Document:

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                                                                 EXHIBIT 10.23*

                      THE CONFIDENTIAL PORTIONS OF THIS EXHIBIT, WHICH
                      HAVE BEEN REMOVED AND REPLACED WITH AN ASTERISK,
                      HAVE BEEN OMITTED AND FILED SEPARATELY WITH THE
                      SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A
Agreement No. ______  REQUEST FOR CONFIDENTIAL TREATMENT UNDER RULE 406
                                                                         [LOGO]

                         SUPPLIER PARTNERING AGREEMENT

This agreement ("Agreement") is effective as of June 1, 2000 by and between the
following parties:

       Pacesetter, Inc. (d/b/s St. Jude Medical CRMD), a St. Jude Medical
       Company, 15900 Valley View Court, Sylmar, California 91392-9221
       ("Buyer"); and

       Wilson Greatbatch Ltd., 10000 Wehrle Drive, Clarence, New York 14031
       ("Seller")

INTRODUCTION

The parties desire to establish a stable relationship based on a continuous
improvement process leading toward world class benchmarks in quality, cost,
inventory levels, delivery, technology, and service.

Therefore, Seller and Buyer mutually agree to the following:

1.     TERM OF AGREEMENT. This Agreement begins on June 1, 2000 and will run
       until December 31, 2003 ("Initial Term"); provided, however, that the
       term of this Agreement may be extended pursuant to Section 9 of Exhibit
       A.

2.     PURCHASE ORDERS; TERMS AND CONDITIONS OF SALE. Seller will provide Buyer
       products pursuant to purchase orders to be issued by Buyer's business
       units, including its Swedish affiliate. The general terms and conditions
       of sale for products sold by Seller to Buyer hereunder are set forth on
       Exhibit A attached to and made a part of this Agreement. The parties
       expressly agree that none of the terms and conditions of any standard
       purchase preprinted forms used by either Seller or the Buyer in
       effectuating the purchase and sale transactions contemplated by this
       Agreement (including, but not limited to, purchase orders,
       acknowledgements and acceptance forms, invoices, labels and shipping
       documents) which are inconsistent with, or in addition to, those
       contained in this Agreement shall have any force or effect.

3.     PRICING. Pricing shall be as shown in Exhibit B, Attachment 1 (component
       parts) and Attachment 2 (batteries).

4.     INVENTORY. Seller will maintain a finished inventory for each product at
       the level indicated in Exhibit B, Attachments 1 and 2. The level is a
       proportion of the estimated annual usage for the product and will be
       updated each quarter. If inventory drops below the indicated level at any
       time or is totally consumer by Buyer, Seller will promptly replenish
       inventory to the appropriate level as indicated in Exhibit B, Attachments
       1 and 2. Seller will keep

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       Buyer informed of the inventory level and location of each product. At
       Buyer's discretion, any inventory may be consigned to Buyer's facility.
       Buyer will be responsible for any resulting additional costs to Seller
       (as set forth on Exhibit A).

5.     QUANTITY. Subject to Section 2.6 on Exhibit A, Buyer will purchase no
       less than the inventory commitment of each product indicated in Exhibit
       B, Attachments 1 and 2. Buyer will purchase its annual requirement of
       batteries and **** (by aggregate value) of its requirement for Component
       parts from Seller. Excluded from this obligation is Buyer's need for new
       or developing technologies that Seller is unable to supply at competitive
       prices and in time to meet Buyer's needs.

6.     QUALITY/IMPROVEMENTS. Seller will start of maintain a JIT (just in time)
       program that includes the ability to measure and report on quality
       control and improvement processes. The JIT will include at least:

              -      On time delivery,

              -      Cost reductions,

              -      Benchmarking,

              -      Lead time reduction to meet benchmarks,

              -      Statistical process controls (SPC) in critical process
                     areas, and

              -      Inventory reduction.

       6.1    Seller will start and/or maintain a continuous improvement
       strategy for product quality, cost, delivery, inventory reduction, and
       service.

       6.2    Seller will have in place goals to improve performance for:

              -      QUALITY to reduce Buyer's rejections of products to less
                     than ***** PPM by the end of the initial one-year term of
                     this Agreement. Beginning in the second year of this
                     Agreement, the goal will be less than ***** PPM. Beginning
                     in the third year of this Agreement, the goal will be less
                     than *** PPM. The benchmark performance will be no more
                     than *** PPM line fallout rejections found during Seller's
                     processing without Buyer's inspection being needed.

              -      DELIVERY to be 100% on time (up to three days early and
                     zero days later).

       6.3    Time is of the essence for purposes of this Agreement.

       6.4    Seller will start and/or maintain a quality system or plan that
       meets the requirements of ISO-9000.

       6.5    Upon request by Buyer or Seller, Seller will participate, or be
       permitted to participate, in early supplier involvement with Buyer for
       Buyer's new products of the typo specified in this Agreement. Buyer will
       provide Seller with sufficient information and cooperation in connection
       therewith to permit Seller to qualify product for sale to Buyer.

       6.6    Seller will meet with Buyer on a regular basis to review programs,
       performance measurements, and barriers to progress. Seller and Buyer will
       mutually agree on taking actions to correct problems and eliminate
       barriers.

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7.     COMMUNICATION. Seller and Buyer will conduct quarterly reviews to
       facilitate the purposes of this Agreement. Also, Buyer will inform Seller
       of Buyer's planned production rates for the products to help Seller in
       its planning. Until further notice, the key people who will be
       responsible for routine communications between Seller and Buyer are:

       For Seller: Mark Amatuzzo, Program Manager - Batteries
            Paul Quattrini, Production Manager - Components
            Allan Gelb, Vice President - Components

       For Buyer:        Mary Lytle, Commodity Manager
                         Owe Eriksson, Director of Purchasing (Sweden)

8.     BUYER'S DRAWINGS AND DESIGNS. Seller will use only drawings that have
       been mutually agreed upon to manufacture the products. Seller will never
       make or sell any products using Buyer's designs for anyone other than
       Buyer.

9.     CONFIDENTIAL INFORMATION.

       9.1    TREATMENT OF PROPRIETY INFORMATION. Each of WGL and Buyer (each a
       "receiving party") agrees to maintain all proprietary information
       disclosed by the other party to this Agreement (each a "disclosing
       party") in strict secrecy and confidence, and not to disclose such
       proprietary information to any third party, nor make any use of such
       information and technology for its own benefit or gain other than in
       carrying out its efforts under this Agreement. The receiving party agrees
       to have its employees sign agreements, or to have an appropriate
       corporate policy in effect, which requires them to keep confidential any
       proprietary information they learn in their positions at the receiving
       party; these agreements and/or policies shall require them to maintain
       confidentiality of proprietary information disclosed by the disclosing
       party. The receiving party further agrees that no proprietary information
       or materials will be supplied to any other corporation, partnership,
       laboratory, or individuals other than those approved in writing by the
       disclosing party, with the exception of disclosure to the FDA and similar
       regulatory agencies of information relative to obtaining regulatory
       approval.

       9.2    LIMITED RELEASE. The receiving party shall be released from the
       obligations of Section 9.1 to the extent that any of the disclosed
       information: (a) was already part of the public domain at the time of the
       disclosure by the disclosing party; (b) becomes part of the public domain
       through no fault of the receiving party (but only after and only to the
       extent that it is published or otherwise becomes part of the public
       domain); (c) was in the receiving party's possession prior to the
       disclosure by the disclosing party and was not acquired, directly, or
       indirectly, from the disclosing party or from a third party who was
       under a continuing obligation of confidence to the disclosing party; (d)
       is received (after the disclosure by the disclosing party) by the
       receiving party from a third party who did not require the receiving
       party to hold it in confidence and did not acquire it directly or
       indirectly from the disclosing party under a continuing obligation

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       of confidence; or (e) is disclosed by the receiving party pursuant to
       judicial  compulsion, provided that the disclosing party is notified
       at the time such judicial action is initiated. In addition,
       notwithstanding Section 9.1, Seller may provide proprietary
       information of Buyer to its subcontractors and vendors without Buyer's
       prior approval provided that WGL first requires may such subcontractor
       or vendor to sign a confidentiality agreement which requires them to
       keep confidential such Buyer information and not to use it except for
       the purpose of performing their obligations to Seller.

       9.3    TERM OF OBLIGATION. The obligation of the receiving party to
       receive and hold information disclosed by the disclosing party in
       confidence, as required by this Section 9, shall terminate eight (8)
       years from the date of disclosure of the information hereunder and
       shall survive  any earlier termination of this Agreement.

       9.4    DISPOSAL UPON TERMINATION. In the event this Agreement is
       terminated, any samples, sketches, or other proprietary material
       provided by the disclosing party to the receiving party shall be
       destroyed or returned to the disclosing party, unless and to the
       extent such materials are necessary to the receiving party to provide
       continuing support.

10.    OTHER PROVISIONS.

       10.1   RELATIONSHIP OF THE PARTIES. There is no principal-agent
       relationship between the parties. Neither party will have any
       authority to contract, bind, or act on behalf of the other, and
       neither party will try to do so.

       10.2   SEPARABILITY AND WAIVER. If any part of this Agreement is not
       legally enforceable, only that part will be disregarded and the rest
       will stay in effect. If a party waives a particular term or condition,
       it will be for one time only, it will not change the Agreement, and
       the same term or condition can be enforced again later.

       10.3   ENDRE AGREEMENT; CHANGES. This Agreement contains the entire
       understanding of the parties regarding this subject and replaces all
       previous agreements. There are no written or oral agreements,
       understandings, or representations apart from this Agreement. This
       Agreement cannot be changed in any way except by a written document
       that both parties sign. No interference will be drawn from any
       difference between this Agreement and any prior negotiations, letters
       of intent, or drafts of this Agreement.

       10.4   NOTICES. Notices under this Agreement must be in writing. A party
       can send notice by U.S. certified or express mail, by express courier
       service (e.g., Federal Express), or by telephone fax to the other
       party, addressed as follows:

                 To Buyer at:

                 Dan Starks

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                 President & CEO
                 St. Jude Medical Cardiac Rhythm Management Division
                 15900 Valley View Court
                 Sylmar, California 91392-9221

                 To Seller at:

                 Edward F. Voboril
                 President & CEO
                 Wilson Greatbatch Ltd.
                 10000 Wehrle Drive
                 Clarence, NY 14031

              or to whatever other address a receiving party may specify from
              time to time. The parties will consider that notice is given at
              the end of two business days after it is faxed, and/or five
              business days from the date it is deposited postage prepaid in
              the mail or given to an express courier service. A written
              receipt will be proof of delivery if it is signed by an
              authorized representative of the receiving party at the address
              above.

       10.5   EFFECT OF TERMINATION. Expiration or termination of this
              Agreement shall not affect or cause the release of monetary
              obligation which shall have accrued prior to such termination,
              and the parties obligations under Sections 9 and 10 and
              Sections 3 and 6 of Exhibit A shall continue in effect until
              fully satisfied.

       10.6   PUBLIC ANNOUNCEMENTS. Notwithstanding anything to the contrary
       contained in this Agreement, neither party may initiate or make any
       public announcement or other disclosure concerning the terms and
       conditions or the subject matter of this Agreement to any third party
       without the prior written approval of the other party except as may be
       required by law. In those circumstances where either party believes
       that any such disclosure is required by law, it shall (a) notify the
       other party on a timely basis in advance and (b) use its best efforts
       to seek confidential treatment of the material provisions of this
       Agreement to the greatest extent permitted by law.

       10.7   LAW. California law will govern this Agreement and its
       interpretation, as well as the rights and duties of the parties.

IN WITNESS OF THIS AGREEMENT, the parties have signed below by their
authorized officers:

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<TABLE>

<S>                                <C>
PACESETTER, INC.                   WILSON GREATBATCH, LTD.

By: /s/ James Reynolds             By: /s/ Edward F. Voboril
   -----------------------------      -------------------------------
     James Reynolds                     Edward F. Voboril

Title: Vice President, Materials   Title: President and CEO
      --------------------------         ----------------------------

Date: 5-24-2000                    Date: 5-24-2000
      --------------------------        -----------------------------

</TABLE>

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                                  EXHIBIT A
                                     TO
                         SUPPLIER PARTNERING AGREEMENT

This Exhibit A sets forth the general terms and conditions of sale for all
products sold by Seller to Buyer pursuant to the Agreement to which it is
attached.

1.     DEFINITIONS. For purposes hereof, the following terms shall have the
       defined meanings set forth below:

       1.1    "AGREEMENT" means the Supplier Partnering Agreement to which
       this "Exhibit A" is attached.

       1.2    "BATTERIES" means all batteries and other power sources sold by
       Seller under this Agreement.

       1.3    "COMPONENTS" means all other products sold by Seller to Buyer
       under this Agreement.

       1.4    "CONSIGNMENT PRODUCTS" means all Batteries and Components
       consigned by Seller under this Agreement.

2.     ORDER, DELIVERY, PAYMENT, INSPECTION.

       2.1    ORDERS. All products shall be ordered by Buyer using Buyer's

       standard purchase order form which shall set forth, at a minimum, the
       quantity of products ordered, the address of the facility of Buyer (or
       its affiliate) to which product should be shipped and requested
       delivery dates.

       2.2    PAYMENT TERMS. Payment terms are as follows: (a) for
       Consignment Products purchased by Buyer, by the thirtieth (30th) day
       after the day on which Consignment Products shall have been withdrawn
       by Buyer or (b) for all other Batteries and Components purchased by
       Buyer, net 30 days from the date of the invoice, F.O.B. Clarence, NY
       or point of shipment, whichever is applicable. Payment terms for
       tooling and engineering charges are net 30 days from the date of the
       invoice.

       2.3    DELIVERY. Except for any Consignment Products, Seller shall
       deliver Products to Buyer's facility at Valley View Court in Sylmar,
       California, and/or to such other location(s) as Buyer may designate.
       Unless Buyer gives Seller written instructions as to the method of
       shipment and carrier, Seller shall select the methods of shipment and
       the carrier for the respective purchase order. Seller shall prepay
       transportation and similar charges upon shipment. Except for
       Consignment Products, title to all Products conforming to Buyer's
       purchase order shall pass, free and clear of all encumbrances, at the
       FOB shipping point, which shall be Seller's facility. Buyer

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       assumes and agrees to bear all risk of damage or loss to the goods
       after delivery by Seller to the carrier at the FOB shipping point.
       Buyer hereby releases Seller from any and all claims and liability
       with respect to any such in-transit damages or losses to the goods.
       Buyer shall be responsible for securing insurance coverage to cover
       shipments and deliveries hereunder.

       2.4    INSPECTION. Seller shall perform testing to ensure that
       Products delivered by Buyer meet all applicable specifications. Buyer
       inspection of incoming Products will rely upon Seller testing and may
       consist of an examination of Seller's testing documentation as well as
       independent testing by Buyer. Notwithstanding the foregoing, Buyer
       shall attempt to inspect all products (including the Consignment
       Products) within thirty (30) days, but not to exceed sixty (60) days,
       and notify Seller if any of the products fail to meet Buyer's
       specifications and quality standards for such products.

       2.5    ACCEPTANCE. Buyer may reject any shipments or deliveries of
       products which are short, nonconforming, defective or deficient and
       may request correction and/or replacement. Rejected shipments or
       deliveries of products shall at the request of Seller be set aside for
       Seller inspection, or at the request of Seller shipped freight prepaid
       to Seller. All products returned to Seller shall be accompanied by a
       copy of their original shipping documents and the name and phone
       number of the person at Buyer to be contacted regarding such return.
       Promptly upon receipt of notice of such shortage, non-conformance,
       defect or deficiency, Seller shall immediately notify Buyer:

              (a)    as to how Seller will replace the defective or deficient
              products upon return to Seller, ship replacement products, or
              otherwise promptly correct such shortage, non-conformance, or
              deficiency; and/or

              (b)    whether such shipment of products shall be set aside and
              held by Buyer or returned to Seller and the address to which
              such affected products should be returned, or whether such
              products should otherwise be disposed of.

       If Buyer elects to cancel or rescind such purchase, Seller shall
       promptly refund and reimburse Buyer the price paid by Buyer for such
       purchase, including freight and shipping costs incurred by Buyer in
       such purchase, prior to the return of the same to Seller. If Buyer
       elects to have the product replaced, Seller shall bear or shall
       reimburse Buyer for all costs and expenses incurred by Buyer to
       repackage, ship and return affected products to Seller and shall issue
       a credit memo for the amount of the purchase price of the returned
       products.

       2.6    FORCE MAJEURE. In the event of fire, explosion, strikes, war,
       act of any governmental agency, material or labor shortage,
       transportation contingency, act of God or any other causes beyond the
       control of Seller ("Force Majeure"), Seller shall not be liable for
       any delay in shipment or non-delivery of Batteries or Components
       covered by this Agreement arising from Force Majeure, and Buyer shall
       be bound to accept the delayed shipment or delivery made within a
       reasonable time. In the event of Force Majeure, Buyer shall be excused
       for the failure to take and pay for Batteries or Components ordered
       under this

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       Agreement, until such Force Majeure condition is removed. In the event
       such conditions cannot be corrected by the party affected within six
       (6) months of the occurrence of a Force Majeure event, then the other
       party shall have the option to terminate this Agreement upon one (1)
       month prior notice.

3.     WARRANTY. LIMITATION OF LIABILITY.

       3.1    Battery Warranty. Seller warrants that the Batteries delivered
       to Buyer will be free from defects in materials and workmanship at the
       time of sale. Seller's sole obligation under this warranty is the
       replacement of any Battery which is defective without charge. SELLER
       MAKES NO OTHER WARRANTY WITH RESPECT TO THE BATTERIES, WRITTEN OR
       ORAL, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF
       MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. BUYER EXPRESSLY
       ASSUMES ALL LIABILITY ARISING FROM OR IN CONNECTION WITH THE USE OF
       THE BATTERIES PURCHASED HEREUNDER, WHETHER BASED ON CONTRACT,
       WARRANTY, TORT OR OTHERWISE AND AGREES TO HOLD SELLER HARMLESS FROM
       SUCH CLAIMS.

       3.2    COMPONENT WARRANTY.

              (a)    Seller warrants that each of the Components delivered to
       Buyer will meet all applicable specifications and will be free from
       defects in materials and workmanship at the time of sale. Seller's
       sole obligation under this Warranty is the repair or replacement, at
       its election, of any Component which is found, upon Seller's
       inspection not to meet such warranty. Such product will be repaired or
       replaced without charge provided that, (1) prior written approval is
       required before returning any product, and (2) any product return sent
       to Seller without prior written approval will be returned to the
       sender, freight collect.

              (b)    This Warranty does not apply to depletion, wear and/or any
       failure occurring as a result of any of the following: normal use,
       abuse, misuse, any alteration or modification made to any Component
       without the express written consent of Seller, attempted disassembly,
       neglect, improper installation, of any other use inconsistent with any
       applicable law, rule, regulation or governmental directive, or any use
       inconsistent with the specifications or warning or recommended
       operating practices specific to the Component.

              (c)    THE WARRANTY SET FORTH IN THIS SECTION 3.2 IS IN LIEU OF
       ALL OTHER WARRANTIES (EXCEPT OF TITLE), EXPRESSED, IMPLIED OR
       STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR
       A PARTICULAR PURPOSE.

       3.3    LIMITATION OF LIABILITY. THE REMEDIES OF BUYER IN THE WARRANTY
       SET FORTH IN SECTION 3.1 WITH RESPECT TO BATTERIES AND IN THE WARRANTY
       SET FORTH IN SECTION 3.2 WITH RESPECT TO COMPONENTS ARE EXCLUSIVE, AND
       THE TOTAL LIABILITY OF SELLER WITH RESPECT TO ANY BATTERY OR ANY
       COMPONENT SOLD TO BUYER UNDER THIS

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       AGREEMENT, OR FROM DELIVERY, INSTALLATION OR REPAIR COVERED BY OR
       FURNISHED UNDER ANY SALE TO BUYER, WHETHER BASED ON CONTRACT,
       WARRANTY, NEGLIGENCE, INDEMNITY, STRICT LIABILITY, OR OTHERWISE, SHALL
       NOT EXCEED THE PURCHASE PRICE OF THE PRODUCT UPON WHICH SUCH LIABILITY
       IS PLACED. SELLER SHALL IN NO EVENT BE LIABLE TO BUYER OR TO ANY
       SUCCESSOR IN INTEREST OR ANY BENEFICIARY OR ASSIGNEE THEREOF RELATING
       TO THE SALE OF ANY BATTERY OR ANY COMPONENT FOR ANY CONSEQUENTIAL,
       INCIDENTAL, INDIRECT, SPECIAL OR PUNITIVE DAMAGES ARISING OUT OF SUCH
       SALE OR ANY DEFECTS IN, OR FAILURE OF, OR MALFUNCTION OF THE PRODUCT
       UNDER SUCH SALE, INCLUDING BUT NOT LIMITED TO, DAMAGES BASED UPON LOSS
       OF USE, LOST PROFITS OR REVENUE, INTEREST, LOST GOODWILL, INCREASED
       EXPENSES AND/OR CLAIMS OF CUSTOMERS OF BUYER, WHETHER OR NOT SUCH LOSS
       OR DAMAGE IS BASED ON CONTRACT, WARRANTY, NEGLIGENCE, INDEMNITY,
       STRICT LIABILITY OR OTHERWISE.

4.     COMPLIANCE WITH LAW.

       4.1    VIOLATION OF LAW. Buyer and Seller shall each strictly observe
       and comply with all federal and local laws and regulations which may
       govern the manufacture, sale, handling and disposal of any products
       herein specified. Violation of any such law or regulation may be
       viewed as a breach of the Agreement, and may be cause for termination
       or suspension of sales thereunder. Nothing herein shall be construed
       to allow either party the right to cancel this Agreement for any
       inadvertent error or minor violation of any law or regulation by the
       other party.

       4.2    GOOD MANUFACTURING PRACTICES. Products shall be manufactured
       and tested by Seller in accordance with all applicable U.S. laws and
       United States Food and Drug Administration (FDA) regulations,
       including but not limited to the FDA's current Good Manufacturing
       Practice regulations in effect at the time of such manufacture or
       testing. Seller shall notify Buyer of any FDA inspection of its
       production facilities used to manufacture any products and shall
       furnish Buyer with copies of any Form 483 report and Establishment.
       Inspection Reports to the extent that they apply to any product.

       4.3    FDA COMPLIANCE. During the term of this Agreement Buyer shall
       have responsibility for obtaining at its expense, in its name and at
       its discretion any necessary device regulatory approvals from the U.S.
       Food and Drug Administration (i.e. PMA's or 501 (k)'s as the case may
       be), and applicable regulatory agencies of such other countries in
       which product incorporating the Batteries or Components will be sold.
       Seller shall supply Buyer will all documents, instruments,
       information, reports and advice and general assistance as is necessary
       to complete, and as is reasonable requested by Buyer in connection
       with such regulatory approval efforts.

       4.4    SELLER COMPLIANCE. Upon not less than three (3) business days'
       notice,  Seller will provide such Buyer personnel as Buyer reasonably
       deems appropriate with reasonable

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       access from time to time to Seller's facilities and records for the
       purpose of confirming Seller's compliance with requirement as noted in
       this Section 4, and for the further purpose of confirming, if
       reasonably deemed necessary by Buyer, Seller's compliance with
       applicable specification for Batteries and Components.

5.     CONSIGNMENT. If Buyer requests Seller to consign any products to
       Buyer, the following terms and conditions shall apply:

       (a)    Consignment Products shall be delivered to Buyer locations at
       which Buyer will use the products, based upon information supplied by
       Buyer to Seller. However, Seller shall have the option not to make any
       such shipment unless Buyer shall have paid all sums owing with respect
       to all previous quantities of products purchased by Buyer.

       (b)    Seller shall use Federal Express or UPS or other recognized
       courier services to ship Consignment Products, as directed by Buyer,
       and shall charge Buyer's account with such courier service.
       Consignment Products shall be received by Buyer and stored by Buyer as
       Seller's property. All charges and expenses for receiving, handling,
       and storing such material shall be paid by Buyer. The Consignment
       Products in all cases shall be carefully segregated from other goods
       either of the same or different character belonging either to Buyer or
       to any third person, shall be marked as Seller's property, and shall
       be stored in an area in Buyer's facilities separate from and not
       mingled with other goods of Buyer or of any third person.

       (c)    Buyer shall inspect all Products (including the Consignment
       Products) and notify Seller within one month if any of the Products
       fail to meet Buyer's specifications and quality standards for such
       Products.

       (d)    Buyer shall comply with all laws which might in any way affect
       Seller's ownership of the Consignment Products from time to time
       stored in Buyer's facility(s) and shall indemnify and hold harmless
       Seller from and against all loss, damage, and expense arising out of
       any levy, attachment, lien or process involving the Consignment
       Products. Buyer shall be responsible for, and shall indemnify Seller
       against, any loss or shrinkage in the quantity of the Consignment
       Products while so stored, whether such loss or shrinkage is caused by
       theft or pilferage or by fire, flood, tornado or other similar
       catastrophe. Buyer shall purchase and maintain insurance covering all
       such losses and naming Seller as additional insured.

       (e)    Buyer shall keep at all times a complete list or inventory of
       the Consignment Products so stored, copies of which list shall be
       furnished to Seller upon request. Upon not less than three (3)
       business days prior notice, Seller's representatives shall have
       reasonable access to the Consignment Products at Buyer's facilities
       for the purpose of verifying such lists or inspecting the condition of
       Consignment Products.

       (f)    All public charges, whether in the nature of sales,
       occupational or other taxes or assessment or license fee, which shall
       be levied or assessed against the Consignment Products

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       at Buyer's facilities, or against Buyer or Seller by reason hereof, by
       any federal, state or municipal authority, shall be paid by Buyer.

       (g)    All Consignment Products shall remain the property of Seller
       and shall be held by Buyer as such until withdrawn from the consigned
       stock and purchased by Buyer pursuant to this Agreement. Buyer will
       withdraw products from the inventory of Consignment Products on a
       first-in-first-out basis for each product model.

       (h)    From time to time, as Buyer shall purchase Consignment Products
       from Seller, it may withdraw the Consignment Products so purchased
       from Seller's consigned stock of the products at Buyer's facility(s).
       Upon each such withdrawal for purchase by Buyer pursuant to this
       Agreement, title to the Consignment Products so withdrawn shall pass
       to Buyer.

6.     OBLIGATIONS UPON TERMINATION.

       (a)    Upon expiration of this Agreement for any reason whatsoever or
       if Buyer changes the model mix of, or discontinues, any Batteries or
       Components which it requires, Buyer shall purchase, or be deemed to
       have purchased from Seller, all of the remaining Consignment Products
       located at a Company facility, which met Buyer's specifications and
       quality standards at the time of receipt, as of the date of expiration
       or termination, at the prices in effect at such time. Payment shall be
       made in accordance with Section 2.2.

       (b)    Upon expiration or termination of this Agreement for any reason
       whatsoever or if Buyer changes the model mix of, or discontinues, any
       Batteries or Components which it requires, Buyer agrees to purchase,
       within six (6) months, all Batteries and Components that Seller then
       holds either (i) as finished inventory or (ii) work-in-progress
       ("WIP") up to the maximum amount of inventory that Seller is required
       to maintain under Section 4 of the Agreement (provided, however that,
       for any WIP, Buyer shall only be required to reimburse Seller for the
       cost of any such material that Seller cannot reasonably use for other
       products).

7.     NEW TECHNOLOGY.

       7.1    During the Initial Term of this Agreement and any extension
       thereof, Seller agrees, subject to Section 7.2 and 7.3 below, to
       offer, develop and manufacture for, and to sell to, Buyer new
       Batteries and Components for Buyer's products incorporating any
       technology or intellectual property (collectively, "Technology") for
       such Batteries and Components which Seller now possesses or may
       hereafter develop or acquire, provided that Seller is not otherwise
       restricted by law or contract (due to intellectual property rights
       owned by third parties or designs the development of which were paid
       for in whole or in part by a customer) from selling products
       incorporating such Technology to Buyer ("New Products"). All New
       Products shall be subject to and covered by this Agreement (subject to
       Sections 7.2 and 7.3).

       7.2    With respect to any new Battery for a defibrillator product of
       Buyer (each, a "New Defibrillator Battery"), the parties agree that
       the pricing for any such New Defibrillator Battery shall be set by
       Seller as follows:

                                      12

<PAGE>

              7.2.1  for non-SVO technology, Seller's pricing to Buyer for such
       a New Defibrillator Battery will not exceed ****, which price will be
       reduced by **** ******* ************ in which Seller shall have
       delivered such a New Defibrillator Battery.

              7.2.2  for SVO technology, Seller's pricing to Buyer for such a
       New Defibrillator Battery will not exceed ****, which price will be
       reduced by ********* *********** in which Seller shall have delivered
       such a New Defibrillator Battery.

       7.3    For any new Product developed under this Section 7 for Buyer
       other than a New Defibrillator Battery, the parties agree to negotiate
       pricing for such New Product in good faith.

8.     CONTINUITY OF SUPPLY. Seller acknowledges that Buyer has certain
       concerns regarding the continuity of its supply source for Batteries
       and Components in the event that a change of control occurs with
       respect to Seller. In that regard, Seller agrees as follows:

       8.1    This agreement is binding on Seller's successor and assigns.

       8.2    In the event that Seller sells all or substantially all of its
       assets to any third party, Seller shall require any such purchaser to
       assume and agree to perform all of Seller's obligations under and for
       the term of this Agreement.

       8.3    In addition, Seller agrees that, in connection with any sale of
       a controlling interest of Seller to any direct competitor of Buyer
       ("Acquiror"). Seller will notify any such potential Acquiror of its
       obligations under this Agreement.

       8.4    "Controlling interest" means:

              8.4.1  The acquisition by a competitor of Buyer of twenty-five
              percent (25%) or more of any class of securities of Seller;

              8.4.2  The acquisition by a competitor of Buyer of a right
              (whether by means of warrants, options, or otherwise) to acquire
              twenty-five percent (25%) or more of any class of securities of
              Seller;

              8.4.3  The granting of a right to representation of the Seller's
              board of directors to a competitor of Buyer (or a director,
              officer, employee, or agent of a competitor of Buyer) or the
              election to Seller's board of directors by a competitor of
              Buyer (or director, officer, employee or agent of a competitor
              of Buyer); or

              8.4.4  The establishment by the Seller of a joint venture in
              which a competitor of Buyer owns ten percent (10%) or more of
              any class of securities or has a right to ten percent (10%) or
              more of the profits of the venture.

                                      13

<PAGE>

9.   OPTION TO EXTEND THE AGREEMENT. Buyer shall have the option to extend the
     term of this Agreement beyond the Initial Term for a period of two (2)
     years ("Option Extension Period") by delivering written notice to Seller
     not less than sixty (60) days prior to the extension date. The Option
     Extension Period, however, is subject to all of the following conditions:

     9.1  The prices for Batteries (see Attachment 2 to Exhibit B) and for
          Components (see Attachment 1 to Exhibit B) during the Option Extension
          Period shall be, at the option of * either: (a) the * for each such
          product * , or (b) prices for Batteries and Components * for all
          Batteries (in the aggregate) and for all Components (in the aggregate)
          sold to Buyer in each year of the Option Extension Period which is
          equal to * obtained by Seller for all Batteries (in the aggregate) and
          all Components ( in the aggregate), respectively, * ; and

     9.2  If * elects pricing under Section 9.1(b) above, Seller will notify
          Buyer as soon as is reasonably possible, as to the pricing
          applicable for the Option Extension Period. * as to the amount of
          the * that * with respect to Batteries (in the aggregate) and with
          respect to Components (in the aggregate). Seller will cooperate with
          the * so that the * within thirty (30) days of its appointment by
          Buyer. If the * of the price quoted by Seller, then Buyer will be
          solely responsible for the * of the * . If the price quoted by Seller
          is more than * , then Seller will be solely responsible for the * of
          the * .

     9.3  "    *    " under Section 9.1(b) above shall: (a)   be calculated
          according to Generally Accepted Accounting Principles (GAAP) and
          in a manner consistent with Seller's previous practices; and (b) *
          or *.

     9.4  Seller, Buyer, and   *   will cooperate in good faith to establish the
          relevant * of * to be included in the  * of *   . If Seller and Buyer
          have not agreed to the composition of the relevant  *  within thirty
          (30) days, then the relevant   *   will be finally   *   .

     9.5  Seller and Buyer will cooperate and negotiate in good faith in
          connection with allocating the aggregate price increases permitted by
          Buyer under Section 9.1(b) among individual Batteries and Components
          to be purchased by Buyer during the Option Extension Period.

                                      14

<PAGE>

                                      EXHIBIT B

                            PRICING AND INVENTORY LEVEL

The firm, fixed prices for Components are set forth on Attachment 1 to this
Exhibit B and for Batteries are set forth on Attachment 2.

At least 30 days prior to each * , the parties will review the product
quantity forecasts and * for batteries and component parts that * for
batteries (aggregate) and for component parts (aggregate).

                                      15

<PAGE>

                            EXHIBIT B - ATTACHMENT 1
                     WILSON GREATBATCH & GREATBATCH HITTMAN
                                COMPONENT PARTS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                      UNIT PRICE
                                                      6/1/00 THRU   % INVENTORY
    P/N            DESCRIPTION           12 MO EAU      12/30/01    REQUIREMENT
--------------------------------------------------------------------------------
<S>           <C>                        <C>          <C>           <C>
6041534-099   ***********                 *******     $   *******        25%
--------------------------------------------------------------------------------
5015435-001   *****************           *******     $   *******        25%
--------------------------------------------------------------------------------
6041701-001   *******************         *******     $   *******        25%
--------------------------------------------------------------------------------
6041702-001   ****************            *******     $   *******        25%
--------------------------------------------------------------------------------
6041700-002   ******************          *******     $   *******        25%
--------------------------------------------------------------------------------
6041641-003   ********************        *******     $   *******        25%
--------------------------------------------------------------------------------
6041641-004   ***********************     *******     $   *******        25%
--------------------------------------------------------------------------------
7001630-001   *********************       *******     $   *******        25%
--------------------------------------------------------------------------------
7001441-012   ******************          *******     $   *******        25%
--------------------------------------------------------------------------------
6041696-002   ********                    *******     $   *******        25%
--------------------------------------------------------------------------------
6041504-099   **********                  *******     $   *******        25%
--------------------------------------------------------------------------------
6041697-001   *****                       *******     $   *******        25%
--------------------------------------------------------------------------------
6041556-001   **************              *******     $   *******        25%
--------------------------------------------------------------------------------
6041266-002   ************                *******     $   *******        25%
--------------------------------------------------------------------------------
3000909       *******************         *******     $   *******        25%
--------------------------------------------------------------------------------
3000881       *********************       *******     $   *******        25%
--------------------------------------------------------------------------------
3000885       ********                    *******     $   *******        25%
--------------------------------------------------------------------------------
3000899       ****************            *******     $   *******        25%
--------------------------------------------------------------------------------
3000622       **************              *******     $   *******        25%
--------------------------------------------------------------------------------
3000884       ************                *******     $   *******        25%
--------------------------------------------------------------------------------
3000621       **************              *******     $   *******        25%
--------------------------------------------------------------------------------
8001512       *****************           *******     $   *******        25%
--------------------------------------------------------------------------------
3001242       *********                   *******     $   *******        25%
--------------------------------------------------------------------------------
3001193       **********                  *******     $   *******        25%
--------------------------------------------------------------------------------
8000831       ************                *******     $   *******        25%
--------------------------------------------------------------------------------
8008873       ****************            *******     $   *******        25%
--------------------------------------------------------------------------------
8008556       *********************       *******     $   *******        25%
--------------------------------------------------------------------------------
</TABLE>

                                      1

<PAGE>

                               EXHIBIT B - ATTACHMENT 2
                       WILSON GREATBATCH & GREATBATCH HITTMAN
                                     BATTERIES
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
PART NUMBER        DESCRIPTION             12 MO EAU        UNIT PRICE 6/1/00 THRU          % INVENTORY
                                                                 12/30/01                   REQUIREMENT
--------------------------------------------------------------------------------------------------------------------
                                          PACER BATTERIES
--------------------------------------------------------------------------------------------------------------------
<C>               <S>                     <C>              <C>                           <C>
1120009-001         ****BATTERY              ******           $           ******                  0
--------------------------------------------------------------------------------------------------------------------
1120036-001         ****BATTERY              ******           $           ******                  0
--------------------------------------------------------------------------------------------------------------------
1120043-001         ****BATTERY              ******           $           ******                  0
--------------------------------------------------------------------------------------------------------------------
1120065-001         ****BATTERY              ******           $           ******                  0
--------------------------------------------------------------------------------------------------------------------
1120052-001         ****BATTERY              ******           $           ******                  25
--------------------------------------------------------------------------------------------------------------------
1120052-001         *****BATTERY             ******           $           ******                  25
                    (price effective**)
--------------------------------------------------------------------------------------------------------------------
TBD                 ******BATTERY            ******           $           ******                  0
                    (price effective**)
--------------------------------------------------------------------------------------------------------------------
1120055-001         **********BATTERY        ******           $           ******              10% (4 WKS. CONSIGNMENT
                                                                                                  STOCK AT VEDDESTA)
---------------------------------------------------------------------------------------------------------------------
1120056-001         **********BATTERY        ******           $           ******              10% (4 WKS. CONSIGNMENT
                                                                                                STOCK AT VEDDESTA)
---------------------------------------------------------------------------------------------------------------------
                                         ICD BATTERIES
---------------------------------------------------------------------------------------------------------------------
3001015             ********BATTERY           ******          $            ******                 25
---------------------------------------------------------------------------------------------------------------------
8001556             ********BATTERY           ******          $            ******                  0
---------------------------------------------------------------------------------------------------------------------
8006260             **************            ******          $            ******                 25
---------------------------------------------------------------------------------------------------------------------
1120503-001         **************            ******          $            ******                  0
---------------------------------------------------------------------------------------------------------------------
TBD                 ************              ******          $            ******                  0
----------------------------------------------------------------------------------------------------------------------
10003678            *********                 ******          $            ******                  0
----------------------------------------------------------------------------------------------------------------------
                                         CFX BATTERIES
----------------------------------------------------------------------------------------------------------------------
TBD                 CFX BATTERY                               $            ******                 0
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
</TABLE>

                                           1

<PAGE>

                            EXHIBIT B - ATTACHMENT 1
                     WILSON GREATBATCH & GREATBATCH HITTMAN
                                COMPONENT PARTS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
                                                      UNIT PRICE
                                                      6/1/00 THRU    % INVENTORY
    P/N            DESCRIPTION           12 MO EAU     12/30/01      REQUIREMENT
--------------------------------------------------------------------------------
<S>           <C>                        <C>          <C>            <C>
8008555       ********************        *******     $   *******        25%
--------------------------------------------------------------------------------
8008554       **********************      *******     $   *******        25%
--------------------------------------------------------------------------------
3001236       *********                   *******     $   *******        25%
--------------------------------------------------------------------------------
7001630-003   *******************         *******     $   *******        25%
--------------------------------------------------------------------------------
1080357-002   **********                  *******     $   *******         0%
--------------------------------------------------------------------------------
8001713       *********                   *******     $   *******         0%
--------------------------------------------------------------------------------
1080376-001   ******************          *******     $   *******         0%
--------------------------------------------------------------------------------
1080438-001   **********************      *******     $   *******         8%
--------------------------------------------------------------------------------
TBD           ********************        *******     $   *******        25%
--------------------------------------------------------------------------------
63-27-659     *****************           *******     $   *******        10%
--------------------------------------------------------------------------------
63-27-634     *******************         *******     $   *******        10%
--------------------------------------------------------------------------------
6041783-097   ****************            *******     $   *******        25%
--------------------------------------------------------------------------------
6041706-002   **************              *******     $   *******        25%
--------------------------------------------------------------------------------
64-16-759     **********                  *******     $   *******         0
--------------------------------------------------------------------------------
62-02-506     ************                *******     $   *******         0
--------------------------------------------------------------------------------
60-83-997     *********************       *******     $   *******        10%
--------------------------------------------------------------------------------
64-16-825     *********************       *******     $   *******        10%
--------------------------------------------------------------------------------
61-12-523     ************                *******     $   *******        10%
--------------------------------------------------------------------------------
</TABLE>

Note:  Revision level determined by individual Purchase Orders

       The "Inventory Requirement" can be processed to completion and shipped
       within 5 calendar days.

       Seller inventories will be replenished within a period of 40 calendar
       days.

       Seller's obligation to maintain inventory is limited to the level
       reflected in "Inventory Requirement" column.

                                          -------------------------------------

                                      2

<PAGE>

Note: Revision level determined by individual Purchase Orders
      The "Inventory Requirement" can be processed to completion and shipped
      with 5 calendar days.
      Seller inventories will be replenished within a period of 40 calendar
      days.
      Seller's obligation to maintain inventory is limited to the level
      reflected in the "Inventory Requirement" column.
      'CFX pricing - Stainless steel case:

                        Quantity                   Unit Price

                        *********                    ********
                        *********                    ********
                        *********                    ********
                        *********                    ********
                        *********                    ********

      If annual requirements for a particular "Pacer Batter" falls below ****
      units the firm fixed price for that battery will become ********
      ****** Battery is a reduced size version of the ******
      Battery.

                                                ______________________

                                      2Exhibit 4.2

                              Incentive Stock Plan

<PAGE>

                          VALLEY FINANCIAL CORPORATION
                              INCENTIVE STOCK PLAN
         1.       PURPOSE:
                  -------

         The  purpose  of this  Plan  is to  promote  the  interests  of  Valley
Financial  Corporation   ("Corporation")  and  its  stockholders  by  aiding  in
attracting,  retaining  and  motivating  officers and other key employees of the
Corporation and its subsidiary, Valley Bank, N.A. ("Bank"). The Plan is designed
to accomplish these objectives by providing such officers and key employees with
an opportunity to acquire a proprietary  interest in the Corporation by means of
options, stock appreciation rights and grants of stock, and thereby benefit from
appreciation  in value of the shares of the  Corporation's  Common  Stock.  This
opportunity  should  provide  additional  incentives  for such  officers and key
employees  to continue to use their best efforts and  superior  performances  to
promote the best interests of the Corporation, for their own benefit and for the
benefit of the stockholders.

         2.       DEFINITIONS:
                  -----------

         The following  words and phrases as used herein shall have the meanings
set forth below:

         2.1 "Board" shall mean the Board of Directors of the Corporation.

         2.2 "Change in Control" shall mean a change in control  occurring after
the opening  Date of a nature  that would be  required to be reported  (assuming
such event has not been  "previously  reported") in response to Item l(a) of the
Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended ("Exchange Act");
provided  that,  notwithstanding  the foregoing and without  limitation,  such a
change  in  control  shall be  deemed to have  occurred  at such time  after the
Opening Date as (i) any Person is or becomes the "beneficial  owner" (as defined
in Rule 13d-3 or Rule 13d-5  under the  Exchange  Act as in effect on January 1,
1994),  directly or indirectly,  of 20% or more of the combined  voting power of
the  Corporation's  voting  securities;  (ii) the incumbent Board ceases for any
reason to  constitute  at least the  majority  of the Board,  provided  that any
person  becoming a director  subsequent  to the date hereof whose  election,  or
nomination  for election by the  Corporation's  shareholders,  was approved by a
vote of at least 75% of the directors  comprising the incumbent Board (either by
a specific  vote or by approval of the proxy  statement  of the  Corporation  in
which such person is named as a nominee for director,  without objection to such
nomination) shall be, for purposes of this clause (ii) considered as though such
person were a member of the incumbent Board;  (iii) all or substantially  all of
the assets of the Corporation or the assets of the Bank are sold, transferred or
conveyed by any means,  including but not limited to direct  purchase or merger,
if the  transferee is not  controlled by the  Corporation,  control  meaning the
ownership of more than 50% of the combined  voting power of such entity's voting
securities;  or (iv) the  Corporation  is merged or  consolidated  with  another
corporation or entity and as a result of such merger or consolidation  less than
75%  of  the  outstanding  voting  securities  of  the  surviving  or  resulting
corporation or entity shall be owned in the aggregate by the former shareholders
of the Corporation.  Notwithstanding  anything in the foregoing to the contrary,
no change in  control  shall be deemed to have  occurred  for  purposes  of this
Agreement by virtue of any transaction  after the Opening Date (i) which results
in the Optionee or Grantee or a group of Persons which  includes the Optionee or
Grantee,  acquiring,  directly or indirectly, 20% or more of the combined voting
power of the  Corporation's  voting  securities;  (ii)  arranged  or caused by a
federal  bank  regulatory  agency  possessing  appropriate  jurisdiction  on the
grounds of failing financial  condition of the Corporation or Bank which results
in the  acquisition,  directly  or  indirectly,  of 20% or more of the  combined
voting power of the Corporation's voting securities by any-Person or (iii) which
results  in  the   Corporation,   any  subsidiary  of  the  Corporation  or  any
profit-sharing  plan,  employee stock ownership plan or employee benefit plan of
the Corporation or any of its  subsidiaries (or any trustee of or fiduciary with
respect  to any such  plan  acting  in such  capacity)  acquiring,  directly  or
indirectly, 20% or more of the combined voting power of the Corporation's voting
securities.

         2.3 "Code"  shall mean the Internal  Revenue  Code of 1986,  as amended
from time to time.

         2.4 "Committee"  shall mean the Compensation  Committee of the Board of
Directors,  or such other  committee  of the Board as may be  designated  by the
Board  from  time to  time,  for  the  purpose  of  administering  this  Plan as
contemplated  by Section 3 of this  document.  The  composition of the Committee
shall  meet  the  disinterested   administration   requirements  of  Rule  16b-3
promulgated  pursuant to the Exchange  Act.  Should any member of the  Committee
cease to be a disinterested  person under Rule  16b-3(c)(2)(i) or any subsequent
rule, he shall immediately be deemed not to be a member of the Committee for all
purposes of this Plan.

         2.5 "Common Stock" shall mean the common stock of the Corporation.

         2.6  "Grantee"  shall  mean a person to whom  Common  Stock is  granted
pursuant to Section 6.4.

         2.7 "ISO" shall mean any stock option granted  pursuant to this Plan as
an "incentive stock option" within the meaning of Section 422 of the Code.

         2.8 "NQO"  shall mean any stock  option  granted  pursuant to this Plan
that is not an Incentive  Stock Option and is not qualified under Section 422 of
the Code.

         2.9 "Opening Date" shall mean the day upon which the Corporation breaks
escrow,  which  shall be on or  after  the date  the  Corporation  has  accepted
subscriptions and payment in full for a minimum of 800,000 shares of Corporation
Common Stock pursuant to its initial public offering of such stock.

         2.10 "Option" shall mean any stock option granted pursuant to this Plan
whether an ISO or an NQO.

         2.11 "Optionee" shall mean any person who is the holder of an Option or
Right granted under this Plan.

         2.12 "Person" shall mean person within the meaning of Sections  3(a)(9)
and 13(d)(3) of the Exchange Act.

         2.13 "Plan"  shall mean this  Valley  Financial  Corporation  Incentive
Stock Plan.

         2.14 "Right" shall mean a stock  appreciation right granted pursuant to
this Plan in accordance with the provisions of Section 10 of this document.

         2.15 "Fair Market  Value" shall mean the closing  sales price of Common
Stock on a  nationally  recognized  stock  exchange or, if not traded on such an
exchange,  the NASDAQ National Market System,  on the date involved if that is a
trading day, or if not, the first  trading day prior to such day. If said Common
Stock is not quoted on the NASDAQ National Market System, then Fair Market Value
shall mean the average  between the bid and  asked-price on the date involved if
that is a trading  day, or if not,  the first  trading day prior to such day. If
there is no such average,  the Committee  shall  determine  Fair Market Value in
good faith. In determining  such Fair Market Value,  the Committee shall utilize
all information that it deems pertinent,  including,  but not limited to, actual
sale or purchase  data,  and may engage the  services of an  accounting  firm to
assist in the  determination.  The Committee shall further determine Fair Market
Value using guidelines  promulgated  pursuant to the pertinent provisions of the
Code.

         3.       ADMINISTRATION:
                  --------------

         3.1 The Plan shall be  administered  by the  Committee,  which may make
such  determinations  and take such  actions in  connection  with the Plan as it
deems necessary. Such determinations and actions shall be binding and conclusive
for all purposes and upon all persons.

         3.2 The Committee may correct any defects, omissions or ambiguities, or
reconcile any  inconsistencies,  in the Plan, or in any document issued pursuant
to the Plan, in the manner and to the extent it shall deem reasonably desirable.
The  Committee  shall have full and sole  authority to make all  administrative,
interpretative  and other  determinations  with respect to the Plan and all such
determinations shall be final and conclusive.

         3.3 As provided in Section 6.1 hereof,  the  Committee  shall have full
and sole  authority  to make all grants to be made  hereunder.  With  respect to
Options that qualify as ISOs,  the Committee  shall-administer  the Plan in such
manner so as to preserve their status as ISOs.

         3.4 Any other  provision of the Plan to the  contrary  notwithstanding,
the Committee is authorized  to take such action as it, in its  discretion,  may
deem  necessary or advisable and fair and equitable  with regard to Common Stock
granted  hereunder or subject to grant hereunder and with regard to Optionees in
the event of: a Change in  Control of the  Corporation;  a tender,  exchange  or
similar offer for all or any part of the Common Stock made by an entity,  person
or group (other than the  Corporation,  any subsidiary of the Corporation or any
savings,  pension or other  benefit  plan for the  benefit of  employees  of the
Corporation  or  its  subsidiaries);   a  merger  of  the  Corporation  into,  a
consolidation  of the Corporation  with, or an acquisition of the Corporation by
another  corporation;  or a sale or transfer of all or substantially  all of the
Corporation's  assets. Such action, in the Committee's  discretion,  may include
(but shall not be deemed  limited  to):  establishing,  amending  or waiving the
forms,  terms,  conditions  or  duration  of Options or Rights or stock  granted
hereunder or subject to grant  hereunder,  so as to provide for earlier,  later,
extended  or  additional  terms for  exercise of the whole,  or any  installment
thereof  (provided that,  except as permitted by the provisions of this Section,
Sections 6.4, 9.1 and 10.2.2  hereof,  in no event will a Right or any Option be
exercisable  within the first six months of their  respective terms nor will any
Common Stock granted be transferable  within the first six months of the grant);
alternate forms of payment; or other  modifications.  The Committee may take any
such actions  pursuant to this Section 3.4 by adopting  rules or  regulations of
general  applicability to all Optionees or Grantees, or to certain categories of
Optionees  or Grantees;  by amending or waiving  terms and  conditions  in stock
option agreements;  or by taking action with respect to individual  Optionees or
Grantees.  The  Committee  may take any such actions  before or after the public
announcement  of any such  Change in  Control,  tender  offer,  exchange  offer,
merger, consolidation, acquisition or sale or transfer of assets.

         4.       SHARES AVAILABLE:
                  ----------------

         4.1 Subject to the  provisions  of Section 4.2  hereof,  the  aggregate
number of shares of Common  Stock to be subject to options and Rights and grants
under  this Plan shall not  exceed  99,000  shares.  Such  shares  shall be made
available  from the  authorized  but  unissued  shares  of  Common  Stock of the
Corporation.

         4.2  Shares  subject  to an Option  to the  extent  (i) such  option is
surrendered  in connection  with the exercise of any related Rights or (ii) such
shares are surrendered or withheld to pay the exercise price of the Option,  are
no longer  available  for issuance  hereunder.  Other shares  subject to Options
granted under this Plan, which Options have been canceled or have expired or are
unexercised  and no longer  outstanding,  shall thereupon  become  available for
issuance  pursuant to other  Options  granted  under the Plan.  This Section 4.2
shall in all cases be interpreted  in a manner  consistent  with Rule 16b-3,  as
amended from time to time.

         4.3  The  Committee  may,  at  any  time,  make  or  provide  for  such
adjustments to the Plan, to the number and class of shares available  thereunder
or to any outstanding Options and related Rights as it shall deem appropriate to
prevent dilution or enlargement of the rights of Optionees, or to the conditions
or restrictions  affecting  Common Stock which has been granted  hereunder or is
subject to grant hereunder, including adjustments in the event of changes in the
outstanding   Common  Stock  by  reason  of  stock   dividends,   stock  splits,
distributions to stockholders  (other than cash  dividends),  recapitalizations,
mergers,  consolidations,  combinations  or  exchanges  of shares,  separations,
reorganizations, liquidations and the like. Such adjustments may include, in the
discretion of the  Committee,  adjustments  to the aggregate  number and kind of
shares  which may be issued  pursuant  to  Options or Rights  granted,  or to be
granted,  under this Plan,  and the number,  kind and price of shares subject to
each Option or Right then outstanding; provided that no adjustment shall be made
to any ISO which would cause that Option not to qualify as an ISO.

         5.       ELIGIBILITY:
                  -----------

         5.1 officers and other full-time, salaried employees of the Corporation
and its subsidiaries  shall be eligible to receive Options and Rights and grants
of Common Stock under the Plan. No option,  however,  may be granted to a person
who, immediately after an Option is granted,  owns directly or indirectly shares
of stock  possessing more than 5% of the total combined voting power or value of
all classes of stock of the Corporation at the time outstanding. For purposes of
this paragraph, an employee shall be deemed to own directly or indirectly shares
of stock that he may  purchase  under  outstanding  options  and shares of stock
attributed to him under Section 424(d) of the Code, or any comparable  provision
hereafter enacted.

         5.2 A director of the Corporation or any of its subsidiaries who is not
also regular, full-time employee of the Corporation or its subsidiaries will not
be eligible for options or Rights or grants of Common Stock under the Plan.

         5.3 An employee who has been granted an Option or Right or Common Stock
otherwise under the Plan may be granted  additional  Options or Rights or Common
Stock, if the Committee shall so determine.

         6.       GRANTS:
                  ------

         6.1 Subject to the express provisions of this Plan, the Committee shall
have sole authority to determine the individuals to whom Options or Rights shall
be granted,  the time or times at which Options or Rights shall be granted,  the
number of shares of Common Stock to be subject to each option or Right  granted,
whether  and to what  extent  Rights  shall be  granted in  connection  with any
Option,  the  period of each  Option or Right and the time or times at or during
which an  Option  or Right may be  exercised  in whole or in part,  and all such
other terms and  conditions of such Options and Rights  granted as the Committee
deems  appropriate.  The Committee shall determine with respect to each grant of
an Option whether an individual shall receive an ISO or a NQO.

         6.2 The aggregate Fair Market Value  (determined at the time any-Option
is granted) of Common Stock for which ISOs are  exercisable  under this Plan for
the first time during any  calendar  year by an employee is limited to $100,000,
but the Fair  Market  Value of Common  Stock for which ISOs may be granted to an
employee in a given year may exceed $100,000.

         6.3 Each Option or Right granted to an Optionee  under this Plan shall,
if required by the  Committee,  be evidenced  by a written  agreement to be duly
executed and delivered by or on behalf of the  Corporation  and the Optionee and
containing  provisions not inconsistent with the Plan and in the case of an ISO,
containing such  additional  terms and conditions as may be necessary to qualify
the Option as an ISO.

         6.4 Subject to the express provisions of this Plan, the committee shall
have sole  authority to determine the  individuals to whom Common Stock shall be
granted, the time or times at which Common Stock shall be granted, the number of
shares of Common Stock to be granted, what consideration,  if any, shall be paid
by the recipient for such granted Common Stock, what restrictions, if any, shall
be  applicable  to such Common  Stock,  and all such other terms and  conditions
related to such Common Stock granted as the  Committee  deems  appropriate.  The
foregoing notwithstanding,  Common Stock granted shall be nontransferable during
the first six months following its grant,  except that this limitation shall not
apply in the event the Grantee dies prior to the  expiration  of such  six-month
period.

         7.       OPTION PRICE:
                  ------------

         The  exercise  price  under each  Option  shall be  established  by the
Committee,  but in no event shall it be less than 100% of the Fair Market  Value
of the Common Stock on the date the Option is granted.

         8.       TERM OF OPTIONS:
                  ----------------

         The term of each  Option and any  related  Right  shall be fixed by the
Committee,  but, subject to the power of the Committee,  among other things,  to
accelerate  or  otherwise  adjust  the terms for  exercise  of Options or Rights
pursuant  to  Section  3.4 hereof in the event of the  occurrence  of any of the
events set forth therein, no option or Right shall be exercisable later than ten
years from the date of grant of the  Option or Right or earlier  than six months
from the date of grant of the Option or Right  except as  otherwise  provided in
Sections 9.1 or 10.2-2.

         9.       EXERCISE OF OPTIONS:
                  --------------------

         9.1 Each Option or Right granted  under this Plan shall be  exercisable
in such number of shares and,  subject to the  provisions  of Section 8, at such
time or times,  including  periodic  installments,  as may be  determined by the
Committee at the time of the grant. The six months from the date of the grant of
the Option or Right restriction pursuant to Section 8 shall not be applicable to
an Optionee or Grantee in the event that he dies prior to the expiration of such
period.  The right to acquire  shares  pursuant  to  Options or Rights  that are
exercisable  in  installments  shall be  cumulative  so that  when the  right to
acquire any shares has accrued such shares or any  part-thereof  may be acquired
at any time  thereafter  until the  expiration or  termination  of the Option or
Right.

         9.2 An ISO  granted  under this Plan may be  exercised  while  there is
"outstanding" (as that term is defined in Section 422 of the Code) any other ISO
granted by the Corporation (or by any subsidiary or parent of the Corporation or
any predecessor thereof) under any plan of the Corporation to the Optionee prior
to the granting of the ISO in question.

         9.3 An Option may be exercised by giving  written notice of exercise to
the Corporation specifying the number of shares to be purchased and by paying in
full in cash the exercise  price.  The proceeds  received by the  Corporation in
cash will be used for general corporate purposes.

         9.4 If authorized by the Committee, the exercise price may also be paid
by (i) the  delivery of shares of Common Stock with a Fair Market Value equal to
the exercise  price or (ii) a combination of cash and such Common Stock equal to
the exercise price.

         9.5 Upon  notification  of the amount due and prior to, or concurrently
with,  the delivery to the  Optionee of a  certificate  representing  any shares
purchased pursuant to the exercise of an Option, the Optionee shall promptly pay
to the Corporation any amount necessary to satisfy applicable federal,  state or
local tax requirements.  Further, upon the disposition of shares of Common Stock
acquired  pursuant to the exercise of an ISO, the Corporation  shall require the
payment of the amount of taxes, if any, which are required by law to be withheld
or otherwise paid with regard to such disposition.

         9.6 An  Optionee  shall have none of the rights of a  stockholder  with
respect to the shares  subject to any Option  until such shares have been issued
and registered on the Corporation's transfer books upon exercise thereof.

         10.      RIGHTS:
                  ------

         10.1  Rights  may he  granted  in  conjunction  with all or part of any
Option granted under the Plan, either at the time of the grant of such Option or
at any subsequent time during the term of the Option.

         10.2  Rights  shall  be  subject  to  such  terms  and  conditions  not
inconsistent  with the other provisions of this Plan as shall be determined from
time to time by the Committee, as well as to the following:

               10.2.1 Subject to the provisions of Section 10.2.2, a Right shall
               be  exercisable  at such time or times and to the extent and only
               to the  extent,  that the  Option  to which it  relates  shall be
               exercisable.

               10.2.2 No Right,  whether granted concurrently with or subsequent
               to the  grant  of  the  Option  to  which  it  relates  shall  be
               exercisable  during  the first six  months  following  its grant,
               except that this limitation shall not apply in the event that the
               Optionee dies prior to the expiration of such period.

               10.2.3 If the  Optionee  so elects  pursuant to the terms of this
               Section,  and the Committee consents thereto, the Corporation may
               settle its  obligation  arising out of the exercise of a Right by
               the payment to the Optionee of cash equal to the  aggregate  Fair
               Market Value of the number of shares which it would  otherwise be
               obligated  to deliver upon such  exercise,  subject to the timely
               satisfaction  of the conditions of clauses (i) and (ii) below and
               any further conditions specified in the grant of the Right:

                    (i) The Corporation  shall have at such time been subject to
               the reporting  requirements of Section 13 of the Exchange Act, as
               from time to time in  effect,  or in the  event of the  repeal of
               such section,  such  reporting  requirements  as may from time to
               time be prescribed by any similar federal law, for a period of at
               least one year  prior to such  transaction;  shall have filed all
               reports  and  statements  required  to be filed  pursuant to that
               section or other  provision for that year; and shall at such time
               have the practice of releasing for publication on a regular basis
               quarterly and annual statements of sales and earnings, which data
               appear on a wire  service,  in a  financial  news  service,  in a
               newspaper of general circulation,  or are otherwise made publicly
               available; and

                    (ii) If the Optionee is a person subject to the requirements
               of Section  16(b) of the Exchange Act, the  Optionee's  notice of
               exercise of his Right, and his election to have the Corporation's
               obligation  thereunder  settled in cash, shall be received by the
               Corporation in writing  during the period  beginning on the third
               business day next  following the date of release of the quarterly
               or annual  financial  data  specified in clause (i) and ending on
               the twelfth business day following such date of release.

               10.2.4 A Right, subject to any additional limitations included in
               the  grant,  shall  entitle  the  Optionee  to  surrender  to the
               Corporation  unexercised  the Option to which it relates,  or any
               portion thereof,  and to receive from the Corporation in exchange
               therefor  that number of shares of Common  Stock,  if  available,
               having an  aggregate  Fair Market  Value equal  (computed  to the
               highest  whole number of shares) to the excess of the Fair Market
               Value of one share over the exercise price per share specified in
               such Option times the number of shares  called for by the Option,
               or portion thereof, which is so surrendered.

               10.2.5 The Committee may consent to, or disapprove, such election
               at any time  thereunder,  or within  such  period for taking such
               action as is  specified  in such  election.  Failure to give such
               consent shall be disapproval.  Such consent may be given in whole
               or  as  to  a  portion  of  the  Option,  or a  portion  thereof,
               surrendered by the Optionee.  If such election to receive cash is
               disapproved  in whole or in part,  the  Right  shall be deemed to
               have been exercised for stock, or not to have been exercised,  as
               specified in such election to the extent such election to receive
               cash is disapproved.

         10.3 Options  which have been  surrendered  for exercise of Rights,  in
whole or in part,  shall no longer be  exercisable  to the  extent  the  related
Rights have been  exercised.  Upon the  exercise  of Rights,  the Option or part
thereof to which such Rights are related shall be deemed to have been  exercised
for the purpose of the  limitation of the number of shares of Common Stock which
may be  subject  to Options  granted  under the Plan,  as set forth in Section 4
hereof.

         11.      NON-TRANSFERABILITY:
                  -------------------

         No Option or Right granted under this Plan shall be transferable  other
than by will or the laws of descent and  distribution or pursuant to a qualified
domestic  relations  order as defined in the Code, and an Option or Right may be
exercised  during the lifetime of the Optionee only by him or by his guardian or
legal representative.

         12.      TERMINATION OF EMPLOYMENT, RETIREMENT, DEATH OR CANCELLATION:
                  ------------------------------------------------------------

         12.1 In the event that the employment of an Optionee is terminated, for
a reason other than retirement or death, no Option or related Right held by such
Optionee shall be exercisable  later than three months after such Optionee shall
have ceased to be an employee of the Corporation or one of its  subsidiaries or,
if  earlier,  later  than the  expiration  date of the  Option.  The  employment
relationship,  however,  will be treated as continuing intact while the Optionee
is on  military  or sick  leave if the  period of such  leave does not exceed 90
days,  or,  if  longer,  so long as the  Optionee's  right to  re-employment  is
guaranteed either by statute or by contract.

         12.2 In the event that an Optionee  shall retire or die while  employed
by the  Corporation or one of its  subsidiaries,  Options and any related Rights
held  by  such  Optionee  may be  exercised  by the  Optionee  or by the  person
designated in the will of the Optionee or by the proper legal  representative of
the  Optionee  within one year  following  the  Optionee's  death or three years
following  retirement,  but in no event  later than the  expiration  date of the
Option.

         12.3  Notwithstanding  the express  term of the grant or the  foregoing
provisions of this Section 12, Options and related  Rights shall  terminate upon
the termination of the employment of the Optionee if the Corporation  determines
that such termination is for deliberate,  willful or gross  misconduct,  and the
options and related Rights shall terminate (whether or not the employment of the
Optionee is  terminated)  if the  Corporation  determines  that the Optionee has
improperly  disclosed  confidential  information  of  the  Corporation  and  the
Optionee is so notified.

         13.      LISTING AND REGISTRATION OF SHARES:
                  ----------------------------------

         Each Option or Right shall be subject to the  requirement  that,  if at
any time the  Committee  shall  determine  in its  discretion  that the listing,
registration or qualification of the shares subject to such Option or Right upon
any  securities  exchange  or under any state or federal  law, or the consent or
approval of any  governmental  regulatory  body,  is necessary or desirable as a
condition of, or in connection with, the granting of such Option or Right or the
issuance or purchase of shares  thereunder,  then such Option or Right shall not
be granted or exercised in whole or in part unless such  listing,  registration,
qualification,  consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee.

         14.      EFFECTIVE DATE:
                  --------------

         This  Plan  is  subject  to  approval  by  the   stockholders   of  the
corporation.  The Plan will  become  effective  on the date so  approved  or the
Opening Date, whichever is later.

         15.      DURATION AND AMENDMENT:
                  ----------------------

         15.1  There is no express  limitation  upon the  duration  of the Plan,
except for the  requirement of the Code that all ISOs must be granted within ten
years from the date the Plan is approved by the stockholders.

         15.2 The  Board  may  terminate  or may  amend  the  Plan at any  time,
provided,  however, that the Board may not, without approval of the stockholders
of the  Corporation,  (i)  increase  the  maximum  number of shares  from  which
Options,  Rights and Common Stock may be granted under the Plan, (ii) permit the
granting of Options at less than 100% of fair market value at time of grant,  or
(iii)_change  the class of  employees  eligible  to receive  Options,  Rights or
grants of Common  Stock  under the Plan.  The  transactions  under this Plan are
intended to comply with Rule 16b- 3 (or its successor),  as amended from time to
time,  promulgated  pursuant to the  Exchange Act and the  Corporation  may, but
shall not be required to, submit any proposed Plan amendment to its shareholders
for their  approval to assure  continued  compliance if such proposed  amendment
would,  with  respect to any  participant  who is an  officer,  director  or 10%
shareholder of the  Corporation who is subject to Section 16 of the Exchange Act
("Control   Person"),   (i)  materially   increase  the  benefits   accruing  to
participants  under  the  Plan,  or (ii)  materially  increase  then  number  of
securities  which  may be issued  under the Plan  (this  shall  not  affect  the
prohibition  against increasing the maximum number of shares from which Options,
Rights and Common Stock may be granted  under the Plan  pursuant to the previous
paragraph  without  shareholder  approval),   or  (iii)  materially  modify  the
requirements as to eligibility for participation in the Plan.

         16.      MISCELLANEOUS:
                  -------------

         With respect to any  participant  who is a Control Person  transactions
under this Plan are  intended to comply with Rule 16b-3 (or its  successor),  as
amended from time to time,  promulgated pursuant to the Exchange Act. Therefore,
to the extent any provision of the Plan or action by a person  administering the
Plan fails to so comply,  it shall be deemed  null and void ab initio the extent
permitted by law and deemed advisable by the Committee.

         As evidence of its adoption of this Plan,  the  Corporation  has caused
this document to be executed on its behalf this 19th day of January, 1995.

                                           VALLEY FINANCIAL CORPORATION

                                           By:
                                              ----------------------------------
                                               Its:
                                                   -----------------------------

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