Document:

exv10w2

 

EXHIBIT 10.2

LEAR CORPORATION

EXECUTIVE SUPPLEMENTAL SAVINGS PLAN

Amended and Restated Effective January 1, 2004

 

 

SECTION ONE

Definitions

	1.1  	Except to the extent otherwise indicated herein, and except to the extent otherwise
inappropriate in the context, the definitions contained in the Pension Plan and Savings Plan
are applicable under the Plan.
	 
	1.2  	“Actuarial Equivalent” means, with respect to any specified annuity or benefit, another
annuity or benefit, commencing at a different date and/or payable in a different form than the
specified annuity or benefit, but which has the same present value as the specified annuity or
benefit, when measured using the Applicable Interest Rate and Applicable Mortality Table as
specified in the Pension Plan.
	 
	1.3  	“Benefits Committee” means the Employee Benefits Committee of the Corporation, as appointed
by the Board of Directors.
	 
	1.4  	“Board of Directors” means the Board of Directors of the Corporation.
	 
	1.5  	“Code” means the Internal Revenue Code of 1986, as amended. Any reference to any Code
Section shall also mean any successor provision thereto.
	 
	1.6  	“Corporation” means Lear Corporation and any successor to such corporation by merger,
purchase or otherwise.
	 
	1.7  	“Deferred Account” means the bookkeeping account established under Section 3.1 established on
behalf of a participant, and includes any deemed earnings credited thereon.
	 
	1.8  	“Deferred Compensation” means the amount of a Key Executive’s compensation that such Key
Executive has deferred until a later year pursuant to an election under Section 2.2 of this
Plan.
	 
	1.9  	“Key Executive” means an executive employed by the Corporation who is entitled to participate
in the Plan under Section 2.1.
	 
	1.10  	“Long Term Stock Incentive Plan” means the Lear Corporation Long Term Stock Incentive Plan.
	 
	1.11  	“Management Stock Purchase Plan” or “MSPP” means the election to defer compensation for
purposes of purchase of Company stock in accordance with Section 8.2 of the Lear Corporation
Long Term Stock Incentive Plan.
	 
	1.12  	“MSPP Make-Up  Account"” means the bookkeeping
account established under Section 3.4 established on behalf of a
participant, and includes any deemed earnings credited thereon.
	 
	1.13  	“MSPP-Only Participant” means a participant in the Plan who is designated as an
MSPP-Only Participant under Section 2.1 of the Plan.
	 
	1.14  	“PEP” means the Lear Corporation Pension Equalization Program.

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	1.15  	“Pension Plan” means the Lear Corporation Pension Plan.
	 
	1.16  	“Pension Make-up Account” means the bookkeeping
account established under Section 3.2 on behalf
of a participant.
	 
	1.17  	“Plan” means the Lear Corporation Executive Supplemental Savings Plan as from time to time in
effect.
	 
	1.18  	“Savings Plan” means the Lear Corporation Salaried Retirement Savings Plan. For 1997,
Savings Plan shall also include the Masland Associates Security Plan.
	 
	1.19  	“Savings Make-up Account” means the bookkeeping account established under Section 3.3
established on behalf of a participant, and includes any deemed earnings credited thereon.

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SECTION TWO

Participation and Deferral Election

	2.1  	Eligibility
	 
	   	Participation in the Plan shall be limited to employees of the
Corporation, and any affiliated company participating in the Pension
Plan and/or the Savings Plan, who are designated by the Senior Vice
President of Human Resources of the Corporation and approved for
participation in the Plan by the Benefits Committee (“Key
Executives”). For purposes of participation as of January 1, 1997,
this includes all Vice Presidents of the Corporation and its domestic
subsidiaries, as well as all employees earning base pay of at least
the “Base Salary Threshold” as of November 15, 1996. As of November
15, 1996, the Base Salary Threshold is $125,000.
	 
	   	If first employed after November 15, 1996, an employee shall be
eligible to participate as of the first of the month following one
full calendar month of employment if he or she is a Vice President of
the Corporation and its domestic subsidiaries, or his or her base
salary as of date of employment is at least five sixths of the annual
limit (as of such date of employment) under Code Section 401(a)(17),
rounded to the nearest dollar, subject to approval of the Senior Vice
President of Human Resources of the Corporation.
	 
	   	For years beginning January 1, 2001 and thereafter, an employee shall be eligible to
participate as of the first of the month following one full calendar month of employment if
he or she is a Vice President of the Corporation or one of its
domestic subsidiaries, or any
affiliated company participating in the Pension Plan and/or the Savings Plan, or his or her
base salary as of date of employment is at least five sixths of the annual limit (as of such
date of employment) under Code Section 401(a)(17), rounded to the nearest dollar, subject to
approval of the Senior Vice President of Human Resources of the Corporation. An employee
will automatically be eligible to participate if he or she is designated as an Eligible
Employee for the MSPP for the coinciding Plan Year, even if that person is not otherwise
eligible for this Plan in accordance with this paragraph.
	 
	   	For years beginning on or after January 1, 2004, an employee whose base pay is paid through
U.S. payroll and who is eligible to participate in the Plan solely because he or she is
designated as an Eligible Employee for the MSPP for the coinciding Plan Year, and who is not
otherwise eligible to participate in the Plan on any other basis, shall be designated as an
MSPP-Only Participant. Notwithstanding anything to the contrary contained in the Plan, an
MSPP-Only Participant shall be eligible for the benefits described in Sections 3.2 and 3.4,
but not Sections 2.2 or 3.3.
	 
	   	As of each November 15, the Base Salary Threshold shall be redetermined as five sixths of
the annual limit (as of the next succeeding calendar year) under Code Section 401(a)(17),
rounded to the nearest dollar. Employees who have never participated under the Plan but who
are Vice Presidents of the Corporation or one of its domestic
subsidiaries, or any affiliated
company participating in the Pension Plan and/or the Savings Plan, or

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	   	earning base pay of at least the “Base Salary Threshold” shall be eligible to participate as
of the following January 1.
	 
	   	Employees who elect to participate in the Plan shall continue to be eligible to participate
in the Plan in future years, notwithstanding their base salary as of a November 15 falling
below the Base Salary Threshold for employees who have never participated in the Plan.
	 
	2.2  	Deferral Election
	 
	   	Elections of Deferred Compensation shall be made only by Key Executives who, effective for
years beginning on or after January 1, 2004, are not MSPP-Only Participants and shall be on
forms furnished by the Benefits Committee. A Deferred Compensation election shall apply
only to compensation (as defined below) for the particular year specified in the election.
Key Executives shall specify the percentage of such compensation to be deferred under the
election, which percentage may not exceed the maximum rate of Employee Tax-deferred
Contributions permitted under the Savings Plan for the year. For purposes of the preceding
sentence, the term “compensation” means base pay plus short-term incentive bonuses as paid
prior to reduction for (a) his or her Deferred Compensation election under this Plan, (b)
pre-tax contributions under the Savings Plan and (c) any pre-tax contributions toward health
care under Code Section 125, which is in excess of Limited Compensation. “Limited
Compensation” is the lesser of (A) the limit on pensionable compensation specified by Code
Section 401(a)(17) (including adjustments for changes in the cost of living as prescribed by
the Code), or (B) compensation earned prior to the time the employee reaches the limit on
Employee Tax-deferred Contributions specified by Code Section 402(g) (including adjustments
for changes in the cost of living as prescribed by the Code).
	 
	   	Except as provided in the following paragraph, a Deferred Compensation election with respect
to compensation for a particular calendar year (i) must be made before January 1 of such
calendar year (or prior to participation in the Plan if the Key Executive becomes eligible
to participate during the calendar year), (ii) must specify (from the available
alternatives) the date such Deferred Compensation is to be paid (or commence to be paid)
and, if such date is at termination of employment, the number of installments (not to exceed
10 years) in which such Deferred Compensation is to be paid, and (iii) once made, cannot be
changed or revoked.
	 
	   	Effective with elections with respect to deferrals of compensation for calendar years
beginning with 2003, Key Executives may change their elections made in prior years with
regard to the payment date and number of installments, under the following conditions:

	 	a.  	such re-election shall be made on forms furnished by the Benefit Committee;
	 
	 	b.  	such re-election shall be made from the available alternate dates and forms in
effect at the time of such re-election; and

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	 	c.  	such re-election shall only take effect if the Key Executive terminates
employment on or after the second January 1 following such re-election, with the latest
effective election or re-election on file determining the date and form of
distribution if the Key Executive terminates employment prior to such second January
1 following the re-election.

	   	In the case of an employee who is eligible under Section 2.1 as of one month following his
or her date of employment, any Deferred Compensation election must be made within 30 days of
employment, and it will apply to compensation earned from date of eligibility for the
Savings Plan through the end of that calendar year.
	 
	2.3  	Deferral Suspension
	 
	   	If a Key Executive makes a withdrawal of his or her 401(k) contributions under the Savings
Plan and thereby becomes subject to a suspension of contributions under the Savings Plan,
his or her Deferred Compensation under this Plan shall also be suspended for the same period
required under the Savings Plan.

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SECTION THREE

Accounts

	3.1  	Deferred Account
	 
	   	The aggregate of the amounts of Deferred Compensation and deemed earnings on such amounts
shall be paid to the participant or his or her beneficiary, as applicable, from the general
assets of the Corporation in accordance with this Plan and related election forms. Deemed
earnings with respect to Deferred Compensation shall be credited monthly at the monthly
compound equivalent of the Prime Rate plus 1% in effect at the beginning of each calendar
quarter. Effective January 1, 1998, the interest rate will be credited at the Prime Rate in
effect at the beginning of each calendar quarter. The Prime Rate shall be the prime rate as
published in the Wall Street Journal Midwest edition showing such rate in effect as of the
first business day of each calendar quarter. A bookkeeping account shall be maintained for
each affected participant to record the amount of such Deferred Compensation and deemed
earnings thereon. Participants are always 100 percent vested in their Deferred Accounts.
	 
	   	The Plan Administrator may also maintain separate bookkeeping accounts for Deferred
Compensation for each participant for each calendar year plus deemed earnings with respect
to such Deferred Compensation, to facilitate calculation upon distribution.
	 
	3.2  	Pension Make-up Account
	 
	   	A bookkeeping account shall be established on behalf of each
participant in the Plan which, at any time, shall yield a benefit
equal to the benefit as of such date that would have accrued under the
Pension Plan and/or the PEP had the participant not elected to defer
compensation under Section 2.2 of this Plan and not elected to defer
compensation under the MSPP.
	 
	   	A participant shall be vested in his or her Pension Make-up
Account in accordance with the
following:

	 	a.  	with respect to benefits attributable to compensation amounts not in excess of
the limitations under Code Section 401(a)(17), prior to reduction for benefits payable
under the Pension Plan, after three years of Service (as defined in the Pension Plan);
and
	 
	 	b.  	with respect to benefits attributable to compensation amounts in excess of the
limitations under Code Section 401(a)(17), in accordance with the vesting requirements
of Section 5 of the PEP.

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	3.3  	Savings Make-up Account
	 
	   	A bookkeeping account shall be established on behalf of each participant in the Plan, which
shall be credited with the excess, if any, of (i) the amount of employer matching
contributions which would have been made on behalf of a participant had the participant’s
Deferred Compensation been contributed to the Savings Plan (without regard to any refunds of
participant contributions required under the Code, or the effects of Code Sections
401(a)(17), 402(g) or 415), over (ii) actual employer matching contributions under the
Savings Plan. The Savings Make-up Account shall be credited monthly with deemed investment
earnings at the monthly compound equivalent of the Prime Rate plus 1% in effect at the
beginning of each calendar quarter. Effective January 1, 1998, the interest rate will be
credited at the Prime Rate in effect at the beginning of each calendar quarter. The Prime
Rate shall be the prime rate as published in the Wall Street Journal Midwest edition showing
such rate in effect as of the first business day of each calendar quarter. A participant is
vested in his or her Savings Make-up Account after three years of Service (as defined in the
Pension Plan).
	 
	3.4  	MSPP Make-up Account
	 
	   	A bookkeeping account shall be established on behalf of each participant in the Plan, which
shall be credited with the excess, if any, of (i) the amount of employer matching
contributions which would have been made on behalf of a participant had the participant’s
deferred compensation under the MSPP been contributed to the Savings Plan (without regard to
any refunds of participant contributions required under the Code, or the effects of Code
Sections 401(a)(17), 402(g) or 415), up to, but not exceeding the rate at which the
participant contributed to the Savings Plan for such year, over (ii) actual employer
matching contributions under the Savings Plan. The MSPP Make-up Account shall be credited
monthly with deemed investment earnings at the monthly compound equivalent of the Prime Rate
plus 1% in effect at the beginning of each calendar quarter. Effective January 1, 1998, the
interest rate will be credited at the Prime Rate in effect at the beginning of each calendar
quarter. The Prime Rate shall be the prime rate as published in the Wall Street Journal
Midwest edition showing such rate in effect as of the first business day of each calendar
quarter. A participant is vested in his or her MSPP Make-up Account after three years of
Service (as defined in the Pension Plan).

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SECTION FOUR

Payment of Benefits

	4.1  	Event of Payment
	 
	   	The vested account balances of all of a participant’s Accounts are
payable as hereinafter provided. No withdrawals, including loans, may
be allowed from the Plan for any reason while the participant is still
employed by the Corporation; however, reemployment of a participant
shall not suspend the payment of any benefits hereunder.
	 
	4.2  	Payment of Deferred Account
	 
	   	Payment of benefits from a participant’s Deferred Account shall be
made in accordance with deferred compensation agreements made at the
time the participant elected to defer compensation. A separate
deferred compensation agreement shall govern each year’s Deferred
Compensation and deemed earnings on such Deferred Compensation
attributable to any year. The terms of these deferred compensation
agreements dealing with the timing and form of payment may be changed
from year to year by the Benefits Committee, but once an election is
made by a participant as to the timing and form of a distribution from
the Deferred Account with respect to a particular year, such election
is irrevocable, except as provided in Section 2.2.
	 
	4.3  	Payment of Savings Make-up Account
	 
	   	Distributions from the Savings Make-up Account shall be made in the
same form and at the same time as benefit payments made under the
Savings Plan.
	 
	   	Effective for terminations of employment on and after January 1, 2001, distributions from
the Savings Make-up Account shall be made in the same form and at the same time as payments
made in accordance with a participant’s latest effective deferral election; however in no
event shall payment of benefits in the form of a single lump sum be made prior to the
January 1 following the date of the participant’s termination of employment. A
participant’s latest deferral election becomes effective as of the January 1 following the
date of such election, or such later date as may apply to newly-hired participants.
	 
	4.4  	Payment of MSPP Make-up Account
	 
	   	Distributions from the MSPP Make-up Account shall be made in the same
form and at the same time as benefit payments made under the Savings
Plan.
	 
	   	Effective for terminations of employment on and after January 1, 2001, distributions from
the MSPP Make-up Account shall be made in the same form and at the same time as payments
made in accordance with a participant’s latest effective deferral election; however in no
event shall payment of benefits in the form of a single lump sum be made prior to the
January 1 following the date of the participant’s termination of employment.

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	   	A participant’s latest deferral election becomes effective as of the January 1 following the
date of such election, or such later date as may apply to newly-hired participants.
	 
	   	Notwithstanding the foregoing, payment of the MSPP Make-Up Account of an MSPP-Only
Participant shall be made in the form of a single lump sum as soon as practicable after
termination of employment.
	 
	4.5  	Payment of Pension Make-up Account
	 
	   	Except as provided in Section 4.6 below, distributions of the Pension
Make-up Account shall be made in the same form and at the same time as
benefit payments made under the Pension Plan. To the extent a lump
sum is payable from this Plan in accordance with this Section 4.5, the
Actuarial Equivalence for such lump sum shall be determined in
accordance with Exhibit A, item (c) of the Pension Plan.
	 
	4.6  	Other Distributions of Pension Make-up Account

	 	(a)  	If the aggregate value of a participant’s Pension
Make-up Account (determined in
accordance with Actuarial Equivalence as determined under the Pension Plan) is less
than $10,000, the participant or his or her beneficiary shall receive benefits under
this Plan in the form of a single lump sum as soon as practicable after termination of
employment, without regard to distribution elections made under the Pension Plan.

	 	(b)  	Notwithstanding Section 4.5 or subparagraph (a) of this Section, if an active
participant is eligible to elect and so elects, the participant may receive the present
value (as hereinafter defined) of the Pension Make-up Account paid in a lump sum upon
termination of employment.

	 	(i)  	Such election shall not be effective if termination of
employment occurs before the end of the first full calendar year beginning
after the election is made, except if termination occurs by reason of death.
	 
	 	(ii)  	Eligibility to elect this form of benefit shall be limited to
employees who will be at least age 62 and have 10 years of Service (as defined
in the Pension Plan) when benefits are to be paid, and (A) if the employee is
an officer of the Corporation subject to Section 16(b) of the Securities
Exchange Act of 1934 (a “Section 16(b) Officer”), have approval of the
Compensation Committee of the Board of Directors, or (B) if the employee is not
a Section 16(b) Officer, have approval of the Chief Executive Officer of the
Corporation or the Senior Vice President of Human Resources of the Corporation.
	 
	 	(iii)  	Present value shall mean the lump sum Actuarial Equivalent as
defined under Exhibit A, item (c) of the Pension Plan.
	 
	 	(iv)  	The benefit calculation shall be made based on the immediate
benefit, reduced as in accordance with the terms of the Pension Plan.

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	 	(v)  	If a participant becomes disabled, as defined in the Pension
Plan, termination of employment shall be deemed to occur upon cessation of
benefit accruals under the Pension Plan.

	 	(c)  	Notwithstanding Section 4.5 or subparagraph (a) of this Section, if an active
participant is eligible to elect and so elects, the participant may receive the Pension
Make-up Account paid in a series of annual installments, as elected by the participant
and not to exceed 20 years, commencing as of the first of the month coincident with or
next following termination of employment and payable as of each anniversary thereafter.

	 	(i)  	Such election shall not be effective if termination of
employment occurs before the end of the first full calendar year beginning
after the election is made, except if termination occurs by reason of death.
	 
	 	(ii)  	Eligibility to elect this form of benefit shall be limited to
employees who will be at least age 62 and have 10 years of Service (as defined
in the Pension Plan) when benefits are to be paid, and (A) if the employee is a
Section 16(b) Officer, have approval of the Compensation Committee of the Board
of Directors, or (B) if the employee is not a Section 16(b) Officer, have
approval of the Chief Executive Officer of the Corporation or the Senior Vice
President of Human Resources of the Corporation.
	 
	 	(iii)  	The amount of each annual installment shall mean the Actuarial
Equivalent, using interest only, of the lump sum as defined under subsection
4.6(b). The interest rate for purposes of converting the lump sum into the
level installments shall be the interest rate used to determine the lump sum.
Interest on the unpaid portion shall be credited monthly with deemed investment
earnings at the monthly compound equivalent of the Prime Rate plus 1% in effect
at the beginning of each calendar quarter. Effective January 1, 1998, the
interest rate will be credited at the Prime Rate in effect at the beginning of
each calendar quarter. The Prime Rate shall be the prime rate as published in
the Wall Street Journal Midwest edition showing such rate in effect as of the
first business day of each calendar quarter. To the extent that the remaining
unpaid balance as of each anniversary date is different from the scheduled
amount based on the previous anniversary date calculation, the annual
installment for that year shall be adjusted to reflect such difference.
	 
	 	(iv)  	If a participant becomes disabled, as defined in the Pension
Plan, termination of employment shall be deemed to occur upon cessation of
benefit accruals under the Pension Plan.
	 
	 	(v)  	If a participant in receipt of such annual installments dies,
the unpaid balance in the participant’s account shall be paid in a lump sum to
the participant’s beneficiary for purposes of the Pension Make-up Account.

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	4.7  	Beneficiaries
	 
	   	The participant’s beneficiary under this Plan with respect to his or
her participant Deferred Account shall be the person or persons
designated as beneficiary by the participant by filing with the
Benefits Committee a written beneficiary designation on a form
provided by, and acceptable to, such Benefits Committee. In the event
the participant does not make an effective designation of a
beneficiary with respect to his or her participant Deferred Account,
the participant’s beneficiary with respect to his or her participant
Deferred Account shall be the participant’s
beneficiary under the Savings Plan.
	 
	   	The participant’s beneficiary under this Plan with respect to his or
her Pension Make-up Account shall be the person who is entitled to
benefit payments under the Pension Plan following the death of the
participant.
	 
	   	The participant’s beneficiary under this Plan with respect to his or
her Savings Make-up Account shall be the person who is entitled to
benefit payments under the Savings Plan following the death of the
participant.
	 
	   	The participant’s beneficiary under this Plan with respect to his or
her participant MSPP Make-up Account shall be the person or persons
designated as beneficiary by the participant by filing with the
Benefits Committee a written beneficiary designation on a form
provided by, and acceptable to, such Benefits Committee. In the event
the participant does not make an effective designation of a
beneficiary with respect to his or her MSPP Make-up Account,
the participant’s beneficiary with respect to his or her MSPP Make-up
Account shall be the participant’s beneficiary
under the Savings Plan.
	 
	4.8  	Termination of the Pension Plan or Savings Plan
	 
	   	In the event that the Pension Plan is terminated, payments of the
Pension Make-up Account which have not previously been paid shall
continue to be paid directly by the Corporation but only to the same
extent and for the same duration as that part of the payee’s benefit
from the Pension Plan, which is directly related to such Pension
Make-up Account, is continued to be provided by the assets of the
Pension Plan.
	 
	   	In the event that the Savings Plan is terminated, Savings Make-up
Accounts and MSPP Make-up Accounts shall be paid directly by the
Corporation in the same manner as the distribution of the
participant’s accounts under the Savings Plan.

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SECTION FIVE

Administration and General Provisions

	5.1  	Plan Administrator
	 
	   	The Benefits Committee shall be the “administrator” of the Plan within
the meaning of the Employee Retirement Income Security Act of 1974, as
amended.
	 
	5.2  	Benefits Committee
	 
	   	The Benefits Committee shall be vested with the general administration
of the Plan. The Benefits Committee shall have the exclusive right to
interpret the Plan provisions and to exercise discretion where
necessary or appropriate in the interpretation and administration of
the Plan and to decide any and all matters arising thereunder or in
connection with the administration of the Plan. The decisions,
actions and records of the Benefits Committee shall be conclusive and
binding upon the Corporation and all persons having or claiming to
have any right or interest in or under the Plan.

The Benefits Committee may delegate to such officers, employees or
departments of the Corporation such authority, duties, and
responsibilities of the Benefits Committee as it, in its sole
discretion, considers necessary or appropriate for the proper and
efficient operation of the Plan, including, without limitation, (i)
interpretation of the Plan, (ii) approval and payment of claims, and
(iii) establishment of procedures for administration of the Plan.
	 
	5.3  	General Provisions

	 	(a)  	The Corporation shall make no provision for the funding of any benefits payable
hereunder that (i) would cause the Plan to be a funded plan for purposes of Code
Section 404(a)(5), or Title I of the Employee Retirement Income Security Act of 1974,
as amended, or (ii) would cause the Plan to be other than an “unfunded and unsecured
promise to pay money or other property in the future” under Treasury Regulations
section 1.83-3(e); and shall have no obligation to make any arrangement for the
accumulation of funds to pay any amounts under this Plan. Subject to the restrictions
of the preceding sentence, the Corporation may establish a grantor trust described in
Treasury Regulations Sections 1.677(a)-1(d) and accumulate funds therein to pay
amounts under the Plan, provided that the assets of the trust shall be required to
satisfy the claims of the Corporation’s general creditors in the event of the
Corporation’s bankruptcy or insolvency.
	 
	 	(b)  	In the event that the Corporation shall decide to establish an advance accrual
reserve on its books against the future expense of the Plan, or to establish a grantor
trust (which trust will conform to the terms of the model trust described in Rev. Proc.
92-64) with assets subject to the claims of creditors, such reserve or trust shall not
under any circumstances be deemed to be an asset of this Plan but,
at all times, shall remain a general asset of the Corporation, subject to the claims
of the Corporation’s creditors.
	 
	 	(c)  	A person entitled to any amount under this Plan shall be a general unsecured
creditor of the Corporation with respect to such amount.

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SECTION SIX

Amendment and Termination

	6.1  	Amendment of the Plan
	 
	   	Subject to the provisions of Section 6.3, the Plan may be wholly or partially amended or
otherwise modified at any time by the Compensation Committee of the Board of Directors.
	 
	6.2  	Termination of the Plan
	 
	   	Subject to the provisions of Section 6.3, the Plan may be terminated at any time by the
Compensation Committee of the Board of Directors.
	 
	6.3  	No Impairment of Benefits
	 
	   	Notwithstanding the provisions of Sections 6.1 and 6.2, no amendment to or termination of
the Plan shall impair any rights to benefits which have accrued hereunder without the
participant’s consent.

13exv10w2

 

EXHIBIT 10.2

NONQUALIFIED STOCK OPTION AGREEMENT

     This Nonqualified Stock Option Agreement is made and entered into pursuant to the terms of the
2003 Stock Incentive Plan (the “Plan”) adopted by the Board of Directors and Shareholders of Umpqua
Holdings Corporation (the “Company”). Unless otherwise defined herein, capitalized terms defined
in this Nonqualified Stock Option Agreement shall have the meanings as defined in the Plan.

	 	 	 	 	 
	The “Optionee”	 	Raymond P. Davis	 
	Number of Shares of the
	 	 	75,000	 
	Company’s Common Stock
	 	 	 	 
	 
	 	 	 	 
	“Exercise Price” per Share
	 	$	24.71	 
	 
	 	 	 	 
	“Date of Grant”
	 	 	1/03/2005	 
	 
	 	 	 	 
	“Expiration Date”
	 	 	1/03/2015	 

1. Terms of the Option.

     1.1 Grant of Option. The Company hereby grants to the Optionee the right, privilege,
and option (the “Option”) to purchase up to the number of shares of Common Stock indicated above
(the “Option Shares”) at the Exercise Price indicated above, subject to adjustment in accordance
with the terms and conditions of the Plan. The Option may only be exercised as to a whole number
of shares of Common Stock.

     1.2 Status of the Option as a Nonqualified Stock Option. The Company intends that the
Option will not qualify as an incentive stock option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.

     1.3 Limited Transferability of Option. The Option may be transferred by gift to
Permitted Transferees. “Permitted Transferees” includes the Optionee’s spouse, children or a trust
for the exclusive benefit of any combination of the Optionee, the Optionee’s spouse and the
Optionee’s children. A transfer to a Permitted Transferee will not be effective unless and until
the Optionee and the transferee of the Option execute and deliver to the Company a
Transfer/Assumption of Nonqualified Stock Option Agreement in the form requested by the Company.
Notwithstanding any transfer of the Option, the Optionee shall remain liable to the Company for any
income tax withholding amounts which the Bank is required to withhold at the time that the
transferred Option is exercised. Other than as set forth above, the Option and the rights of the
Optionee under this Nonqualified Stock Option Agreement may only be transferred by will or by the
laws of descent and distribution upon the death of Optionee.

     1.4 Reservation of Shares. The Company agrees that at all times there will be
reserved for issuance upon exercise of the Option such number of shares of its Common Stock as is
required for such issuance.

2. Time of Exercise of Option.

     2.1 When the Option Becomes Exercisable. Except as otherwise set forth in Section 5.2
below, the Option may only be exercised in accordance with the vesting schedule attached hereto
(the “Vesting Schedule”) and only to the extent not previously exercised. In the event of certain
changes in the capital structure of the Company, the number of Option Shares vesting at any time as
indicated in the Vesting Schedule may be adjusted as determined appropriate by the Committee.

     2.2 Effect of Unpaid Leaves of Absence. Unless the Committee at the time of such
leave determines otherwise, if at any time during the term of the Option, the Optionee is on unpaid
leave from the Company or any Subsidiary, the Option may not be exercised during such unpaid leave
and the dates contained in the Vesting Schedule shall be extended by the length of such unpaid
leave.

     2.3 Expiration and Termination of Option. The Option will expire upon the close of
business on the Expiration Date and may terminate earlier upon certain events as set forth in
Section 4 of this Nonqualified Stock Option Agreement. To the extent that the Option has not been
exercised prior to the Expiration Date or any earlier termination, all further rights to purchase
shares pursuant to the Option will cease and terminate at such time.

3. Option Exercise Procedures.

     3.1 Who May Exercise the Option. Only the Optionee (or, in the case of exercise after
death of the Optionee, by the executor, administrator, heir, or legatee of the Optionee, as the
case may be) or the Permitted Transferee may exercise the Option.

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     3.2 Notice of Exercise. A “Notice of Exercise” must be signed and delivered to the
Company’s corporate Secretary or such other person as the Company may designate at the Company’s
principal business office of the Company. A copy of the Company’s current form of Notice of
Exercise is attached hereto. The Company, however, reserves the right to revise its form of Notice
of Exercise from time-to-time as it determines to be appropriate. If, at the time of the exercise
of the Option, the Company does not have an effective registration statement on file with the
Securities and Exchange Commission that covers the issuance of shares upon the exercise of the
Option, the Notice of Exercise will also contain certain representations from the Optionee as
required under applicable state and federal securities laws. A copy of the then-current form of
Notice of Exercise may be obtained at any time from the Company. A notice will only be effective
if submitted on the form in effect at the time of such exercise.

     3.3 Payment of Exercise Price. The Notice of Exercise must indicate the manner of
payment of the Exercise Price for the number of shares so purchased. Payment shall be made by
cash, by the surrender to the Company for cancellation of shares of Common Stock or other
securities of the Company, based on the Fair Market Value of the Common Stock, (provided that the
surrendered shares of Common Stock or other securities of the Company shall have been held by the
Optionee for not less than six months), such other valid consideration as the Committee may, in its
sole discretion, permit or any combination of the foregoing.

     3.4 Payment of Tax Withholding. The Optionee shall pay or make adequate provision for
payment of Tax Withholding upon exercise of the Option. The notice of exercise shall indicate the
method of payment of Tax Withholding, which may be accomplished by payment in cash, the Company
withholding other amounts payable by the Company to the Optionee, by the application of shares to
be received upon exercise of the Option based on Fair Market Value of the Common Stock, the
surrender of shares of Common Stock or other securities of the Company based on the Fair Market
Value of the Common Stock (provided that the surrendered shares of Common Stock or other securities
of the Company shall have been held by the Optionee for not less than six months) or any
combination of the foregoing.

     3.5 Delivery of Shares Following Exercise. The Company will make delivery of a
certificate representing the Option Shares purchased within a reasonable time after it receives the
Notice of Exercise, payment in full of the Exercise Price of the Option Shares being purchased and
the payment or adequate provision for payment of Tax Withholding. However, if any law or
regulation requires the Company to take any action with respect to the issuance of the Option
Shares, including, without limitation, actions that may be required for compliance with federal and
state securities laws or the listing requirements of any stock exchange upon which the Company’s
Common Stock is then listed, then the date of delivery of such certificate may be extended for the
period necessary to take such action. The Optionee shall only become the holder of such shares
when the issuance of the shares is reflected on the Company’s stock transfer record, except that if
the Option is exercised conditioned on the occurrence of a Change of Control Transaction, as
provided for in Section 5.3 below, the Optionee shall be deemed a holder of such shares as of the
effective date of the Change of Control Transaction.

4. Termination of the Option 

     4.1 Effect of the Death of the Optionee. If the Optionee dies while an employee of
the Company or any Subsidiary, the Option will terminate one year after the date of such death or,
if sooner, upon the Expiration Date. In such event, the Option may be exercised only to the extent
the Optionee was entitled to exercise the Option on the date of the Optionee’s death and only by a
Permitted Transferee or the person or persons to whom the Optionee’s rights under the Option may
pass by the Optionee’s will or by the laws of descent and distribution of the state or country of
the Optionee’s domicile at the time of death.

     4.2 Effect of the Disability of the Optionee. If the Optionee’s employment by the
Company or any Subsidiary terminates as a result of the Optionee becoming Disabled (as defined in
the Plan) while an employee of the Company or any Subsidiary, the Option will terminate one year
after the date of such termination of employment or, if sooner, upon the Expiration Date. In such
event, the Option may be exercised only to the extent the Optionee or Permitted Transferee was
entitled to exercise the Option on the date of such termination.

     4.3 Effect of Termination of the Employment of the Optionee for Cause. If the
Optionee’s employment with the Company or any Subsidiary is terminated for “cause,” the Option will
terminate on the effective date of the termination of the Optionee’s employment and shall no longer
be exercisable as to any of the remaining Option Shares. “Cause” shall have the definition given
in the Optionee’s employment, severance, or change in control agreement, if any, or if the Optionee
has no such agreement, “cause” shall be determined by the Company’s Chief Executive Officer or
Board of Directors in their reasonable discretion.

     4.4 Effect of any other Termination of the Employment of the Optionee. If the
Optionee’s employment with the Company or any Subsidiary terminates for any reason other than the
reasons set forth in Sections 4.1, 4.2 or 4.3 of this Nonqualified Stock Option Agreement, the
Option will terminate thirty (30) days after the date of such termination of employment or, if
sooner, upon the Expiration Date. In such event, the Option may be exercised only to the extent
the Optionee or Permitted Transferee was entitled to exercise the Option on the date of such
termination.

     4.5 Effect of Change of Control Transaction. Notwithstanding the provisions of
Sections 2.3, 4.1, 4.2, 4.3 or 4.4, the Option may terminate upon the earlier occurrence of a
Change of Control Transaction as provided in Section 5.5 below.

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5. Effect of Change of Control Transaction

     5.1 Notice of Change of Control Transaction. The Company will provide the Optionee
with written notice of any Change of Control Transaction and will undertake reasonable efforts to
provide such notice at least fifteen (15) days prior to the effective date of the Change of Control
Transaction. Such notice shall generally describe the expected Change of Control Transaction and
the anticipated effects of the transaction on the Optionee’s rights under this Nonqualified Stock
Option Agreement.

     5.2 Accelerated Vesting. Accelerated vesting upon the occurrence of a Change of
Control Transaction, if any, shall be as set forth in the Vesting Schedule.

     5.3 Conditional Exercise and Deferred Payment. In anticipation of a Change of Control
Transaction, the Optionee shall be permitted to tender a notice of exercise of the Option that is
conditioned on the Change of Control Transaction actually occurring and the Optionee shall not be
required to tender payment of the exercise price or amounts that the Company may be required to
withhold for tax purposes until after the occurrence of the Change of Control Transaction.

     5.4 Effect on Option Shares and Exercise Price. Following the occurrence of any
Change of Control Transaction, the Option shall be exercisable for the number and kind of shares,
other securities, debt instruments, cash or other property for which the Option Shares would have
been exchanged if they had been outstanding at the time of the Change of Control Transaction. In
addition, the Exercise Price shall be adjusted such that the aggregate exercise price following
such Change of Control Transaction shall be equal to the product of the Exercise Price per Share
prior to the Change of Control Transaction multiplied by the number of Option Shares that could be
purchased under the Option at such time without regard to the Vesting Schedule. The determination
of the Committee as to what, if any, adjustments need to be made to the Option Shares and the
Exercise Price and the extent thereof will be final and conclusive and shall be binding upon the
Optionee.

     5.5 Termination. The Option shall terminate effective as of the effective date of a
Change of Control Transaction, unless the terms and conditions of the Change of Control Transaction
provide for the assumption of the Plan and the continuation of this Nonqualified Stock Option
Agreement. Alternatively, the terms and conditions of the Change of Control Transaction may
provide for the issuance to the Optionee by the Company’s successor of a substitute option granted
under a plan adopted by such successor and, subject to Sections 5.2 and 5.4 above, containing terms
and conditions substantially equivalent to the terms and conditions of the Option.

6. Representations, Warranties and Covenants of the Optionee.

     6.1. No Effect on Employment. The Optionee understands and agrees that nothing
contained in this Nonqualified Option Agreement will be construed to limit or restrict the rights
of the Company to terminate the employment of the Optionee at any time, with or without cause, to
change the duties of the Optionee or to increase or decrease the Optionee’s compensation. Without
limiting the foregoing, the Optionee understands and agrees that the vesting of shares under this
Nonqualified Stock Option Agreement is subject to and is conditioned upon the continued employment
of the Optionee by the Company or a Subsidiary and that such employment can be terminated at any
time by the Company or its Subsidiary prior to some or all of the Option Shares vesting. In the
event of any such termination, the Optionee understands and agrees that the Optionee shall have not
right or claim, under contract, under any other legal principle or under any equitable principle to
any portion of the unvested Option Shares.

     6.2 Rights Prior to Exercise of the Option. The Optionee understands and agrees that
the Optionee will have no rights as a shareholder in the Option Shares, including, without
limitation, the right to vote or receive dividends, until the issuance of the shares is reflected
in the Company’s stock transfer records.

     6.3 Tax Implications. The Optionee understands that, under federal, state and local
income tax laws as they currently exist, the exercise of the Option will result in ordinary income
to the Optionee in the amount by which the Fair Market Value (as of the date of exercise) of the
shares acquired upon exercise exceeds the Exercise Price.

     6.4 Underwriter’s Lock-up. The Optionee, by accepting the Option, agrees that
whenever the Company undertakes a firm underwritten public offering of its securities and if
requested by the managing underwriter in such offering, the Optionee will enter into an agreement
not to sell or dispose of any securities of the Company owned or controlled by the Optionee
provided that such restriction will not extend beyond twelve (12) months from the effective date of
the registration statement filed in connection with such offering.

     6.5 Disclosures. The Optionee acknowledges receipt of a copy of the Plan and certain
related information and represents that the Optionee has fully reviewed the terms and conditions of
the Plan and this Nonqualified Stock Option Agreement and has had the opportunity to obtain the
advice of counsel prior to executing this Nonqualified Stock Option Agreement. The Optionee
represents and warrants that the Optionee is not relying upon any representations, agreements or
understandings of or with the Company except for those set forth in this Nonqualified Stock Option
Agreement.

7. Miscellaneous Provisions

     7.1 Binding Effect. This Nonqualified Stock Option Agreement will be binding upon and
inure to the benefit of the parties hereto and their heirs, executors, administrators, successors,
and assigns.

31

 

     7.2 Notices. All notices or other communications pursuant to this Agreement shall be
in writing and shall be deemed duly given if delivered personally or by courier service or if
mailed by certified mail, return receipt requested, prepaid and addressed to the Company at its
corporate offices to the attention of the Corporate Secretary or, with respect to the Optionee, to
the latest address reflected on the Company’s administrative records, or such other address as such
party shall have furnished to the other party in writing.

     7.3 Governing Law and Interpretation. This Nonqualified Stock Option Agreement and
the Option granted hereunder will be governed by the laws of the State of Oregon as to all matters,
including but not limited to matters of validity, construction, effect, and performance, without
giving effect to rules of choice of law. This Nonqualified Stock Option Agreement hereby
incorporates by reference all of the provisions of the Plan and will in all respects be interpreted
and construed in such manner as to effectuate the intent of the Plan. In the event of a conflict
between the terms of this Nonqualified Stock Option Agreement and the Plan, the terms of the Plan
will prevail. All matters of interpretation of the Plan and this Nonqualified Stock Option
Agreement, including the applicable terms and conditions and the definitions of the words, will be
determined in the sole and final discretion of the Committee or the Company’s Board of Directors.

     7.4. Arbitration. The parties agree to submit any dispute arising under this
Nonqualified Stock Option Agreement to final, binding, private arbitration in Portland, Oregon.
This includes not only disputes about the meaning or performance of the Nonqualified Stock Option
Agreement, but disputes about its negotiation, drafting, or execution. The dispute will be
determined by a single arbitrator in accordance with the then-existing rules of arbitration
procedure of Multnomah County, Oregon Circuit Court, except that there shall be no right of de novo
review in Circuit Court and the arbitrator may charge his or her standard arbitration fees rather
than the fees prescribed in the Multnomah County Circuit Court arbitration procedures. The
proceeding will be commenced by the filing of a civil complaint in Multnomah County Circuit Court
and a simultaneous request for transfer to arbitration. The parties expressly agree that they may
choose an arbitrator who is not on the list provided by the Multnomah County Circuit Court
Arbitration Department, but if they are unable to agree upon the single arbitrator within ten days
of receipt of the Arbitration Department list, they will ask the Arbitration Department to make the
selection for them. The arbitrator will have full authority to determine all issues, including
arbitrability, to award any remedy, including permanent injunctive relief, and to determine any
request for costs and expenses in accordance with Section 7.5 of this Agreement. The arbitrator’s
award may be reduced to final judgment in Multnomah County Circuit Court. The complaining party
shall bear the arbitration expenses and may seek their recovery if it prevails. Notwithstanding
any other provision of this Agreement, an aggrieved party may seek a temporary restraining order or
preliminary injunction in Multnomah County Circuit Court to preserve the status quo during the
arbitration proceeding.

     7.5 Attorney Fees. If any suit, action, or proceeding is instituted in connection
with any controversy arising out of this Nonqualified Stock Option Agreement or the enforcement of
any right hereunder, the prevailing party will be entitled to recover, in addition to costs, such
sums as the arbitrator or court may adjudge reasonable as attorney fees, including fees on any
appeal.

UMPQUA HOLDINGS CORPORATION

	 	 	 
	By:

	 	/s/ Daniel A. Sullivan
	 	 	 
	

	 	EVP/Chief Financial Officer

OPTIONEE:

	 	 	 
	/s/ Raymond P. Davis
	 

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NONQUALIFIED STOCK OPTION AGREEMENT

Vesting Schedule

Under the Nonqualified Stock Option Agreement to which this Vesting Schedule is attached, Option
Shares shall vest and the Option may be exercised only as the number of Option Shares in accordance
with the following schedule:

	 	 	 	 	 
	 	 	Number of	 	Aggregate Number
	Vesting Date	 	Shares Vesting	 	of Vested Shares
	01/03/2006
	 	22,500	 	22,500
	01/03/2007
	 	22,500	 	45,000
	01/03/2008
	 	15,000	 	60,000
	01/03/2009
	 	15,000	 	75,000

Accelerated Vesting. Upon the occurrence of a Change of Control Transaction, all unvested
Option Shares shall vest as of the effective date of the Change of Control Transaction
notwithstanding the terms of the Vesting Schedule.

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