Document:

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.

                            WARRANT TO PURCHASE STOCK

Corporation: AML Communications, Inc a Delaware Corporation
Number of Shares: 27,429
Class of Stick: Series Common Stock
Initial Exercise Price: $2.1875
Issue Date: November 9, 2000
Expiration Date: November 9, 2007

         THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and non assessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") a1l as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this Warrant.

ARTICLE 1. EXERCISE

         1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering
a duly executed Notice of Exercise in substantially the form attached as
Appendix 1 to the principal office of the Company. Unless Holder is exercising
the conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.

         1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified
in Section 1.1, Holder may from time to time convert this Warrant, in whole or
in part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant to Section 1.3.

         1.3 FAIR MARKET VALUE. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such
investment banking firm is greater than that determined by the Board of
Directors, then all fees and expenses of such investment banking firm shall be
paid by the Company. In all other circumstances, such fees and expenses shall be
paid by Holder.

         1.4 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.

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         1.5 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, an delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.

         1.6 ASSUMPTION UPON SALE MERGER, OR CONSOLIDATION OF THE COMPANY.

            1.6.1 "Acquisition". For the purpose of this Warrant, "Acquisition"
means any sale, license, or other disposition of all or substantially all of the
assets of the Company, or any reorganization, consolidation, or merger of the
Company where the holders of the Company's securities before the transaction
beneficially own less than 50% a of the outstanding voting securities of
the surviving entity after the transaction.

            1.6.2 ASSUMPTION OF WARRANT. Upon the closing of any Acquisition the
successor entity shall assume the obligations of this Warrant, and this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.

ARTICLE 2. ADJUSTMENTS TO THE SHARES.
           -------------------------

         2.1 STOCK DIVIDENDS SPLITS, ETC. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.

         2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.

         2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.

         2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price and the
number of Shares

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issuable upon exercise of this Warrant or, if the Shares are Preferred Stack,
the number of shares of common stock issuable upon conversion of the Shares,
shall be subject to adjustment, from time to time in the manner set forth in the
Company's Articles (Certificate) of Incorporation. The provisions set forth for
the Shares in the Company's Articles (Certificate) of Incorporation relating to
the above in effect as of the Issue Date may not be amended, modified or
waived, without the prior written consent of Holder unless such amendment,
Modification or waiver effects Holder in the same manner as they effect all
other shareholders of the Shares.

         2.5 NO IMPAIRMENT. The Company shall not, by amendment of its Articles
of Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holders rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.

         2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder an amount computed by
multiplying the fractional interest by the fair market value of a full Share.

         2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.

ARTICLE 3. REPRESENTATIONS AND COVENANTS, OF THE COMPANY.

         3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:

            (a) The initial Warrant Price referenced on the first page of this
Warrant is not greater than (i) the price per share at which the Shares were
last issued in an arms-length transaction in which at least $500,000 of the
Shares were sold and (ii) the fair market value of the Shares as of the date of
this Warrant.

            (b) All Shares which may be issued upon the exercise of the purchase
right represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.

            (c) The Capitalization Table attached to this Warrant is true and
complete as of the Issue Date.

         3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a)
to declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and

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<PAGE>

whether or pat a regular cash dividend; (b) to offer for subscription pro rata
to the holders of any class or series of its stock any additional shares of
stock of any class or series or other rights; (c) to effect any reclassification
or recapitalization of common stock; (d) to merge or consolidate with or into
any other corporation, or sell, lease, license, or convey all or substantially
all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of
registration rights the opportunity to participate in an underwritten public
offering of the company's securities for cash, then, in connection with each
such event, the Company shall give Holder (1) at least 20 days prior written
notice of the date on which a record will be taken for such dividend,
distribution, or subscription rights (and specifying the date on which the
holders of common stock will be entitled! thereto) or far determining rights to
vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in
the case of the matters referred to in (c) and (d) above at least 20 days prior
written notice of the date when the same will take place (and specifying the
date on which the holders of common stock will be entitled to exchange their
common stock for securities or other property deliverable upon the occurrence of
such event); and (3) in the case of the matter referred to in (e) above, the
same notice as is given to the holders of such registration rights.

         3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or
any of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
company certified by independent public accountants of recognized standing and
(c) such other financial statements required under and in accordance with any
loan documents between Holder and the Company (or if there are no such
requirements or if the subject loan(s) no longer are outstanding), then within
forty-five (45) days after the end of each of the first three quarters of each
fiscal year, the Company's quarterly, unaudited financial statements.

         3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The Company
agrees that the Shares or, if the Shares arc convertible into common stock of
the Company, such common stock, shall be subject to the registration rights set
forth in the Company's Investor Rights Agreement or similar agreement. The
provisions set forth in Company's Investors' Right Agreement or similar
agreement relating to the above in effect as of the Issue Date may not be
amended, modified or waived without the prior written consent of Holder unless
such amendment, modification or waiver effects Holder in the same manner as they
effect all other shareholders of the Shares.

ARTICLE 4. MISCELLANEOUS.

         4.1 TERM. This Warrant is exercisable, in whole or 1n part, at any time
and from time to time on or before the Expiration Date set forth above.

        4.2  LEGENDS. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:

         THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
         AS AMENDED. AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
         WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
         RULE 144 OR AN OPINION OF COUNSEL. REASONABLY SATISFACTORY TO THE
         CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.

         4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares if any) may not be
transferred or assigned in whole or in part without compliance with applicable

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<PAGE>

federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e)
in reasonable detail, the selling broker represents that it has complied with
Rule 144(f), and the Company is provided with a copy of Holder's notice of
proposed sale.

         4.4 TRANSFER PROCEDURE. Subject to the provisions of Section 4.3,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) at any time to Silicon Valley Bancshares
or The Silicon Valley Bank Foundation, or to any affiliate of Holder, or, to any
other transferee by giving the Company notice of the portion of the Warrant
being transferred setting forth the name, address and taxpayer identification
number of the transferee and surrendering this Warrant to the Company for
reissuance to the transferee(s)(and Holder if applicable). Unless the Company
is filing financial information with the SEC pursuant to the Securities Exchange
Act of 1934, the Company shall have the right to refuse to transfer any portion
of this Warrant to any person who directly competes with the Company,

         4.5 NOTICES. All notices and other communications from the Company to
the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail at such address
as may have been furnished to the Company or the Holder, as the case may be, in
writing by the Company or such holder from time to time. All notices to be
provided under this Warrant shall be sent to the following address:

                           Silicon Valley Bank
                           Attn: Treasury Department
                           3003 Tasman Drive
                           Santa Clara, CA 8504

         4.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.

         4.7 ATTORNEYS Fees. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.

         4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.

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                                   "COMPANY"

                                   AML Communications, Inc.

                                   By:   /s/  Kirk A. Waldron
                                         ------------------------------------

                                   Name:   Kirk A. Waldron
                                         ------------------------------------
                                          (Print)
                                   Title: Chief Executive Officer and
                                          President

                                   By:   /s/ Karl R. Brier
                                         -----------------------------------

                                   Name:   Karl R. Brier
                                         -----------------------------------
                                          (Print)
                                   Title: Chief Financial Officer and
                                          Treasurer

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<PAGE>

                                   APPENDIX I

                               NOTICE OF EXERCISE

         1. The undersigned hereby elects to purchase________________________
shares of the Common/Preferred Series ____ [Strike one] Stock of
____________________, pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price of such shares in full.

         1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This conversion
is exercised with respect to ______________of the Shares covered by the Warrant.

          [Strike paragraph that does not apply.]

         2. Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:

                  ____________________________________________
                  (Name)

                  ____________________________________________

                  ____________________________________________
                  (Address)

         3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.

                             ____________________________________________
                                          (Signature)

(Date)CHANGE IN CONTROL
                           SEVERANCE PAYMENT AGREEMENT

         This Agreement,  made and entered into as of the 5th day of July, 2000,
by and between VAIL BANKS,  INC., a Colorado  corporation (the  "Company"),  and
Peter G. Williston (hereinafter called the "Executive"),

                              W I T N E S S E T H:

         WHEREAS,  the  Executive  has been hired by the Company and will render
valuable services to the Company and its subsidiaries; and

         WHEREAS,  the  Company  wishes to  induce  the  Executive  to remain in
employment  during a possible  Change in Control of the  Company  (as defined in
Section 3 below) and believes that the execution of this  Agreement will further
its aim in  retaining  the  Executive  during an actual or  attempted  Change in
Control and will tend to assure fair  treatment of  executives in the event of a
Change in Control;

         NOW,  THEREFORE,  for and in  consideration  of the premises and of the
Executive's employment with the Company, the parties hereto agree as follows:

         1.       DUTIES AND STATUS OF EXECUTIVE.
                  ------------------------------

         The Executive shall perform such duties and  responsibilities  as shall
be assigned to him by the Chief  Executive  Officer or the Board of Directors of
the Company.  The  Executive  shall devote his working time and attention to the
discharge  of his duties with the Company and its  subsidiaries.  In addition to
the compensation and other benefits  provided the Executive by the Company,  the
Executive shall have the additional benefits provided by this Agreement.

         2.       TERM.
                  ----

                  (a) INITIAL TERM. The term of this Agreement  shall  initially
         be a fixed period of two years that  expires on the second  anniversary
         of the  date of this  Agreement  and may be  extended  as  provided  in
         subsection (b) below.

                  (b) EXTENSION.  The term of this  Agreement  shall be extended
         automatically   on  the  first   anniversary  and  on  each  subsequent
         anniversary of the date of this Agreement (each such anniversary  being
         referred to as an "Extension  Date") for an additional  one year period
         so that the  Agreement  then expires on the second  anniversary  of the
         applicable Extension Date; provided that

                           (i) the then current term of this  Agreement will not
                  be extended on any Extension Date if,
<PAGE>

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

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

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

         3. CHANGE IN CONTROL. For the purposes of this Agreement,  a "Change in
Control" shall be deemed to have occurred in the event of:

                  (a) an  acquisition  by any Person of 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 vote  generally in the election of directors  (the "Company
         Voting  Securities  Outstanding"),  if such  acquisition  of Beneficial
         Ownership results in the Person beneficially owning (within the meaning
         of Rule 13d-3 promulgated  under the Exchange Act) twenty-five  percent
         (25%) or more of the Company  Common Stock  Outstanding  or twenty-five
         percent  (25%) or more of the  combined  voting  power  of the  Company
         Voting Securities Outstanding; provided, that immediately prior to such
         acquisition  such Person was not a direct or indirect  Beneficial Owner
         of  twenty-five  percent  (25%)  or more of the  Company  Common  Stock
         Outstanding or twenty-five percent (25%) or more of the combined voting
         power of Company Voting Securities Outstanding, as the case may be; or

                  (b) the  approval  by the  shareholders  of the  Company  of a
         reorganization,   merger,   consolidation,   complete   liquidation  or
         dissolution  of  the  Company,  the  sale  or  disposition  of  all  or
         substantially  all of the assets of the  Company  or similar  corporate
         transaction (in each case referred to in this Section 3 as a "Corporate
         Transaction")  or, if  consummation  of such  Corporate  Transaction is
         subject,  at the time of such approval by shareholders,  to the consent
         of any government or governmental agency, the obtaining of such consent
         (either explicitly or implicitly); or

                  (c) a change in the  composition  of the  Board  such that the
         individuals who, as of the date of this Agreement, constitute the Board
         (such Board shall be hereinafter  referred to as the "Incumbent Board")
         cease for any reason to  constitute  at least a majority  of the Board;
         provided,  however,  for purposes of this Section 3 that any individual
         who  becomes  a  member  of the  Board  subsequent  to the date of this
         Agreement whose  election,  or nomination for election by the Company's
         shareholders,  was  approved  by a vote of at least a majority of those
         individuals  who are members of the Board and who were also  members of
         the  Incumbent  Board (or deemed to be such  pursuant to this  proviso)
         shall be  considered  as though  such  individual  were a member of the

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<PAGE>

         initial  assumption of office occurs as a result of either an actual or
         threatened  election  contest (as such terms are used in Rule 14a-11 of
         Regulation  14A  promulgated  under the  Exchange  Act,  including  any
         successor to such Rule), or other actual or threatened  solicitation of
         proxies or consents  by or on behalf of a Person  other than the Board,
         shall not be so considered as a member of the Incumbent Board.

                  (d)  Notwithstanding  the  provisions set 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 (or related trust) sponsored or maintained by the
         Company  or  an  affiliate;  or  (2)  any  acquisition  of  Shares,  or
         consummation  of a  Corporate  Transaction,  following  which more than
         fifty percent (50%) of,  respectively,  the shares then  outstanding of
         common stock of the  corporation  resulting  from such  acquisition  or
         Corporate  Transaction  and the  combined  voting  power of the  voting
         securities  then  outstanding  of  such  corporation  entitled  to vote
         generally  in the election of  directors  is then  beneficially  owned,
         directly or indirectly,  by all or substantially all of the individuals
         and entities who were Beneficial Owners,  respectively,  of the Company
         Common Stock  Outstanding  and Company  Voting  Securities  Outstanding
         immediately  prior to such  acquisition  or  Corporate  Transaction  in
         substantially  the same  proportions  as their  ownership,  immediately
         prior to such  acquisition  or  Corporate  Transaction,  of the Company
         Common Stock Outstanding and Company Voting Securities Outstanding,  as
         the case may be.

         4.       CHANGE IN CONTROL PAYMENTS AND SEVERANCE PAYMENTS.
                  -------------------------------------------------

                  (a) If a Change in Control of the Company  occurs,  and within
         12  months  of the  date of such  Change  in  Control  the  Executive's
         employment is terminated:

                           (i) by the  Company,  other than for Cause,  death or
                  Disability; or

                           (ii) by the Executive for Good Reason,

         then the Executive shall be entitled to payment  (subject to payment of
         all applicable  taxes) of the Severance  Payment described in (b) below
         within  ten (10)  days  after his  termination  of  employment.  If the
         Executive's  employment  is terminated by the Company for Cause or as a
         result of death or Disability, or by the Executive without Good Reason,
         the  Executive  shall  not be  entitled  to  any  payments  under  this
         Agreement;

                  (b) The Severance  Payment to Executive  under  subsection (a)
         above shall be equal to $390,000.00,  minus the difference  between the
         exercise  price  for the  Shares  for  which  the  option  has not been
         exercised under that certain Stock Option Agreement  ("Option"),  dated
         July 5,  2000,  for 10,000  Shares,  and the Fair  Market  Value of the
         Shares subject to the Option on the date of Executive's  termination of
         employment.  If the Option has been exercised in whole or in part prior
         to Executive's date of termination, the difference between the exercise
         price and the Fair Market  Value of the Shares for which the Option has

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<PAGE>

         been exercised on the date of Executive's termination of employment, or
         if greater,  the Fiar Market Value of the Shares on the date  Executive
         sold any such  Shares,  shall  also be used to reduce any  payment  due
         Executive.  If Executive has  otherwise  received  payment  (whether in
         cash, stock or other property) for the value of the Option prior to his
         termination of Employment,  then the amount received by Executive shall
         be used to reduce any payment due  Executive  under this Section 4. The
         Company  shall have the authority in good faith to determine the amount
         due Executive as a Severance Payment pursuant to this Section 4.

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

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

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

                  For the purpose of this  subsection (c), no act, or failure to
         act, on the Executive's part shall be considered "willful" unless done,
         or omitted to be done, by him not in good faith and without  reasonable
         belief  that his action or  omission  was in the best  interest  of the
         Company.

                  (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 mental  illness,  he shall have been absent from his duties
         with the Company on a full-time basis for 150 consecutive calendar days
         and within 30 days after he has received notice of termination pursuant
         to Section 5 he has not returned to the  performance of his duties on a
         full-time basis.

                  (e) For the purposes of this Section 4, "Good Reason" shall be
         deemed to exist under any of the following  circumstances,  but only to
         the extent that they occur within the twelve  month period  immediately
         after a Change in Control:

                           (i) A material  adverse  alteration  in the nature or
                  status of  Executive's  responsibilities  from those in effect
                  immediately prior to the Change in Control, or

                           (ii)  A  material  reduction  by the  Company  in the
                  Executive's compensation and benefits as in effect on the date
                  hereof  or as the same  may be  increased  from  time to time,
                  except  in  connection   with  a  reduction   for   executives
                  generally.

                  (f) The Company agrees that, if the Executive's  employment is
         terminated  and he is entitled to benefits under Section 4(a), he shall

                                       4
<PAGE>

         not be required to mitigate  damages by seeking other  employment,  nor
         shall any amount he earns after his  termination  of employment  reduce
         the amount payable by the Company under this Agreement.

         5.  NOTICE OF  TERMINATION.  Any  termination  by the Company or by the
Executive  of the  Executive's  employment  shall be  communicated  by a written
notice of  termination  to the other party,  and shall  specify the provision of
this  Agreement  relied  upon and  shall  set  forth in  reasonable  detail  the
circumstances  claimed  to  provide  a  basis  for  termination.   The  date  of
termination shall be the date on which the notice of termination is delivered if
by the Executive or 30 days after the date of the notice of termination if given
by the Company.

         6.       ASSIGNMENT; SUCCESSORS IN INTEREST.
                  ----------------------------------

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

                  (b) BINDING  NATURE.  This Agreement shall be binding upon the
         parties to this Agreement and their respective  legal  representatives,
         heirs,  devisees,  legatees,  beneficiaries and successors and assigns;
         shall inure to the benefit of the parties to this  Agreement  and their
         respective permitted legal representatives,  heirs, devisees, legatees,
         beneficiaries and other permitted successors and assigns (and to or for
         the  benefit of no other  person or  entity,  whether  an  employee  or
         otherwise,  whatsoever); and any reference to a party to this Agreement
         shall also be a reference to a permitted successor or assign.

         7.       MISCELLANEOUS.
                  -------------

                  (a) The failure of any party to this  Agreement at any time or
         times to require  performance of any provision of this Agreement  shall
         in no manner  affect  the right to enforce  the same.  No waiver by any

                                       5
<PAGE>

         party  to  this  Agreement  of any  provision  (or of a  breach  of any
         provision) of this Agreement,  whether by conduct or otherwise,  in any
         one or more instances shall be deemed or construed  either as a further
         or continuing  waiver of any such provision or breach or as a waiver of
         any other  provision  (or of a breach of any other  provision)  of this
         Agreement.

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

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

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

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

                                 VAIL BANKS, INC.

                                 By:/s/ Lisa M. Dillon
                                         Lisa M. Dillon, President and CEO

                                 EXECUTIVE

                                  /s/ Peter G. Williston
                                 Name:  Peter G. Williston

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