during the sixty (60) day period preceding the date that
the Notice of Intent to Terminate was given and continue the Executive as a
participant in all compensation, benefit, insurance and pension and welfare
benefit plans in which the Executive was participating when the Notice of Intent
to Terminate was given (not taking into account any reductions in compensation,
benefits or insurance under such plans occurring during the sixty (60) day
period preceding the date that the Notice of Intent to Terminate was given),
until the dispute is finally resolved in accordance with Section 2.9(C) hereof.
Amounts paid under this Section 2.9(D) are in addition to all other amounts due
under Section 2 of this Agreement (other than those due under Section 2.6(A)(i)
hereof) and shall not be offset against or reduce any other amounts due under
this Agreement.
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17.10 No Mitigation. The Company agrees that, if the Executive's
-------------
employment by the Company is terminated during the Coverage Period, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to this
Agreement. Further, the amount of any payment or benefit provided for under this
Agreement (other than to the extent provided in Section 2.6(B)(ii) and Section
2.6(B)(iii)) shall not be reduced by any compensation earned by the Executive as
the result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Executive to the Company, or
otherwise.
17.11 Terminations in Anticipation of Change in Control. The
-------------------------------------------------
Executive's employment shall be deemed to have been terminated by the Company
without Cause during the Coverage Period if the Executive's employment is
terminated by the Company without Cause prior to a Change in Control and such
termination of employment (a) was at the request of a third party who has taken
steps reasonably calculated to effect a Change in Control or (b) otherwise arose
in anticipation of a Change in Control. The Executive's employment shall be
deemed to have been terminated by the Executive for Good Reason during the
Coverage Period if the Executive terminates his employment with Good Reason
prior to a Change in Control if the circumstance or event which constitutes Good
Reason occurs (a) at the request of a third party who has taken steps reasonably
calculated to effect a Change in Control or (b) otherwise arose in anticipation
of a Change in Control. In the event of a termination of employment described in
this Section 2.11, the Executive shall be entitled to all payments and other
benefits to which the Executive would have been entitled had such termination
occurred during the Coverage Period (other than salary pursuant to Section
2.6(A)(i) hereof for any period after the actual date of termination) and the
Executive shall be entitled to an additional payment in an amount which shall
compensate the Executive to the extent that the Executive was deprived by such
termination of the opportunity prior to termination of employment to exercise
stock options granted to him under the KESOP or DSOP at the highest market
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price of the Company's Common Stock reached in connection with the Change in
Control. Notwithstanding the provisions of Section 2.13 hereof, for purposes of
this Section 2.11 only, the burden of proving that the requirements of clauses
(a) and (b) of the first and second sentences of this Section 2.11 have been met
shall be on the Executive and the standard of proof to be met by the Executive
shall be clear and convincing evidence, except that, in the event that the
termination of employment occurs following a Potential Change in Control or
within two (2) months prior to a Change in Control, the burden of proving that
the requirements of clauses (a) and (b) of the first and second sentences of
this Section 2.11 have not been met shall be upon the Company, and the standard
of proof to be met by the Company shall be clear and convincing evidence.
17.12 Reduction of Benefits By Legally Required Benefits.
--------------------------------------------------
Notwithstanding any other provision of this Agreement to the contrary, if the
Company is obligated by law or by contract (other than under this Agreement) to
pay severance pay, a termination indemnity, notice pay, or the like, or if the
Company is obligated by law or by contract to provide advance notice of
separation ("Notice Period"), then any Severance Benefits hereunder shall be
reduced by the amount of any such severance pay, termination indemnity, notice
pay or the like, as applicable, and by the amount of any pay received during any
Notice Period.
17.13 Burden and Standard of Proof. Except as otherwise expressly
----------------------------
provided in Section 2.11 hereof, in any proceeding (regardless of who initiates
such proceeding) in which the payment of Severance Benefits or other benefits
under Section 2 of this Agreement is at issue, the burden of proof as to whether
there exists either Cause or Good Reason for purposes of this Agreement shall be
upon the Company or its successor, and the standard of proof to be met with
respect thereto shall be clear and convincing evidence.
17.14 Definitions
-----------
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(A) "Annual Base Salary" means the higher of (a) the Executive's
------------------
highest annual base salary in effect during the one (1) year period preceding a
Change in Control, or (b) the Executive's highest annual base salary in effect
during the one year period preceding the Executive's Date of Termination.
(B) "Annual Bonus" means the highest of (a) the average of the
------------
three highest bonuses paid or payable, including any bonus or portion thereof
which has been earned but deferred, to the Executive by the Company in respect
of the five fiscal years (or such shorter period during which the Executive has
been employed by the Company) immediately preceding the fiscal year in which a
Change in Control occurs (annualized for any fiscal year during such period
consisting of less than twelve full months or with respect to which the
Executive has been employed by the Company for less than twelve full months),
(b) the bonus paid or payable (annualized as described above), including any
bonus or portion thereof which has been earned but deferred, to the Executive by
the Company in respect of the most recently completed fiscal year prior to the
Change in Control, (c) the bonus paid or payable (annualized as described
above), including any bonus or portion thereof which has been earned or
deferred, for the most recently completed fiscal year preceding the Executive's
Date of Termination, and (d) 100% of the Executive's target bonus award amount
for the year including the Executive's Date of Termination.
(C) "Base Amount" shall have the meaning ascribed to such term
-----------
in Section 280G(b)(3) of the Code.
(D) "Cause" means:
-----
(i) The willful and continued failure of the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief
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<PAGE>
Executive Officer believes that the Executive has not substantially performed
the Executive's duties;
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company;
(iii) personal dishonesty or breach of fiduciary duty to the
Company that in either case results or was intended to result in personal profit
to the Executive at the expense of the Company; or
(iv) willful violation of any law, rule or regulation
(other than traffic violations, misdemeanors or similar offenses) or cease-and-
desist order, court order, judgment or supervisory agreement, which violation is
materially and demonstrably injurious to the Company.
For purposes of the preceding clauses, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith and without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon prior approval given by the Board or upon the
instructions or with the approval of the Chief Executive Officer or the
Executive's superior or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of employment
of the Executive shall not be deemed to be for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in
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<PAGE>
clauses (i) through (iv) above, and specifying the particulars thereof in
detail.
(E) A "Change in Control" means: a change of control of the
-----------------
Company of a nature that would be required to be reported in response to Item
6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on
any similar schedule or form) promulgated under the Exchange Act, whether or not
the Company is then subject to such reporting requirement; provided, however,
that without limitation, a Change in Control shall be deemed to have occurred
if:
(i) any Person is or becomes the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act or any successor
provisions thereto), directly or indirectly, of securities of the Company
representing 20% or more of the combined voting power of the Company's then
outstanding securities;
(ii) a merger or consolidation of the Company is
consummated with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least fifty percent (50%) of the combined voting power either of the
Company's then outstanding securities or of such surviving entity's securities
outstanding immediately after such merger or consolidation;
(iii) the Company's shareholders approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the combined voting power
either of the Company's then outstanding securities or of such surviving
entity's securities
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<PAGE>
outstanding immediately after such merger or consolidation, provided however
that, in the event that such merger or con-solidation has not been consummated
by a date which is 180 days after the date of the shareholder vote to approve
such merger or consolidation, no Change in Control shall be deemed to have
occurred pursuant to this subsection 2.14(E)(iii), without prejudice to the
Executive's rights, if any, pursuant to Section 2.11 hereof or, in the event of
a subsequent consummation of such merger or consolidation, pursuant to
Subsection 2.14(E)(ii) hereof;
(iv) the shareholders of the Company approve a plan of
complete liquidation or an agreement for the sale or disposition (in one
transaction or a series of transactions) of all or substantially all of the
Company's assets;
(v) as a result of a proxy contest, individuals who prior
to the conclusion thereof constituted the Board (including for this purpose any
new director whose election or nomination for election by the Company's
shareholders in connection with such proxy contest was approved by a vote of at
least two-thirds of the directors then still in office who were directors prior
to such proxy contest) cease to constitute at least a majority of the Board; or
(vi) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constituted the Board (including
for this purpose any new director whose election or nomination for election by
the Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
(F) "Code" means the Internal Revenue Code of 1986, as amended
----
from time to time.
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(G) "Coverage Period" means the period, commencing on the date
---------------
on which a Change in Control occurs and ending on the second anniversary date
thereof.
(H) "Date of Termination" has the meaning assigned to such term
-------------------
in Section 2.9(B) hereof.
(I) "DSOP" means the ValliCorp Holdings, Inc. Amended and
----
Restated Directors' Stock Option Plan, as last amended effective on May 20,
1996, and any successor or replacement plan thereof.
(J) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended from time to time.
(K) "Excise Tax" means any excise tax imposed under Section 4999
----------
of the Code.
(L) "Good Reason" means:
-----------
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities immediately prior to either the Potential Change in Control
which precedes the Change in Control or the Change in Control or any other
action by the Company which results in a diminution in any respect in such
position, authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by the
Executive;
(ii) a reduction by the Company in the Executive's annual
base salary as in effect on the date hereof or as the same may be increased from
time to time;
(iii) the failure by the Company to increase the Executive's
base salary each year after a Change in Control by an amount which at least
equals, on a percentage basis, the
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mean average percentage increase in base salary for all officers of the Company
during the two full calendar years immediately preceding a Change in Control;
(iv) the Company's requiring the Executive to be based at
any office or location that is more than forty (40) miles from the Executive's
office or location immediately prior to either the Potential Change in Control
which precedes the Change in Control or the Change in Control but only if such
change involves a material increase in the employee's cost of living and is not
accompanied by a commensurate increase in compensation and benefits;
(v) the Company's requiring the Executive to travel on
Company business to a substantially greater extent than required immediately
prior to either the Potential Change in Control which precedes the Change in
Control or the Change in Control;
(vi) the failure by the Company, without the Executive's
consent, to pay to the Executive any portion of the Executive's current
compensation, or to pay to the Executive any portion of an installment of
deferred compensation under any deferred compensation program of the Company
within seven (7) days of the date such compensation is due;
(vii) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately prior to
either the Potential Change in Control preceding the Change in Control or the
Change in Control which is material to the Executive's total compensation,
including but not limited to the KESOP or DSOP or any substitute or alternative
plans adopted prior to either the Potential Change in Control preceding the
Change in Control or the Change in Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to continue the Executive's
participation therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of
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benefits provided and the level of the Executive's participation relative to
other participants, as existed at the time of the Change in Control;
(viii) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the Executive
under any of the Company's pension, life insurance, medical, health and
accident, disability or other welfare plans, including this Agreement, in which
the Executive was participating at the time of the Change in Control, the taking
of any action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any material fringe
benefit enjoyed by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the number of paid vacation
days to which the Executive is entitled on the basis of years of service with
the Company in accordance with the Company's normal vacation policy in effect at
the time of the Change in Control;
(ix) any purported termination by the Company of the
Executive's employment after a Change in Control otherwise than in accordance
with the termination procedures of Sections 2.9(A) through 2.9(D) hereof; or
(x) any failure by the Company to comply with and satisfy
Section 3.3 of this Agreement.
(M) "KESOP" means the ValliCorp Holdings, Inc. Amended and
-----
Restated Key Employee Stock Option Plan, as last amended effective on May 20,
1996, and any successor or replacement plan thereof.
(N) "Notice of Intent to Terminate" shall have the meaning
-----------------------------
assigned to such term in Section 2.9(A) hereof.
(O) "Person" shall have the meaning given in Section 3(a)(9) of
------
the Exchange Act, as modified and used in Section 13(d)(3) thereof.
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(P) "Potential Change in Control" means the occurrence of any of
---------------------------
the following:
(i) the Board approves a transaction described in
Subsection (ii) or (iv) of the definition of Change in Control contained herein;
(ii) the commencement of a proxy contest in which any
Person seeks to replace or remove a majority of the members of the Board; or
(iii) any Person files an application with the Board of
Governors of the Federal Reserve System for approval of the acquisition of more
than five percent (5%) of the Company's voting securities, or of any class
thereof, under the Bank Holding Company Act of 1956, as amended, or any
successor statute thereto, or files a notice of intent to acquire ten percent
(10%) or more of the Company's outstanding voting securities, or any class
thereof, pursuant to the Change in Bank Control Act or any successor statute
thereto.
(Q) "Severance Benefits" has the meaning assigned to such term
------------------
in Section 2.6(B) hereof.
(R) "Vested Bonus Amount" shall have the meaning assigned to
-------------------
such term in Section 2.5 hereof.
SECTION 18. GENERAL
- ------- -------
18.1 Non-Competition Clause. In addition to his obligations as an
----------------------
executive and whether or not he remains an executive of the Company, the
Executive agrees that during the period commencing with the Commencement Date
and ending upon termination of employment with the Company, however caused, he
will not, without the prior written consent of the Company, engage, directly or
indirectly, in any business that competes with the Company for customers of the
Company. In the event of a breach by the Executive of this Section 3.1, in
addition to other remedies provided by applicable law, the Company will be
entitled
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to issuance of a temporary restraining order or preliminary injunction enforcing
its rights under this Section 3.1.
18.2 Proprietary Information.
-----------------------
(A) The Executive agrees to comply fully with the Company's
policies relating to nondisclosure of the Company's trade secrets and
proprietary information and processes. Without limiting the generality of the
foregoing, the Executive will not, during the term of his employment by the
Company, disclose any such secrets, information, or processes to any person,
firm, corporation, association, or other entity for any reason or purpose
whatsoever, nor shall the Executive make use of any such property for his own
purposes or for the benefit of any person, firm, corporation, or other entity
(except the Company) under any circumstances during or after the term of his
employment, provided that after the term of his employment, this provision shall
not apply to secrets, information, and processes that are then in the public
domain (provided that the Executive was not responsible, directly or indirectly,
for such secrets, information, or processes entering the public domain without
the Company's consent).
(B) The Executive hereby sells, transfers, and assigns to the
Company all of the entire right, title, and interest of the Executive in and to
all inventions, ideas, disclosures, and improvements, whether patented or
unpatented, and copyrightable material, to the extent made or conceived by the
Executive, solely or jointly, during the term of this Agreement, except to the
extent prohibited by Section 2870 of the California Labor Code, a copy of which
is attached hereto as Exhibit A. The Executive shall communicate promptly and
disclose to the Company, in such form as the Company requests, all information,
details, and data pertaining to the aforementioned inventions, ideas,
disclosures, and improvements; and, whether during the term hereof or
thereafter, the Executive shall execute and deliver to the Company such formal
transfers and assignments and such other papers and documents as may be required
of the Executive to permit the Company to file and prosecute any patent
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<PAGE>
applications relating to such inventions, ideas, disclosures, and improvements
and, as to copyrightable material, to obtain copyright thereon.
(C) Trade secrets, proprietary information, and processes shall
not be deemed to include information which is:
(i) known to the Executive at the time of the disclosure;
(ii) publicly known (or becomes publicly known) without the
fault or negligence of the Executive;
(iii) received from a third party without restriction and
without breach of this Agreement;
(iv) approved for release by written authorization of the
Company; or
(v) required to be disclosed by law; provided, however,
-------- -------
that in the event of a proposed disclosure pursuant to this subsection
3.2(C)(v), the recipient shall give the Company prior written notice before such
disclosure is made.
In the event of a breach by the Executive of this Section 3.2, in
addition to other remedies provided by applicable law, the Company will be
entitled to issuance of a temporary restraining order or preliminary injunction
enforcing its rights under this Section 3.2.
18.3 Successors. In addition to any obligations imposed by law upon
----------
any successor to the Company, the Company shall be obligated to require any
successor (whether direct or indirect, by purchase, merger, consolidation,
operation of law, or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption
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<PAGE>
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation and
benefits from the Company in the same amount and on the same terms as the
Executive would be entitled to hereunder if the Executive were to terminate the
Executive's employment for Good Reason during the Coverage Period, except that,
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
18.4 Incompetency. Any benefit payable to or for the benefit of the
------------
Executive, if legally incompetent, or incapable of giving a receipt therefor,
shall be deemed paid when paid to the Executive's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Company.
18.5 Death. Except as otherwise provided herein, this Agreement
-----
shall inure to the benefit of and be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive shall die while any amount
would still be payable to the Executive hereunder (other than amounts which, by
their terms, terminate upon the death of the Executive) if the Executive had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
18.6 Notices. For the purpose of this Agreement, notices and all
-------
other communications provided for in the Agreement shall be in writing and shall
be deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon actual receipt:
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<PAGE>
To the Company:
ValliCorp Holdings, Inc.
8405 North Fresno Street
Fresno, California 93720
Attention:
Executive Vice President and General Counsel
To the Executive:
JOHN H. TAIT
ValliCorp Holdings, Inc.
8405 North Fresno Street
Fresno, CA 93720
18.7 Modification, Waiver. No provision of this Agreement may be
--------------------
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
18.8 Entire Agreement. No agreements or representations, oral or
----------------
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
This Agreement supercedes and replaces the Agreement dated as of July 1, 1995,
between the Company and the Executive.
18.9 Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
Delaware.
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18.10 Statutory Changes. All references to sections of the Exchange
-----------------
Act or the Code shall be deemed also to refer to any successor provisions to
such sections.
18.11 Withholding. Any payments provided for hereunder shall be
-----------
paid net of any applicable withholding required under federal, state or local
law and any additional withholding to which the Executive has agreed.
18.12 Savings Clause. If any term, covenant, or condition of this
--------------
Agreement or the application thereof to any person or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term, covenant, or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant, or condition of this Agreement shall
be valid and enforced to the fullest extent permitted by law.
18.13 Authority to Contract. The Company warrants and represents
---------------------
that it has full authority to enter into this Agreement and to consummate the
transactions contemplated hereby and that this Agreement is not in conflict with
any other agreement to which the Company is a party or by which it may be bound.
The Company hereto further warrants and represents that the individuals
executing this Agreement on behalf of the Company have the full power and
authority to bind the Company to the terms hereof and have been authorized to do
so in accordance with the Company's corporate organization.
18.14 No Assignment of Benefits. Except as otherwise provided
-------------------------
herein or by law, no right or interest of the Executive under the Agreement
shall be assignable or transferable, in whole or in part, either directly or by
operation of law or otherwise, including without limitation by execution, levy,
garnishment, attachment, pledge or in any manner; no attempted assignment or
transfer thereof shall be effective; and no right or interest of the Executive
under this Agreement shall be liable for, or subject to, any obligation or
liability of the Executive.
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18.15 Headings. The headings and captions herein are provided for
--------
reference and convenience only, shall not be considered part of the Agreement,
and shall not be employed in the construction of the Agreement.
18.16 Force Majeure. Neither party shall be liable to the other for
-------------
any delay or failure to perform hereunder, which delay or failure is due to
causes beyond the control of said party, including, but not limited to: acts of
God; acts of the public enemy; acts of the United States of America, or any
State territory, or political subdivision thereof or of the District of
Columbia; fires; floods; epidemics; quarantine restrictions; strikes; or freight
embargoes. Notwithstanding the foregoing provisions of this Section, in every
case the delay or failure to perform must be beyond the control and without the
fault or negligence of the party claiming excusable delay.
18.17 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
18.18 Definitions
-----------
(A) "Company" means ValliCorp Holdings, Inc., a Delaware
-------
corporation. If the Executive becomes employed by a direct or indirect
Subsidiary of ValliCorp Holdings, Inc., the "Company" shall be deemed to refer
to the Subsidiary thereof by which the Executive is employed. In such case,
references to payments, benefits, privileges or other rights to be accorded by
"the Company" shall be deemed to refer to such payments, benefits, privileges or
other rights to be provided by the Subsidiary by which the Executive is employed
or to ValliCorp Holdings, Inc., as the case may be, to correspond to the
corporate entity obligated to make payments or provide benefits, privileges or
other rights pursuant to employee benefit plans affected by the provisions
hereof, and in the absence of any such existing plans or provisions, such
reference shall be deemed to be to ValliCorp Holdings, Inc.
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(B) "Disability" means that the Executive has been unable to
----------
perform his duties under this Agreement for a period of three (3) consecutive
months as the result of his incapacity due to physical or mental illness.
(C) "Subsidiary" means any corporation controlled by the
----------
Company, directly or indirectly.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its officer, thereunto duly authorized, and the Executive has
executed this Agreement, all as of the day and year first above written.
VALLICORP HOLDINGS, INC.
By___________________________
Name: J. MIKE McGOWAN
Title: Chairman and Chief
Executive Officer
------------------------------
JOHN H. TAIT
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EXHIBIT A
---------
Section 2870. Application of provision providing that employee shall assign or
offer to assign rights in invention to employer
(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of his rights in an invention to his
employer shall not apply to an invention that the employee developed entirely on
his own time without using the employer's equipment, supplies, facilities, or
trade secret information except for those inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to require an
employee to assign an invention otherwise excluded from being required to be
assigned under subdivision (a), the provision is against the public policy of
this state and is unenforceable.
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT - LUCINEIA S. DONNELLY
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AGREEMENT
---------
THIS AGREEMENT dated July 1, 1996, is made by and between ValliCorp
Holdings, Inc., a Delaware corporation (the "Company"), and LUCINEIA S. DONNELLY
(the "Executive").
WHEREAS, the Company desires to employ the Executive and the Executive
desires to be employed by the Company, on the terms set forth herein; and
WHEREAS, the Board of Directors of the Company (the "Board")
recognizes that the possibility of a Change in Control (as defined in Section
2.14(E) hereof) exists, as in the case of any publicly-held corporation, and
that such possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its shareholders; and
WHEREAS, as a part of the terms of the Executive's employment the
Board has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of the Executive to her
assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a Change in Control.
NOW THEREFORE, in consideration of the promises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
SECTION 19. EMPLOYMENT
- ------- ----------
19.1 Employment. The Company hereby employs the Executive and the
----------
Executive hereby accepts employment during the Term of Employment upon the terms
and conditions set forth herein.
19.2 Term of Employment. The "Term of Employment" is the period
------------------
beginning July 1, 1996 (the "Commencement Date") and ending on June 30, 2000.
The Term of Employment may
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terminate earlier or be extended as provided in this Agreement; provided
however, that this Agreement shall not terminate earlier than the date that the
provisions of Section 2 hereof cease to be applicable.
19.3 Renewal. The Term of Employment shall be extended for one year on
-------
each anniversary of the Commencement Date unless (a) the Company or the
Executive has given three (3) months' written notice of its or her intent not to
extend the termination date or (b) the Term of Employment has been terminated
under the provisions of Section 1.9 or 1.10.
19.4 Duties. The Executive is employed as Executive Vice President,
------
Administration and Operations of the Company and, under the direction of the
Board and Chief Operating Officer, shall perform and discharge well and
faithfully the duties that may be assigned to her from time to time by the Chief
Operating Officer in connection with the conduct of the Company's business.
19.5 Extent of Services. The Executive shall devote her entire
------------------
business time, attention, and energies to the business of the Company during the
term of the Executive's employment with the Company. The foregoing, however,
shall not preclude the Executive from engaging in appropriate civic, charitable,
or religious activities or from devoting a reasonable amount of time to private
investments or from serving on boards of directors of other entities, as long as
such activities and services do not interfere or conflict with her
responsibilities to the Company.
19.6 Locations of Performance. The Executive's services shall be
------------------------
performed primarily in the vicinity of Fresno, California. The parties
acknowledge, however, that the Executive may be required to travel in connection
with the performance of her duties hereunder.
19.7 Compensation.
------------
(A) Salary. During the Term of Employment, the Company shall pay
------
the Executive a monthly salary of $8,333.34,
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payable in arrears in installments on the 15th and the last day of each month.
The Executive's salary shall be adjusted annually, on the anniversary of this
Agreement, to reflect such changes as the Board determines appropriate, based on
the Executive's performance for the most recent performance period.
(B) Incentive Programs. During the Term of Employment, the
------------------
Executive shall be entitled to participate in any annual and long-term incentive
programs adopted by the Company and which cover employees in positions
comparable to that of the Executive.
(C) Expenses. The Executive shall be entitled to prompt
--------
reimbursement of all reasonable business expenses incurred by her in the
performance of her duties during the Term of Employment, subject to the
presenting of appropriate vouchers and receipts in accordance with the Company's
policies.
19.8 Employee Benefits. During the Term of Employment, the Executive
-----------------
shall be entitled to participate in employee benefit plans or programs of the
Company, if any, to the extent that her position, tenure, salary, age, health,
and other qualifications make her eligible to participate, subject to the rules
and regulations applicable thereto.
19.9 Termination by the Company; Death. Notwithstanding the
---------------------------------
provisions of Sections 1.2 and 1.3, and except for situations in which the
termination of employment provisions of Section 2 apply, the Term of Employment
and the Executive's employment hereunder may be terminated by the Company
without any breach of this Agreement under the following circumstances:
(A) Involuntary Termination. The Executive's employment is at will.
-----------------------
The Company reserves the right to terminate the Executive's employment at any
time whatsoever, with or without cause, with thirty (30) days' written notice to
the Executive. The Term of Employment shall terminate on the last day of the
notice period, but the Company may require the
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Executive to cease performing services at any time once the notice is given.
(B) Involuntary Termination for Just Cause. The Company reserves
--------------------------------------
the right to terminate the Executive's employment for Just Cause. "Just Cause"
shall exist if the Executive has: (i) willfully breached or habitually neglected
the duties which he was required to perform under the terms of this Agreement,
or (ii) committed act(s) of dishonesty, theft, embezzlement, fraud,
misrepresentation, or other act(s) of moral turpitude against the Company, its
subsidiaries or affiliates, its shareholders, or its employees. The Company
shall give the Executive written notice of the termination and the reasons
therefor. The Term of Employment shall terminate immediately upon receipt of the
notice.
(C) Disability. The Term of Employment shall terminate three (3)
----------
months after the Company gives the Executive written notice that it intends to
terminate her employment on account of Disability or on such later date as the
Company specifies in such notice. If the Executive resumes the performance of
substantially all of her duties under this Agreement before the termination
becomes effective, the notice of intent to terminate shall be deemed to have
been revoked.
(D) Death. The Term of Employment shall terminate upon the
-----
Executive's death.
19.10 Termination By The Executive. Notwithstanding the provisions of
----------------------------
Sections 1.2 and 1.3, the Term of Employment and the Executive's employment
hereunder may be terminated without any breach of this Agreement by the
Executive under the following circumstances:
(A) Voluntary Termination. Subject to Section 2.4 hereof, the
---------------------
Executive may terminate her employment with the Company at any time with three
(3) months' written notice to the Company. The Term of Employment shall end on
the last day on which the Executive performs services for the Company.
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(B) Termination for Good Cause. The Executive may terminate her
--------------------------
employment with the Company for Good Cause by giving the Company thirty (30)
days' notice of its breach, the reasons why the breach constitutes Good Cause
and of her intent to terminate on such basis. If the Company cures its breach
within the thirty (30) day period, the Executive may rescind her notice of
intent to terminate, or terminate her employment under Section 1.10(A) hereof as
though her notice of breach was the notice provided for under Section 1.10(A).
If the Company fails to cure its breach within the thirty (30) day period, the
Term of Employment shall end on the last day of the notice period.
The term "Good Cause" as used herein means a material reduction in the
Executive's compensation under Section 1.7 or benefits under Section 1.8, a
material reduction in the Executive's title or responsibilities, or a relocation
of the Executive's primary place of employment so that the Executive's one-way
commute distance is increased by more than (40) miles.
19.11 Benefits on Termination of Employment. Except as provided in
-------------------------------------
Section 2.1 hereof, if the Executive's employment is terminated during the Term
of Employment, the Executive shall be entitled to receive the following
benefits:
(A) Death; Disability; Voluntary Termination; Termination for Just
--------------------------------------------------------------
Cause. If employment is terminated under Section 1.9 (B), (C), or (D), or
- -----
Section 1.10(A), the Executive shall receive (i) salary through the Term of
Employment; (ii) any incentive compensation earned but not yet paid; and (iii)
reimbursement of expenses incurred under Section 1.7(C) but not yet reimbursed.
All other employee benefits and compensation shall cease on the last day on
which the Executive performs services as an employee, except to the extent that
continued coverage is required by law.
(B) Involuntary Termination; Termination For Good Cause. If the
---------------------------------------------------
Executive's employment is terminated under the provisions of Sections 1.9(A) or
1.10(B), the Executive shall receive in a lump sum payment an amount equal to
the sum of
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clauses (i) through (iii) in Section 1.11(A), and, in addition,twelve (12)
months of salary under Section 1.7(A) computed with reference to the annual
salary in effect immediately preceding the date of termination.
All other employee benefits and compensation, including any incentive benefits
for the year in which the Term of Employment ends, shall cease on the last day
on which the Executive performs services as an employee of the Company except to
the extent that continued coverage is required by law.
19.12 Non-Renewal. If the Executive or the Company gives notice of
-----------
intent not to extend the Term of Employment under Section 1.3, the Executive's
salary and benefits shall cease on the last day of the Term of Employment,
except to the extent that continued coverage is required by law.
19.13 Recovery of Litigation Costs. If any legal action or other
----------------------------
preceding is brought for the enforcement of any provision under Section 1 of
this Agreement (or Section 3 of this Agreement in connection with its
applicability under Section 1 of this Agreement) or any agreement or instrument
delivered under or in connection with Section 1 of this Agreement (or Section 3
of this Agreement in connection with its applicability under Section 1 of this
Agreement), or because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of Section 1 of this
Agreement (or Section 3 of this Agreement in connection with its applicability
under Section 1 of this Agreement), the successful or prevailing party or
parties shall be entitled to recover reasonable attorney's fees and other costs
incurred in that action or proceeding, in addition to any other relief to which
it or they may be entitled.
SECTION 20. TERMINATION OF EMPLOYMENT IN CONNECTION WITH A CHANGE IN CONTROL
- ------- ----------------------------------------------------------------
20.1 Applicability of Section 2. No payments will be required under
--------------------------
Section 1.11 of this Agreement in connection with the Executive's Termination of
Employment to the extent that the
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payments and benefits provided for by Section 2 of this Agreement are paid or
provided to the Executive.
20.2 Term of Change in Control Provisions. Either the Company or the
------------------------------------
Executive may terminate the applicability of the provisions of this Section 2 by
giving the other at least one (1) year advance written notice of termination
thereof; provided, however, that if a Change in Control shall have occurred
during the term of this Agreement, the provisions of Section 2 hereunder shall
continue in effect until all obligations of either party hereto have been
performed in full. Notwithstanding the foregoing, the provisions of this Section
2 shall terminate upon the Executive's attaining age sixty-five (65), except as
to obligations of the Company hereunder arising from a Change in Control and/or
a termination of the Executive's employment prior to her having reached such
age.
20.3 Company's Covenants Summarized. In order to induce the Executive
------------------------------
to remain in the employ of the Company and in consideration of the Executive's
covenants set forth in Section 2.4 hereof, the Company agrees, under the terms
and conditions set forth herein, that, upon a Change in Control during the term
of this Agreement, certain benefits shall thereupon become vested as set forth
in Section 2.5 hereof, and paid in accordance with the provisions thereof, and,
in the event that the Executive's employment with the Company is terminated
thereafter during the Coverage Period, the Company shall pay the Executive the
amounts provided for in Section 2.6 hereof.
20.4 The Executive's Covenant. The Executive agrees that, subject to
------------------------
the terms and conditions of this Agreement, and notwithstanding the provisions
in Section 1.10(A) of this Agreement, in the event of a Potential Change in
Control, the Executive will remain in the employ of the Company until the
earliest of (a) a date which is nine (9) months after the date of such Potential
Change of Control, (b) the date of a Change in Control, (c) the date of
termination by the Executive of the Executive's employment for Good Reason
(determined by treating the Potential Change in Control for this purpose as a
Change in
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Control in applying the definition of Good Reason) or by reason of death or
Disability, (d) the termination by the Company of the Executive's employment for
any reason, or (e) the Executive's attaining age sixty-five (65).
20.5 Vesting of Bonus in the Event of a Change in Control. Upon the
----------------------------------------------------
occurrence of a Change in Control, the Executive shall have a vested and
nonforfeitable right to receive in cash an amount equal to the target bonus
amount which the Executive could earn for the year in which the Change in
Control occurs pursuant to the ValliCorp Holdings, Inc. Executive Management
Committee's Management Bonus Program for such year, or under any other
management incentive plan or program in effect in such year, as if 100% of all
objectives provided for thereunder had been met for that year (the "Vested Bonus
Amount"). The Executive's Vested Bonus Amount pursuant to the preceding sentence
shall be promptly paid to the Executive at the date on which such bonus would
have been paid pursuant to such plan or program if no Change in Control had
occurred. Notwithstanding the foregoing, however, in the event that the
Executive's Date of Termination after a Change in Control falls in the fiscal
year in which such Change in Control occurs, the Executive shall not be entitled
to receive a bonus pursuant to this Section 2.5, but shall instead be entitled
to the bonus amount as provided in Section 2.6(B)(iii) hereof.
20.6 Benefits and Rights upon Termination of Employment.
--------------------------------------------------
(A) General Termination Rights and Benefits. If the Executive's
---------------------------------------
employment by the Company is terminated after a Change in Control for any reason
(whether by the Company or the Executive), the Company shall pay to the
Executive the payments described in Subsections (i) through (iii) below.
(i) Previously Earned Salary. The Company shall pay the
Executive's full salary to the Executive through the Date of Termination at the
highest rate in effect during the sixty (60) day period preceding the date the
Notice of Intent to
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Terminate is given, together with all compensation and benefits payable to the
Executive through the Date of Termination under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company during such
period.
(ii) Previously Earned Benefits. The Company shall pay the
--------------------------
Executive's normal post-termination compensation and benefits to the Executive
as such payments become due. Such post-termination compensation and benefits
shall be determined under, and paid in accordance with, the Company's
retirement, insurance, pension, welfare and other compensation or benefit plans,
programs and arrangements.
(iii) Payment of Vested Bonus Amount. Except to the extent that
------------------------------
the Company has previously paid to the Executive all or a portion of her Vested
Bonus Amount pursuant to Section 2.5 hereof, the Company shall pay to the
Executive a lump sum cash payment equal to the Executive's Vested Bonus Amount.
(B) Severance Benefits. In addition to the payments provided for by
------------------
Section 2.6(A) hereof, the Company shall pay to the Executive the payments
described in Subsections (i) through (iii) below (the "Severance Benefits") upon
termination of the Executive's employment with the Company during the Coverage
Period, unless such termination is (a) by the Company for Cause, (b) by reason
of the Executive's death or Disability or after the Executive attains age sixty-
five (65) or (c) by the Executive without Good Reason.
(i) Lump-Sum Severance Payment. In lieu of any further salary
--------------------------
payments to the Executive for periods subsequent to the Date of Termination, the
Company shall pay to the Executive a lump sum severance payment, in cash, equal
to two (2) (or, if less, the number of years, including fractions, from the Date
of Termination until the Executive would have reached age sixty-five (65)) times
the sum of (a) the Executive's Annual Base Salary and (b) the Executive's Annual
Bonus. Notwithstanding the preceding sentence, the amount of the lump sum
payment provided for therein shall be reduced by any lump sum cash severance
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payment which is actually paid by the Company to the Executive pursuant to any
other plan or agreement on or prior to the date on which the payment pursuant to
this Subsection 2.6(B)(i) is required to be paid.
(ii) Continued Benefits. For a twenty-four (24) month period (or,
------------------
if less, the number of months from the Date of Termination until the Executive
would have reached age sixty-five (65)) after the Date of Termination (the
"Benefits Period"), the Company shall provide the Executive with group term life
insurance, health insurance and long-term disability insurance benefits
("Welfare Benefits") substantially similar in all respects to those which the
Executive is receiving immediately prior to the Notice of Termination (without
giving effect to any reduction in such benefits subsequent to a Change in
Control which reduction constitutes or may constitute Good Reason). Benefits
otherwise receivable by the Executive pursuant to this Section 2.6(B)(ii) shall
be reduced to the extent substantially similar benefits are actually received by
or made available to the Executive by any other employer during the same time
period for which such benefits would be provided pursuant to this Section
2.6(B)(ii) at a cost to the Executive that is commensurate with the cost
incurred by the Executive immediately prior to the Executive's Date of
Termination (without giving effect to any increased costs paid by the Executive
after the Change in Control which constituted or might have constituted Good
Reason); provided, however, that if the Executive becomes employed by a new
employer which maintains a medical plan that either (i) does not cover the
Executive or a family member or dependent with respect to a preexisting
condition which was covered under the applicable Company medical plan, or (ii)
does not cover the Executive or a family member or dependent for a
designated waiting period, the Executive's coverage under the applicable Company
medical plan shall continue (but shall be limited in the event of noncoverage
due to a preexisting condition, to such preexisting condition) until the earlier
of the end of the applicable period of noncoverage under the new employer's plan
or the end of the Benefits Period. The Executive agrees to report to the
Company any coverage and benefits
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actually received by the Executive from such other employer(s). The Executive
shall be entitled to elect to change her level of coverage and/or her choice of
coverage options (such as the Executive only or family medical coverage) with
respect to the Welfare Benefits to be provided by the Company to the Executive
to the same extent that actively employed senior executives of the Company are
permitted to make such changes; provided, however, that in the event of any such
changes the Executive shall pay the amount of any cost increase that would
actually be paid by an actively employed executive of the Company by reason of
making the same change in her level of coverage or coverage options.
(iii) Bonus for Year in Which Date of Termination Occurs. The
--------------------------------------------------
Company shall pay to the Executive a lump sum cash amount equal to the product
of (x) and (y), where (x) is an amount equal to the target bonus amount which
the Executive could earn for the year in which the Date of Termination occurs
pursuant to the ValliCorp Holdings, Inc. Executive Management Committee's
Management Bonus Program for such year, or under any other management incentive
plan or program in effect in such year, as if 100% of all objectives provided
for thereunder had been met for that year, and (y) is a fraction the numerator
of which is the number of days from and including the first day of the year in
which the Date of Termination occurs until (and including) the Executive's Date
of Termination and the denominator of which is 365 days.
(C) Gross-Up Payment. In the event that the Executive becomes
----------------
entitled to the Severance Benefits or any other benefits or payments under
Section 2 of this Agreement (other than pursuant to this Section 2.6(C)) or the
KESOP or DSOP by reason of the accelerated vesting of stock options thereunder
(together, the "Total Benefits"), and in the event that any of the Total
Benefits will be subject to the Excise Tax, the Company shall pay to the
Executive an additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of any Excise Tax on the Total
Benefits and any federal, state and local income tax, Excise Taxes and FICA and
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Medicare withholding taxes upon the payment provided for by this Section 2.6(C),
shall be equal to the Total Benefits.
For purposes of determining whether any of the Total Benefits will be
subject to the Excise Tax and the amount of such Excise Tax, (i) any other
payments or benefits received or to be received by the Executive in connection
with a Change in Control or the Executive's termination of employment (whether
pursuant to the terms of this Agreement or any other agreement, plan or
arrangement with the Company, any Person whose actions result in a Change in
Control or any Person affiliated with the Company or such Person) shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion
of tax counsel ("Tax Counsel") selected by the Company's independent auditors
and acceptable to the Executive, such other payments or benefits (in whole or in
part) do not constitute parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in excess of the
Base Amount, or are otherwise not subject to the Excise Tax, (ii) the amount of
the Total Benefits which shall be treated as subject to the Excise Tax shall be
equal to the lesser of (A) the total amount of the Total Benefits reduced by the
amount of such Total Benefits that in the opinion of Tax Counsel are not
parachute payments, or (B) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) (after applying clause (i), above), and (iii) the
value of any non-cash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with the
principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of the Executive's residence on the Date of Termination, net of the
reduction in federal income taxes
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which could be obtained from deduction of such state and local taxes (calculated
by assuming that any reduction under Section 68 of the Code in the amount of
itemized deductions allowable to the Executive applies first to reduce the
amount of such state and local income taxes that would otherwise be deductible
by the Executive).
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax, federal, state
and local income taxes and FICA and Medicare withholding taxes imposed on the
Gross-Up Payment being repaid by the Executive to the extent that such repayment
results in a reduction in Excise Tax, FICA and Medicare withholding taxes and/or
a federal, state or local income tax deduction) plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of the Executive's employment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment to the Executive in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) at the time that the amount of such excess is finally determined.
20.7 Timing of Payments. The payments provided for in Sections 2.6(A)
------------------
through 2.6(C) (other than Section 2.6(B)(ii) hereof) shall be made on the Date
of Termination, provided, however, that if the amounts of such payments cannot
be finally determined on or before such day, the Company shall pay to the
Executive on such day an estimate, as determined in good faith by the Company,
of the minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the
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rate provided in Section 1274(b)(2)(B) of the Code from the fifth (5th) day
following the Date of Termination to the payment of such remainder) as soon as
the amount thereof can be determined but in no event later than the thirtieth
(30th) day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been due,
such excess shall constitute a loan by the Company to the Executive, payable on
the fifth (5th) business day after demand by the Company (together with interest
at the rate provided in Section 1274(b)(2)(B) of the Code from the fifth (5th)
day following the Date of Termination to the repayment of such excess).
20.8 Reimbursement of Legal Costs. The Company shall pay to the
----------------------------
Executive all legal fees and expenses incurred by the Executive as a result of a
termination which entitles the Executive to any payments under Section 2 of this
Agreement, including all such fees and expenses, if any, incurred in contesting
or disputing any Notice of Intent to Terminate under Section 2.9(C) hereof or in
seeking to obtain or enforce any right or benefit provided by Section 2 of this
Agreement (or Section 3 of this Agreement in connection with its applicability
under Section 2 of this Agreement), or in connection with any tax audit or
proceeding to the extent attributable to the application of section 4999 of the
Code to any payment or benefit provided hereunder. Such payments shall be made
within five (5) business days after delivery of the Executive's respective
written requests for payment accompanied with such evidence of fees and expenses
incurred as the Company reasonably may require.
20.9 Termination Procedures and Compensation During Dispute
------------------------------------------------------
(A) Notice of Intent To Terminate. After a Change in Control, any
-----------------------------
purported termination of the Executive's employment (other than by reason of
death) must be preceded by a written Notice of Intent to Terminate from one
party hereto to the other party hereto in accordance with Section 3.6 hereof.
For purposes of this Agreement, a "Notice of Intent to Terminate"
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shall mean a notice which shall indicate the notifying party's opinion regarding
the specific provisions of this Agreement that will apply upon such termination
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for the application of the provisions indicated. Further, a
Notice of Intent to Terminate for Cause is required to include a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
(3/4) of the entire membership of the Board at a meeting of the Board which was
called and held for the purpose of considering such termination (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, the Executive was guilty of
conduct set forth in clause (i) or (ii) of the definition of Cause herein, and
specifying the particulars thereof in detail.
(B) Date of Termination. "Date of Termination", with respect to any
-------------------
purported termination of the Executive's employment after a Change in Control,
shall mean, except as provided in Section 2.9(C) hereof, (a) if the Executive's
employment is terminated for Disability, three (3) months after Notice of Intent
to Terminate is given (provided that the Executive shall not have returned to
the full-time performance of the Executive's duties during such three (3) month
period), and (b) if the Executive's employment is terminated for any other
reason, the date specified in the Notice of Intent to Terminate (which, in the
case of a termination by the Company, shall not be less than thirty (30) days
after Notice of Intent to Terminate is given (except in the case of a
termination for Cause in which case it shall not be less than ten (10) days
after Notice of Intent to Terminate is given, provided that the Company may
require the Executive not to report to work during such ten (10) day period),
and, in the case of a termination by the Executive, shall not be less than
fifteen (15) days nor more than sixty (60) days, respectively, from the date
such Notice of Intent to Terminate is given).
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(C) Dispute Concerning Termination. If within fifteen (15) days
------------------------------
after any Notice of Intent to Terminate is given, or, if later, prior to the
Date of Termination (as determined without regard to this Section 2.9(C)), the
party receiving such Notice of Intent to Terminate notifies the other party
that a dispute exists concerning the termination or the provisions of this
Agreement that apply to such termination, the Date of Termination shall be the
date on which the dispute is finally resolved, either by mutual written
agreement of the parties or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected);
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
(D) Compensation During Dispute. If a purported termination occurs
---------------------------
following a Change in Control and such termination or the provisions of Section
2 of this Agreement that apply upon such termination is disputed in accordance
with Section 2.9(C) hereof, the Company shall continue to pay the Executive the
full compensation (including, but not limited to, salary) at the highest rate in
effect during the sixty (60) day period preceding the date that the Notice of
Intent to Terminate was given and continue the Executive as a participant in all
compensation, benefit, insurance and pension and welfare benefit plans in which
the Executive was participating when the Notice of Intent to Terminate was given
(not taking into account any reductions in compensation, benefits or insurance
under such plans occurring during the sixty (60) day period preceding the date
that the Notice of Intent to Terminate was given), until the dispute is finally
resolved in accordance with Section 2.9(C) hereof. Amounts paid under this
Section 2.9(D) are in addition to all other amounts due under Section 2 of this
Agreement (other than those due under Section 2.6(A)(i) hereof) and shall not be
offset against or reduce any other amounts due under this Agreement.
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20.10 No Mitigation. The Company agrees that, if the Executive's
-------------
employment by the Company is terminated during the Coverage Period, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive by the Company pursuant to this
Agreement. Further, the amount of any payment or benefit provided for under this
Agreement (other than to the extent provided in Section 2.6(B)(ii) and Section
2.6(B)(iii)) shall not be reduced by any compensation earned by the Executive as
the result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Executive to the Company, or
otherwise.
20.11 Terminations in Anticipation of Change in Control. The
-------------------------------------------------
Executive's employment shall be deemed to have been terminated by the Company
without Cause during the Coverage Period if the Executive's employment is
terminated by the Company without Cause prior to a Change in Control and such
termination of employment (a) was at the request of a third party who has taken
steps reasonably calculated to effect a Change in Control or (b) otherwise arose
in anticipation of a Change in Control. The Executive's employment shall be
deemed to have been terminated by the Executive for Good Reason during the
Coverage Period if the Executive terminates her employment with Good Reason
prior to a Change in Control if the circumstance or event which constitutes Good
Reason occurs (a) at the request of a third party who has taken steps reasonably
calculated to effect a Change in Control or (b) otherwise arose in anticipation
of a Change in Control. In the event of a termination of employment described in
this Section 2.11, the Executive shall be entitled to all payments and other
benefits to which the Executive would have been entitled had such termination
occurred during the Coverage Period (other than salary pursuant to Section
2.6(A)(i) hereof for any period after the actual date of termination) and the
Executive shall be entitled to an additional payment in an amount which shall
compensate the Executive to the extent that the Executive was deprived by such
termination of the opportunity prior to termination of employment to exercise
stock options granted to her under the KESOP or DSOP at the highest market
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price of the Company's Common Stock reached in connection with the Change in
Control. Notwithstanding the provisions of Section 2.13 hereof, for purposes of
this Section 2.11 only, the burden of proving that the requirements of clauses
(a) and (b) of the first and second sentences of this Section 2.11 have been met
shall be on the Executive and the standard of proof to be met by the Executive
shall be clear and convincing evidence, except that, in the event that the
termination of employment occurs following a Potential Change in Control or
within two (2) months prior to a Change in Control, the burden of proving that
the requirements of clauses (a) and (b) of the first and second sentences of
this Section 2.11 have not been met shall be upon the Company, and the standard
of proof to be met by the Company shall be clear and convincing evidence.
20.12 Reduction of Benefits By Legally Required Benefits.
--------------------------------------------------
Notwithstanding any other provision of this Agreement to the contrary, if the
Company is obligated by law or by contract (other than under this Agreement) to
pay severance pay, a termination indemnity, notice pay, or the like, or if the
Company is obligated by law or by contract to provide advance notice of
separation ("Notice Period"), then any Severance Benefits hereunder shall be
reduced by the amount of any such severance pay, termination indemnity, notice
pay or the like, as applicable, and by the amount of any pay received during any
Notice Period.
20.13 Burden and Standard of Proof. Except as otherwise expressly
----------------------------
provided in Section 2.11 hereof, in any proceeding (regardless of who initiates
such proceeding) in which the payment of Severance Benefits or other benefits
under Section 2 of this Agreement is at issue, the burden of proof as to whether
there exists either Cause or Good Reason for purposes of this Agreement shall be
upon the Company or its successor, and the standard of proof to be met with
respect thereto shall be clear and convincing evidence.
20.14 Definitions
-----------
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(A) "Annual Base Salary" means the higher of (a) the Executive's
------------------
highest annual base salary in effect during the one (1) year period preceding a
Change in Control, or (b) the Executive's highest annual base salary in effect
during the one year period preceding the Executive's Date of Termination.
(B) "Annual Bonus" means the highest of (a) the average of the
------------
three highest bonuses paid or payable, including any bonus or portion thereof
which has been earned but deferred, to the Executive by the Company in respect
of the five fiscal years (or such shorter period during which the Executive has
been employed by the Company) immediately preceding the fiscal year in which a
Change in Control occurs (annualized for any fiscal year during such period
consisting of less than twelve full months or with respect to which the
Executive has been employed by the Company for less than twelve full months),
(b) the bonus paid or payable (annualized as described above), including any
bonus or portion thereof which has been earned but deferred, to the Executive by
the Company in respect of the most recently completed fiscal year prior to the
Change in Control, (c) the bonus paid or payable (annualized as described
above), including any bonus or portion thereof which has been earned or
deferred, for the most recently completed fiscal year preceding the Executive's
Date of Termination, and (d) 100% of the Executive's target bonus award amount
for the year including the Executive's Date of Termination.
(C) "Base Amount" shall have the meaning ascribed to such term in
-----------
Section 280G(b)(3) of the Code.
(D) "Cause" means:
-----
(i) The willful and continued failure of the Executive to
substantially perform the Executive's duties with the Company (other than any
such failure resulting from incapacity due to physical or mental illness), after
a written demand for substantial performance is delivered to the Executive by
the Board or the Chief Executive Officer of the Company which specifically
identifies the manner in which the Board or Chief
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Executive Officer believes that the Executive has not substantially performed
the Executive's duties;
(ii) the willful engaging by the Executive in illegal
conduct or gross misconduct which is materially and demonstrably injurious to
the Company;
(iii) personal dishonesty or breach of fiduciary duty to the
Company that in either case results or was intended to result in personal profit
to the Executive at the expense of the Company; or
(iv) willful violation of any law, rule or regulation (other
than traffic violations, misdemeanors or similar offenses) or cease-and-desist
order, court order, judgment or supervisory agreement, which violation is
materially and demonstrably injurious to the Company.
For purposes of the preceding clauses, no act or failure to act, on the part of
the Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith and without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon prior approval given by the Board or upon the
instructions or with the approval of the Chief Executive Officer or the
Executive's superior or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of employment
of the Executive shall not be deemed to be for Cause unless and until there
shall have been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the Board), finding that,
in the good faith opinion of the Board, the Executive is guilty of the conduct
described in
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clauses (i) through (iv) above, and specifying the particulars thereof in
detail.
(E) A "Change in Control" means: a change of control of the Company
-----------------
of a nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A (or in response to any similar item on any
similar schedule or form) promulgated under the Exchange Act, whether or not the
Company is then subject to such reporting requirement; provided, however, that
without limitation, a Change in Control shall be deemed to have occurred if:
(i) any Person is or becomes the "beneficial owner" (as defined
in Rules 13d-3 and 13d-5 under the Exchange Act or any successor provisions
thereto), directly or indirectly, of securities of the Company representing 20%
or more of the combined voting power of the Company's then outstanding
securities;
(ii) a merger or consolidation of the Company is consummated with
any other corporation, other than a merger or consolidation which would result
in the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least fifty percent (50%) of
the combined voting power either of the Company's then outstanding securities or
of such surviving entity's securities outstanding immediately after such merger
or consolidation;
(iii) the Company's shareholders approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the combined voting power
either of the Company's then outstanding securities or of such surviving
entity's securities
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<PAGE>
outstanding immediately after such merger or consolidation, provided however
that, in the event that such merger or consolidation has not been consummated by
a date which is 180 days after the date of the shareholder vote to approve such
merger or consolidation, no Change in Control shall be deemed to have occurred
pursuant to this subsection 2.14(E)(iii), without prejudice to the Executive's
rights, if any, pursuant to Section 2.11 hereof or, in the event of a subsequent
consummation of such merger or consolidation, pursuant to Subsection 2.14(E)(ii)
hereof;
(iv) the shareholders of the Company approve a plan of complete
liquidation or an agreement for the sale or disposition (in one transaction or a
series of transactions) of all or substantially all of the Company's assets;
(v) as a result of a proxy contest, individuals who prior to the
conclusion thereof constituted the Board (including for this purpose any new
director whose election or nomination for election by the Company's shareholders
in connection with such proxy contest was approved by a vote of at least two-
thirds of the directors then still in office who were directors prior to such
proxy contest) cease to constitute at least a majority of the Board; or
(vi) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constituted the Board (including
for this purpose any new director whose election or nomination for election by
the Company's shareholders was approved by a vote of at least two-thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board.
(F) "Code" means the Internal Revenue Code of 1986, as amended
----
from time to time.
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(G) "Coverage Period" means the period, commencing on the date on
---------------
which a Change in Control occurs and ending on the second anniversary date
thereof.
(H) "Date of Termination" has the meaning assigned to such term in
-------------------
Section 2.9(B) hereof.
(I) "DSOP" means the ValliCorp Holdings, Inc. Amended and Restated
----
Directors' Stock Option Plan, as last amended effective on May 20, 1996, and any
successor or replacement plan thereof.
(J) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended from time to time.
(K) "Excise Tax" means any excise tax imposed under Section 4999
----------
of the Code.
(L) "Good Reason" means:
-----------
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities immediately prior
to either the Potential Change in Control which precedes the Change in Control
or the Change in Control or any other action by the Company which results in a
diminution in any respect in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) a reduction by the Company in the Executive's annual base
salary as in effect on the date hereof or as the same may be increased from time
to time;
(iii) the failure by the Company to increase the Executive's base
salary each year after a Change in Control by an amount which at least equals,
on a percentage basis, the
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mean average percentage increase in base salary for all officers of the Company
during the two full calendar years immediately preceding a Change in Control;
(iv) the Company's requiring the Executive to be based at any
office or location that is more than forty (40) miles from the Executive's
office or location immediately prior to either the Potential Change in Control
which precedes the Change in Control or the Change in Control but only if such
change involves a material increase in the employee's cost of living and is not
accompanied by a commensurate increase in compensation and benefits;
(v) the Company's requiring the Executive to travel on Company
business to a substantially greater extent than required immediately prior to
either the Potential Change in Control which precedes the Change in Control or
the Change in Control;
(vi) the failure by the Company, without the Executive's consent,
to pay to the Executive any portion of the Executive's current compensation, or
to pay to the Executive any portion of an installment of deferred compensation
under any deferred compensation program of the Company within seven (7) days of
the date such compensation is due;
(vii) the failure by the Company to continue in effect any
compensation plan in which the Executive participates immediately prior to
either the Potential Change in Control preceding the Change in Control or the
Change in Control which is material to the Executive's total compensation,
including but not limited to the KESOP or DSOP or any substitute or alternative
plans adopted prior to either the Potential Change in Control preceding the
Change in Control or the Change in Control, unless an equitable arrangement
(embodied in an ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to continue the Executive's
participation therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of
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benefits provided and the level of the Executive's participation relative to
other participants, as existed at the time of the Change in Control;
(viii) the failure by the Company to continue to provide the
Executive with benefits substantially similar to those enjoyed by the Executive
under any of the Company's pension, life insurance, medical, health and
accident, disability or other welfare plans, including this Agreement, in which
the Executive was participating at the time of the Change in Control, the taking
of any action by the Company which would directly or indirectly materially
reduce any of such benefits or deprive the Executive of any material fringe
benefit enjoyed by the Executive at the time of the Change in Control, or the
failure by the Company to provide the Executive with the number of paid vacation
days to which the Executive is entitled on the basis of years of service with
the Company in accordance with the Company's normal vacation policy in effect at
the time of the Change in Control;
(ix) any purported termination by the Company of the Executive's
employment after a Change in Control otherwise than in accordance with the
termination procedures of Sections 2.9(A) through 2.9(D) hereof; or
(x) any failure by the Company to comply with and satisfy
Section 3.3 of this Agreement.
(M) "KESOP" means the ValliCorp Holdings, Inc. Amended and Restated
-----
Key Employee Stock Option Plan, as last amended effective on May 20, 1996, and
any successor or replacement plan thereof.
(N) "Notice of Intent to Terminate" shall have the meaning assigned
-----------------------------
to such term in Section 2.9(A) hereof.
(O) "Person" shall have the meaning given in Section 3(a)(9) of the
------
Exchange Act, as modified and used in Section 13(d)(3) thereof.
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(P) "Potential Change in Control" means the occurrence of any of
---------------------------
the following:
(i) the Board approves a transaction described in Subsection (ii)
or (iv) of the definition of Change in Control contained herein;
(ii) the commencement of a proxy contest in which any Person
seeks to replace or remove a majority of the members of the Board; or
(iii) any Person files an application with the Board of Governors
of the Federal Reserve System for approval of the acquisition of more than five
percent (5%) of the Company's voting securities, or of any class thereof, under
the Bank Holding Company Act of 1956, as amended, or any successor statute
thereto, or files a notice of intent to acquire ten percent (10%) or more of the
Company's outstanding voting securities, or any class thereof, pursuant to the
Change in Bank Control Act or any successor statute thereto.
(Q) "Severance Benefits" has the meaning assigned to such term in
------------------
Section 2.6(B) hereof.
(R) "Vested Bonus Amount" shall have the meaning assigned to such
-------------------
term in Section 2.5 hereof.
SECTION 21. GENERAL
- ------- -------
21.1 Non-Competition Clause. In addition to her obligations as an
----------------------
executive and whether or not she remains an executive of the Company, the
Executive agrees that during the period commencing with the Commencement Date
and ending upon termination of employment with the Company, however caused, she
will not, without the prior written consent of the Company, engage, directly or
indirectly, in any business that competes with the Company for customers of the
Company. In the event of a breach by the Executive of this Section 3.1, in
addition to other remedies provided by applicable law, the Company will be
entitled
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<PAGE>
to issuance of a temporary restraining order or preliminary injunction enforcing
its rights under this
21.2 Proprietary Information.
-----------------------
(A) The Executive agrees to comply fully with the Company's policies
relating to nondisclosure of the Company's trade secrets and proprietary
information and processes. Without limiting the generality of the foregoing,
the Executive will not, during the term of her employment by the Company,
disclose any such secrets, information, or processes to any person, firm,
corporation, association, or other entity for any reason or purpose whatsoever,
nor shall the Executive make use of any such property for her own purposes or
for the benefit of any person, firm, corporation, or other entity (except the
Company) under any circumstances during or after the term of her employment,
provided that after the term of her employment, this provision shall not apply
to secrets, information, and processes that are then in the public domain
(provided that the Executive was not responsible, directly or indirectly, for
such secrets, information, or processes entering the public domain without the
Company's consent).
(B) The Executive hereby sells, transfers, and assigns to the Company
all of the entire right, title, and interest of the Executive in and to all
inventions, ideas, disclosures, and improvements, whether patented or
unpatented, and copyrightable material, to the extent made or conceived by the
Executive, solely or jointly, during the term of this Agreement, except to the
extent prohibited by Section 2870 of the California Labor Code, a copy of which
is attached hereto as Exhibit A. The Executive shall communicate promptly and
disclose to the Company, in such form as the Company requests, all information,
details, and data pertaining to the aforementioned inventions, ideas,
disclosures, and improvements; and, whether during the term hereof or
thereafter, the Executive shall execute and deliver to the Company such formal
transfers and assignments and such other papers and documents as may be required
of the Executive to permit the Company to file and prosecute any patent
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applications relating to such inventions, ideas, disclosures, and improvements
and, as to copyrightable material, to obtain copyright thereon.
(C) Trade secrets, proprietary information, and processes shall not
be deemed to include information which is:
(i) known to the Executive at the time of the disclosure;
(ii) publicly known (or becomes publicly known) without the
fault or negligence of the Executive;
(iii) received from a third party without restriction and
without breach of this Agreement;
(iv) approved for release by written authorization of the
Company; or
(v) required to be disclosed by law; provided, however, that in
-------- -------
the event of a proposed disclosure pursuant to this subsection 3.2(C)(v), the
recipient shall give the Company prior written notice before such disclosure is
made.
In the event of a breach by the Executive of this Section 3.2, in
addition to other remedies provided by applicable law, the Company will be
entitled to issuance of a temporary restraining order or preliminary injunction
enforcing its rights under this Section 3.2.
21.3 Successors. In addition to any obligations imposed by law upon
----------
any successor to the Company, the Company shall be obligated to require any
successor (whether direct or indirect, by purchase, merger, consolidation,
operation of law, or otherwise) to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption
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<PAGE>
and agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Executive to compensation and
benefits from the Company in the same amount and on the same terms as the
Executive would be entitled to hereunder if the Executive were to terminate the
Executive's employment for Good Reason during the Coverage Period, except that,
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
21.4 Incompetency. Any benefit payable to or for the benefit of the
------------
Executive, if legally incompetent, or incapable of giving a receipt therefor,
shall be deemed paid when paid to the Executive's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Company.
21.5 Death. Except as otherwise provided herein, this Agreement shall
-----
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Executive shall die while any amount would still
be payable to the Executive hereunder (other than amounts which, by their terms,
terminate upon the death of the Executive) if the Executive had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the executors, personal
representatives or administrators of the Executive's estate.
21.6 Notices. For the purpose of this Agreement, notices and all other
-------
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon actual receipt:
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To the Company:
ValliCorp Holdings, Inc.
8405 North Fresno Street
Fresno, California 93720
Attention:
Executive Vice President and General Counsel
To the Executive:
LUCINEIA S. DONNELLY
ValliCorp Holdings, Inc.
8405 North Fresno Street
Fresno, CA 93720
21.7 Modification, Waiver. No provision of this Agreement may be
--------------------
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
21.8 Entire Agreement. No agreements or representations, oral or
----------------
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set forth in this Agreement.
This Agreement supercedes and replaces the Agreement dated as of February 1,
1996, between the Company and the Executive.
21.9 Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
Delaware.
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21.10 Statutory Changes. All references to sections of the Exchange
-----------------
Act or the Code shall be deemed also to refer to any successor provisions to
such sections.
21.11 Withholding. Any payments provided for hereunder shall be paid
-----------
net of any applicable withholding required under federal, state or local law and
any additional withholding to which the Executive has agreed.
21.12 Savings Clause. If any term, covenant, or condition of this
--------------
Agreement or the application thereof to any person or circumstance shall to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term, covenant, or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby and each term, covenant, or condition of this Agreement shall
be valid and enforced to the fullest extent permitted by law.
21.13 Authority to Contract. The Company warrants and represents that
---------------------
it has full authority to enter into this Agreement and to consummate the
transactions contemplated hereby and that this Agreement is not in conflict with
any other agreement to which the Company is a party or by which it may be bound.
The Company hereto further warrants and represents that the individuals
executing this Agreement on behalf of the Company have the full power and
authority to bind the Company to the terms hereof and have been authorized to do
so in accordance with the Company's corporate organization.
21.14 No Assignment of Benefits. Except as otherwise provided herein
-------------------------
or by law, no right or interest of the Executive under the Agreement shall be
assignable or transferable, in whole or in part, either directly or by operation
of law or otherwise, including without limitation by execution, levy,
garnishment, attachment, pledge or in any manner; no attempted assignment or
transfer thereof shall be effective; and no right or interest of the Executive
under this Agreement shall be liable for, or subject to, any obligation or
liability of the Executive.
-242-
<PAGE>
21.15 Headings. The headings and captions herein are provided for
--------
reference convenience only, shall not be considered part of the Agreement, and
shall not be employed in the construction of the Agreement.
21.16 Force Majeure. Neither party shall be liable to the other for
-------------
any delay or failure to perform hereunder, which delay or failure is due to
causes beyond the control of said party, including, but not limited to: acts of
God; acts of the public enemy; acts of the United States of America, or any
State territory, or political subdivision thereof or of the District of
Columbia; fires; floods; epidemics; quarantine restrictions; strikes; or freight
embargoes. Notwithstanding the foregoing provisions of this Section, in every
case the delay or failure to perform must be beyond the control and without the
fault or negligence of the party claiming excusable delay.
21.12 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
21.18 Definitions
-----------
(A) "Company" means ValliCorp Holdings, Inc., a Delaware
-------
corporation. If the Executive becomes employed by a direct or indirect
Subsidiary of ValliCorp Holdings, Inc., the "Company" shall be deemed to refer
to the Subsidiary thereof by which the Executive is employed. In such case,
references to payments, benefits, privileges or other rights to be accorded by
"the Company" shall be deemed to refer to such payments, benefits, privileges or
other rights to be provided by the Subsidiary by which the Executive is employed
or to ValliCorp Holdings, Inc., as the case may be, to correspond to the
corporate entity obligated to make payments or provide benefits, privileges or
other rights pursuant to employee benefit plans affected by the provisions
hereof, and in the absence of any such existing plans or provisions, such
reference shall be deemed to be to ValliCorp Holdings, Inc.
-243-
<PAGE>
(B) "Disability" means that the Executive has been unable to
perform her duties under this Agreement for a period of three (3) consecutive
months as the result of her incapacity due to physical or mental illness.
(C) "Subsidiary" means any corporation controlled by the Company,
----------
directly or indirectly.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its officer, thereunto duly authorized, and the Executive has
executed this Agreement, all as of the day and year first above written.
VALLICORP HOLDINGS, INC.
By
----------------------------
Name: J. MIKE McGOWAN
Title: Chairman and Chief
Executive Officer
-------------------------------
LUCINEIA S. DONNELLY
-244-
<PAGE>
EXHIBIT A
---------
Section 2870. Application of provision providing that employee shall assign or
offer to assign rights in invention to employer
(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of her rights in an invention to her
employer shall not apply to an invention that the employee developed entirely on
her own time without using the employer's equipment, supplies, facilities, or
trade secret information except for those inventions that either:
(1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably anticipated
research or development of the employer.
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to require an
employee to assign an invention otherwise excluded from being required to be
assigned under subdivision (a), the provision is against the public policy of
this state and is unenforceable.
-245-
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