# **EXHIBIT 10.1**

**CHANGE IN CONTROLSEVERANCE PAYMENT AGREEMENT**

This Agreement, madeand entered into as of the 18th day of August, 2003, by and between VAIL BANKS, INC., a Colorado corporation (the“Company”), and DAN E. GODEC (hereinafter called the “Executive”),

W I T N E S S E T H:

WHEREAS, the Executiveis currently employed by the Company and certain of its subsidiaries in variouscapacities and is rendering valuable services to the Company and suchsubsidiaries; and

WHEREAS, the Company desires to retain the Executive and is aware that the possibility ofa Change in Control of the Company (as defined in Section 3) might impede the accomplishment of this end; and

WHEREAS, the Company believes that the execution of this Agreement will further its aim inretaining the Executive during an actual or attempted Change in Control and will tend to assure fair treatment of executives in theevent of a Change in Control;

NOW, THEREFORE, for and in consideration of the premises and of the Executive’scontinuation in his present employment with the Company, the parties hereto agree as follows:

1..        Duties and Status ofExecutive. 

The Executive shall continue to perform such duties and responsibilities as shall beassigned to him by E. B. Chester or the Board of Directors of the Company.  The Executive shall devote his working time andattention to the discharge of his duties with the Company and its subsidiaries.  In addition to the compensation and otherbenefits provided the Executive by the Company, the Executive shall have the additional benefits provided by thisAgreement.

2.         Term.

(a)       Initial Term.  The term of thisAgreement shall initially be a fixed period of two years that expires on the second anniversary of the date of this Agreement andmay be extended as provided in subsection (b) below.

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(b)       Extension.  The term of this Agreementshall be extended automatically on the first anniversary and on each subsequent anniversary of the date of this Agreement (eachsuch anniversary being referred to as an “Extension Date”) for an additional one year period so that the Agreement thenexpires on the second anniversary of the applicable Extension Date; provided that

(i)        the then current term of this Agreement willnot be extended on any Extension Date if,

(A)      not later than 90 days before such Extension Date theCompany gives the Executive written notice that it does not wish to extend the term, or

(B)      before such Extension Date the Company terminates theemployment of the Executive for Cause (as defined in Section 4(b))  and

(ii)       whether or not the Company has given notice tothe Executive pursuant to clause (i) (A) above that it does not wish to extend the term of this Agreement, if a Change in Controloccurs during the initial term of this Agreement, or any extension thereof, the term of this Agreement shall not expire sooner thanthe third anniversary of the date of such Change in Control.

3.         Change in Control.  For thepurposes of this Agreement, a “Change in Control” shall be deemed to have occurred in the event of:

(a)       an acquisition by any Personof Beneficial Ownership of the Shares of the Company then outstanding (the "Company Common Stock Outstanding**"**)or the voting securities of the Company then outstanding entitled to votegenerally in the election of directors (the "Company Voting SecuritiesOutstanding"), if such acquisition of Beneficial Ownership results in the Personbeneficially owning (within the meaning of Rule 13d-3 promulgated under theExchange Act) twenty-five percent (25%) or more ofthe Company Common Stock Outstanding or twenty-five percent (25%) or more of thecombined voting power of the Company Voting Securities Outstanding; provided,that immediately prior to such acquisition such Person was not a direct orindirect Beneficial Owner of twenty-five percent (25%) or more of the CompanyCommon Stock Outstanding or twenty-five percent (25%) or more of the combinedvoting power of Company Voting Securities Outstanding, as the case may be; or

(b)       the consummation of areorganization, merger, consolidation, complete liquidation or dissolution of the Company, the sale or disposition of all orsubstantially all of the assets of the Company or similar corporate transaction (in each case referred to in this Section 3 asa  "Corporate Transaction") or, if consummation of such Corporate Transaction is subject to the consent of any government orgovernmental agency, the obtaining of such consent (either explicitly or implicitly); or

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(c)       a change in the composition ofthe Board such that the individuals who, as of the date of this Agreement, constitute the Board (such Board shall be hereinafterreferred to as the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, forpurposes of this Section 3 that any individual who becomes a member of the Board subsequent to the date of this Agreement whoseelection, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of thoseindividuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to thisproviso) shall be considered as though such individual were a member of the Incumbent Board; but, provided, further, that any suchindividual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such termsare used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, including any successor to such Rule), or otheractual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board, shall not be soconsidered as a member of the Incumbent Board.

(d)       Notwithstanding the provisionsset forth in subsections (a) and (b), the following shall not constitute a Change in Control for purposes of this Agreement: (1) any acquisition of Shares by, or consummation of a Corporate Transaction with, any Subsidiary or any employee benefit plan (orrelated trust) sponsored or maintained by the Company or an affiliate; or (2) any acquisition of Shares, or consummation of aCorporate Transaction, following which more than fifty percent (50%) of, respectively, the shares then outstanding of common stockof the corporation resulting from such acquisition or Corporate Transaction and the combined voting power of the voting securitiesthen outstanding of such corporation entitled to vote generally in the election of directors is then beneficially owned, directlyor indirectly, by all or substantially all of the individuals and entities who were Beneficial Owners, respectively, of the CompanyCommon Stock Outstanding and Company Voting Securities Outstanding immediately prior to such acquisition or Corporate Transactionin substantially the same proportions as their ownership, immediately prior to such acquisition or Corporate Transaction, of theCompany Common Stock Outstanding and Company Voting Securities Outstanding, as the case may be.

4.         Change in Control Payments AndSeverance Payments.

(a)       If a Change in Control of the Company occurs, theCompany shall pay or provide to Executive (subject to withholding of applicable taxes) within ten (10) days after the date of theChange in Control:

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(i)        a lump sum amount equal to the sum of (A)200% of his full base annual salary at the rate in effect on the date prior to the date of the Change in Control, plus (B) 200% ofthe incentive payment Executive would have received for the year during which the Change in Control occurs under theCompany’s annual incentive plan, assuming the target level of performance had been met for such year;

(ii)       an amount equal to the product of (aa) the annualincentive bonus that would be paid or payable to the Executive for the year of termination under the Company’s annualincentive plan, assuming the target level of performance had been met for such year, multiplied by (bb) a fraction of which thenumerator is the number of weeks that have elapsed in the then current year through the date of the Change in Control and thedenominator is 52 (and Executive’s participation in such annual incentive plan for the year of the Change in Control shall beterminated);

(iii)      the amount of any annual or long-term bonus with respect toany year that has then ended which has or would have been earned and been paid to the Executive under any annual or long-term bonusplan then in effect but which has not yet been paid to him;

(iv)       an additional contribution to any deferred compensationor savings plan (whether qualified or non-qualified) in which the Executive is participating, of the maximum amount which theCompany is permitted to contribute, based on the payments made pursuant to paragraphs (i), (ii) and (iii) above, provided that ifthe contributions on the Executive’s behalf to the plans covered by this paragraph (iv) are not permitted under the terms ofone or more of such plans, the Company shall pay Executive in a lump sum, within 10 days, the present value of the benefits thatcannot be provided pursuant to such plan; and

(v) accelerate to the date of the Change in Control the vesting, exercisability,transferability and payment date of all outstanding stock options, restricted stock and any other share awards held byExecutive.

             (b)          If a Changein Control of the Company occurs and, subsequently on or before the third anniversary of such Change in Control, theExecutive’s employment with the Company is terminated (i) by the Company for any reason whatsoever other than for Cause (asdefined in subsection (c) below) or the Executive’s death or Disability (as defined insubsection (d) below),  or (ii)by the Executive for Good Reason (as defined in subsection (e) below), the Company shall:

(A)      pay to the Executive within 30 days after the date oftermination, an amount equal to the sum of:

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(I)        his full base salary through the date oftermination at the rate in effect at the time notice of termination (as provided for in Section 5 below) is given, plus

  (II)      an amount equal to the product of (aa) thenumber of unused personal days accrued by the Executive through the date of termination multiplied by (bb) a fraction the numeratorof which is the Executive’s base salary and the denominator of which is 250;

  (B)     maintain in full force and effect for the benefit ofthe Executive and his dependents for a period of two years from the date of termination (or, if shorter, the period until Executiveobtains other employment and becomes actually covered by a plan providing the specific benefit hereinafter described) all employeelife, medical, dental, and vision coverages in which the Executive is participating at the time of the Executive’stermination; provided, that if the Executive’s continued participation is not permitted under the general terms of suchplans, the Company shall arrange to provide him with substantially similar benefits and the Company shall pay the cost of suchbenefits; provided further, Executive will be required to pay the “employee portion” of any costs of such coverages inthe same amount as required for active executive employees of the Company;

(c)       For the purposes of this Section 4,“Cause” means:

(i)        the conviction of the Executive of, or aplea of guilty or nolo contendere by the Executive to, any felony involving conduct on the part of the Executive that renders himunfit for the performance of his duties to the Company, or its subsidiaries and affiliates, or

(ii)       any willful misconduct on the part of theExecutive in the performance of his duties that is materially harmful to the Company or its subsidiaries or affiliates, monetarilyor otherwise.

For the purpose of thissubsection (c), no act, or failure to act, on the Executive’s part shall be considered “willful” unless done, oromitted to be done, by him not in good faith and without reasonable belief that his action or omission was in the best interest ofthe Company.  Notwithstanding the foregoing, the Executive shall not be deemed to have been terminated for Cause unless anduntil there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than threequarters of the entire membership of the Board of Directors of the Company at a meeting of the Board called and held for thepurpose (after reasonable notice to him and an opportunity for him, together with his counsel, to be heard before the Board),finding that in the good faith opinion of the Board he was guilty of conduct set forth above in clauses (i) or (ii) above andspecifying the particulars thereof in detail.

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(d)       For the purpose of this Section 4,“Disability” shall be deemed to exist if, as a result of the Executive’s incapacity due to physical or mentalillness, he shall have been absent from his duties with the Company on a full‐time basis for 150 consecutive calendar daysand within 30 days after he has received notice of termination pursuant to Section 5 he has not returned to the performance of hisduties on a full‐time basis.

(e)       For the purposes of this Section 4, “GoodReason” shall be deemed to exist under any of the following circumstances, but only to the extent that they occur within thethirty-six month period immediately after a Change in Control:

(i)        The assignment to the Executive of anyduties inconsistent with his positions, duties, responsibilities and status with the Company, its subsidiaries and affiliatesimmediately prior to a Change in Control, or a change in his reporting responsibilities, titles or offices which were in effectimmediately prior to a Change in Control, or any removal of him from or any failure to re‐elect him to any of such positions,except in connection with the termination of his employment by the Company for Cause or as a result of his death or Disability ortermination by him other than for Good Reason.

(ii)       A reduction by the Company in theExecutive’s base salary as in effect on the date hereof or as the same may be increased from time to time, or failure to givehim annual salary increases consistent with performance review ratings as compared with other employees of the same or similarrank.

(iii)     A failure by the Company to continue giving the Executivebonuses comparable to the amount of bonuses given to him prior to the Change in Control.

(iv)      The Company’s requiring that the Executive bebased anywhere other than the Company’s offices in the Eagle County, Colorado area, except for required travel on Companybusiness to an extent substantially consistent with his present business travel obligations, or in the event that the Executiveconsents to any such relocations, the failure by the Company to pay (or reimburse him for) all reasonable moving expenses incurredby him.

(v)       The failure by the Company to continue in fullforce and effect any benefit, retirement, savings or compensation plan or any employee life, accident, disability, medical, dental,vision or other employee welfare benefit plan in which the Executive is participating at the time of a Change in Control of theCompany, the taking of any action by the Company which would adversely affect his participation in or materially reduce hisbenefits under any of such plans or deprive him of any material fringe benefit or perquisite enjoyed by him at the time of theChange in Control, or the failure by the Company to provide him with the number of paid personal days to which he is then entitledin accordance with the normal personal day policy in effect on the date hereof.

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(vi)      Any breach by the Company of its obligations under thisAgreement or any purported termination by the Company of his employment which is not effected pursuant to a notice of terminationsatisfying the requirements of Section 5 (and if applicable Section 4(c)); and for purposes of this Agreement, no such purportedtermination shall be effective.

(f)        The Company agrees that if theExecutive’s employment is terminated and he is entitled to benefits under Section 4(a) and/or Section 4(b), he shall not berequired to mitigate damages by seeking other employment, nor shall any amount he earns after his termination of employment reducethe amount payable by the Company under this Agreement (except as provided in paragraph (B) above relating to benefit changes uponsubsequent employment).

(g)       (i)       Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined (as hereafter provided) that anypayment or distribution to or for the Executive, whether paid or payable or distributed or distributable pursuant to the terms ofthis Agreement or  pursuant to or by reason of any other agreement, policy, plan, program or arrangement (including, withoutlimitation, any employment agreement, stock plan or salary continuation agreement), or similar right (a “Payment”),would be subject to the excise tax imposed by Section 4999 of the Code (or any successor provisions thereto), or any interest orpenalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereaftercollectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment orpayments (a “Gross-Up Payment”) from the Company.  The total amount of the Gross-Up Payment shall be an amountsuch that, after payment by (or on behalf of) the Executive of any Excise Tax and all federal, state and other taxes (including anyinterest or penalties imposed with respect to such taxes) imposed upon the Gross-Up Payment, the remaining amount of the Gross-UpPayment is equal to the Excise Tax imposed upon the Payments.  For purposes of clarity, the amount of the Gross-Up Paymentshall be that amount necessary to pay the Excise Tax in full and all taxes assessed upon the Gross-Up Payment.

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(ii)       An initial determination as to whether a Gross-UpPayment is required pursuant to this subsection (g) and the amount of such Gross-Up Payment shall be made by an accounting firmselected by the Company and reasonably acceptable to the Executive (the “Accounting Firm”).  TheAccounting Firm shall provide its determination (the “Determination”), together with detailed supporting calculationsand documentation to the Company and the Executive as promptly as practicable after such calculation is requested by the Company orby the Executive, and if the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to a Payment orPayments, it shall furnish the Executive with an opinion reasonably acceptable to the Executive that no Excise Tax will be imposedwith respect to any such Payment or Payments.  Within fifteen (15) days of the delivery of the Determination to the Executive,the Executive shall have the right to dispute the Determination (the “Dispute”).  The Gross-Up Payment, if any, asdetermined pursuant to this Section 4 shall be paid by the Company to the Executive within fifteen (15)  days of the receiptof the Accounting Firm’s Determination.  The existence of the Dispute shall not in any way affect the right of theExecutive to receive the Gross-Up Payment in accordance with the Determination.  If there is no Dispute, the Determinationshall be binding, final and conclusive upon the Company and the Executive subject to the application of subsection (iii)below.

(iii)     As a result of the uncertainty in the application ofSections 4999 and 280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof) will be paid which should nothave been paid (an “Excess Payment”) or a Gross-Up Payment (or a portion thereof) which should have been paid will nothave been paid (an “Underpayment”).  An Underpayment shall be deemed to have occurred upon the earliest to occurof the following events:  (1) upon notice (formal or informal) to the Executive from any governmental taxing authority thatthe tax liability of the Executive (whether in respect of the then current taxable year of the Executive or in respect of any priortaxable year of the Executive) may be increased by reason of the imposition of the Excise Tax on a Payment or Payments with respectto which the Company has failed to make a sufficient Gross-Up Payment, (2) upon a determination by a court, (3) by reason of adetermination by the Company (which shall include the position taken by the Company, or its consolidated group, on its federalincome tax return), or (4) upon the resolution to the satisfaction of the Executive of the Dispute.  If any Underpaymentoccurs, the Executive shall promptly notify the Company and the Company shall pay to the Executive within fifteen (15) days of thedate the Underpayment is deemed to have occurred under (1), (2), (3) or (4) above, but in no event less than five days prior to thedate on which the applicable government taxing authority has requested payment, an additional Gross-Up Payment equal to the amountof the Underpayment plus any interest and penalties imposed on the Underpayment. 

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AnExcess Payment shall be deemed to have occurred upon a “Final Determination” (ashereinafter defined) that the Excise Tax shall not be imposed upon a Payment orPayments (or portion of a Payment) with respect to which the Executive hadpreviously received a Gross-Up Payment.  A Final Determination shall bedeemed to have occurred when the Executive has received from the applicablegovernment taxing authority a refund of taxes or other reduction in his taxliability by reason of the Excess Payment and upon either (1) the date adetermination is made by, or an agreement is entered into with, the applicablegovernmental taxable authority which finally and conclusively binds theExecutive and such taxing authority, or in the event that a claim is broughtbefore a court of competent jurisdiction, the date upon which a finaldetermination has been made by such court and either all appeals have been takenand finally resolved or the time for all appeals has expired, or (2) the statuteof limitations with respect to the Executive’s applicable tax return hasexpired.  If an Excess Payment is determined to have been made, the amountof the Excess Payment shall be treated as a loan by the Company to the Executiveand the Executive shall pay to the Company within 15 days following demand (but not less than 30 days after the determination of such Excess Payment) theamount of the Excess Payment plus interest at an annual rate equal to the rateprovided for in Section 1274(b)(2)(B) of the Code from the date the Gross-UpPayment (to which the Excess Payment relates) was paid to the Executive untilthe date of repayment to the Company.

(iv)      Notwithstanding anything contained in this Agreement tothe contrary, in the event that, according to the Determination, an Excise Tax will be imposed on any Payment or Payments, theCompany shall pay to the applicable government taxing authorities as Excise Tax withholding, the amount of any Excise Tax that theCompany has actually withheld from the Payment or Payments; provided that the Company’s payment of withheld Excise Tax shallnot change the Company’s obligation to pay the Gross-Up Payment required under this subsection (g).

(v)       The Executive and the Company shall each providethe Accounting Firm access to and copies of any books, records and documents in the possession of the Company or the Executive, asthe case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection withthe preparation and issuance of the Determination contemplated by subsection (ii) hereof.

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(vi)      The fees and expenses of the Accounting Firm for itsservices in connection with the determinations and calculations contemplated by subsection (ii) shall be paid by theCompany.

5.         Notice of Termination.  Anytermination by the Company or by the Executive of the Executive’s employment by the Company shall he communicated by awritten notice of termination to the other party, and shall specify the provision of this Agreement relied upon and shall set forthin reasonable detail the circumstances claimed to provide a basis for termination. The date of termination shall be the date onwhich the notice of termination is delivered if by the Executive or 30 days after the date of the notice of termination if given bythe Company.

6.         Litigation Expenses; Indemnificationand Insurance. 

(a)       The Company shall pay all reasonable legal fees and expenses incurred by the Executiveas a result of his seeking to obtain or enforce any right or benefit provided by this Agreement, promptly and from time to time athis request as such fees and expenses are incurred, regardless of whether such rights are pursued through settlement discussions,mediation, arbitration, litigation or otherwise.

(b)       Unless the Executive is terminated for Cause, atall times after a Change of Control, the Company shall continue to provide for Executive the indemnification provisions containedin the Company’s by-laws and shall continue to maintain for the benefit of the Executive such policies of liabilityinsurance, providing protection to him as an officer, director, agent or employee of the Company and its subsidiaries, as may fromtime to time be purchased by the Company for officers and directors generally as authorized by or in furtherance of theindemnification provisions contained in the Company’s by-laws.  Unless the Executive is terminated for Cause, neitherthe insurance nor the Executive’s right to indemnification thereunder may be canceled by the Company without his permissionfor a period of five years following the date of termination under this Agreement; provided, however, that the Company may obtain asubstitute insurance policy as long as the rights of indemnity to the Executive are at least equivalent to the most favorablerights provided under the policies in effect immediately prior to the date of a Change of Control.

7.         Assignment; Successors inInterest.

(a)       General.  Except with the priorwritten consent of the Executive, no assignment by operation of law or otherwise by the Company of any of its rights andobligations under this Agreement may be made other than to an entity which is a successor to all or a substantial portion of thebusiness of the Company (but then only if such entity assumes by operation of law or by specific assumption executed by thetransferee and delivered to the Executive all obligations and liabilities of the Company under this Agreement); no transfer byoperation of law or otherwise by the Company of all or a substantial part of its business or assets shall be made unless theobligations and liabilities of the Company under this Agreement are assumed in connection with such transfer either by operation oflaw or by specific assumption executed by the transferee.  In such event, the Company shall remain liable for the performanceof all of its obligations under this Agreement (which liability shall be a primary obligation for full and prompt performancerather than a secondary guarantee of collectibility of damages).  Except for any transfer or assignment of rights under thisAgreement, in whole or in part, upon the death of the Executive to his heirs, devisees, legatees or beneficiaries or except withthe prior written consent of the Company, no assignment or transfer by operation of law or otherwise may be made by the Executiveof any of his rights under this Agreement.

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(b)       Binding Nature.  This Agreement shallbe binding upon the parties to this Agreement and their respective legal representatives, heirs, devisees, legatees, beneficiariesand successors and assigns; shall inure to the benefit of the parties to this Agreement and their respective permitted legalrepresentatives, heirs, devisees, legatees, beneficiaries and other permitted successors and assigns (and to or for the benefit ofno other person or entity, whether an employee or otherwise, whatsoever); and any reference to a party to this Agreement shall alsobe a reference to a permitted successor or assign.

8.         Miscellaneous.

(a)       The failure of any party to this Agreement at anytime or times to require performance of any provision of this Agreement shall in no manner affect the right to enforce thesame.  No waiver by any party to this Agreement of any provision (or of a breach of any provision) of this Agreement, whetherby conduct or otherwise, in any one or more instances shall be deemed or construed either as a further or continuing waiver of anysuch provision or breach or as a waiver of any other provision (or of a breach of any other provision) of thisAgreement.

(b)       Wherever possible each provision of this Agreementshall be interpreted in such manner as to be effective and valid but if any one or more of the provisions of this Agreement shallbe invalid, illegal or unenforceable in any respect for any reason, the validity, legality or enforceability of any such provisionsin every other respect and of the remaining provisions of this Agreement shall not be impaired.

(c)       This Agreement shall be governed by andinterpreted in accordance with the laws of the State of Colorado (without giving effect to any choice of lawprovisions).

(d)       This Agreement may only be amended by a writteninstrument signed by the parties hereto which makes specific reference to the Agreement.

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            IN WITNESS WHEREOF, theCompany has caused this Agreement to be executed by its duly authorized officer and the Executive has executed this Agreement as ofthe date and year first written above.

 
 
**VAIL BANKS, INC.**

 

By:  /s/ E.B.Chester                                      
 
  

**EXECUTIVE**

 

/s/  Dan E.Godec                                           Name:  DAN E. GODEC