Document:

exv10w3

 

Exhibit 10.3

CONNETICS CORPORATION

NON-QUALIFIED STOCK OPTION AGREEMENT

     Connetics Corporation, a Delaware corporation (“Connetics” or the “Corporation”), hereby
grants to James A. Trah (the “Optionee”) an option to purchase 50,000 shares of Common Stock (the
“Option”) subject to the following terms and conditions of this Non-Qualified Stock Option
Agreement (the “Option Agreement”):

	 	 	 	 	 
	I.

	 	NOTICE OF STOCK OPTION GRANT	 	 
	

	 	 	 	 
	

	 	James A. Trah	 	 
	

	 	3160 Porter Drive 	 	 
	

	 	Palo Alto, CA 94304	 	 
	

	 	 	 	 
	

	 	Date of Grant
	 	April 13, 2005
	

	 	 	 	 
	

	 	Vesting Commencement Date
	 	April 11, 2005
	

	 	 	 	 
	

	 	Exercise Price per Share
	 	 $25.67
	

	 	 	 	 
	

	 	Total Number of Shares of Common
Stock Subject to the Option (the “Shares”)
	 	 50,000 Shares
	

	 	 	 	 
	

	 	Total Exercise Price
	 	 $1,283,500.00
	

	 	 	 	 
	

	 	Type of Option:
	 	Nonstatutory Stock Option
	

	 	 	 	 
	

	 	Term/Expiration Date:
	 	April 13, 2015

   Vesting Schedule:

     This Option may be exercised, in whole or in part, in accordance with the following schedule:

     1/8 of the Shares subject to the Option shall vest six months after the Vesting Commencement
Date, and 1/48 of the Shares subject to the Option shall vest each month thereafter, subject to the
Optionee continuing to be a Service Provider on such dates.

   Termination Period:

     This Option may be exercised for (3) three months after the Optionee ceases to be a Service
Provider for any reason other than death or Disability. In the event the Optionee ceases to be a
Service Provider as the result of death or Disability, this Option may be exercised for (12) twelve
months after the Optionee ceases to be a Service Provider. In no event shall this Option be
exercised later than the Term/Expiration Date as provided above.

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II. AGREEMENT

     1. Grant of Option. The Corporation hereby grants to the Optionee named in the Notice
of Stock Option Grant (the “Notice”) attached as Part I of this Option Agreement an option (the
“Option”) to purchase the number of Shares, as set forth in the Notice, at the exercise price per
share set forth in the Notice (the “Exercise Price”), subject to the terms and conditions of the
Notice and this Option Agreement.

          This Option is subject to and conditioned upon Optionee’s acceptance of the Option by
returning to the Corporation an executed original of this Option Agreement. This Option shall be
null and void and of no force and effect, unless the Optionee executes and returns to the
Corporation this Option Agreement.

          This Option is granted as an inducement material to the Optionee’s entering into service with
the Corporation as an Employee. The Grantee has not previously been a Service Provider of the
Company or any Parent or Subsidiary of the Company.

          This Option is not intended to be an incentive stock option under Section 422 of the Code.

     2. Exercise of Option.

          (a) Right to Exercise. This Option is exercisable during its term in accordance with
the Vesting Schedule set out in the Notice and the applicable provisions of this Option Agreement.

          (b) Method of Exercise. This Option is exercisable by delivery of an exercise notice
or by such other procedure as specified from time to time by the Board, which shall state the
election to exercise the Option and the number of Shares in respect of which the Option is being
exercised (the “Exercised Shares”). The exercise notice shall be completed by the Optionee and
delivered to Connetics in person, by certified mail, or by such other method (including electronic
transmission) as determined from time to time by the Board. The exercise notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option
shall be deemed to be exercised upon receipt by Connetics of such fully executed exercise notice
accompanied by such aggregate Exercise Price.

          No Shares shall be issued pursuant to the exercise of this Option unless such issuance and
exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the
Exercised Shares shall be considered transferred to the Optionee on the date the Option is
exercised with respect to such Exercised Shares.

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     3. Method of Payment. Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:

          (a) cash; or

          (b) check; or

          (c) consideration received by Connetics under a cashless exercise program implemented by
Connetics in connection with this Option Agreement; or

          (d) surrender of other Shares which (i) in the case of Shares acquired upon exercise of an
option, have been owned by the Optionee for more than six (6) months on the date of surrender, and
(ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the
Exercised Shares.

     4. Non-Transferability of Option. This Option may not be transferred in any manner
otherwise than by will or by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by the Optionee. The terms of this Option Agreement shall be binding
upon the executors, administrators, heirs, successors and assigns of the Optionee.

     5. No Obligation to Exercise Option. The grant and acceptance of this Option imposes
no obligation on the Optionee to exercise it.

     6. No Obligation to Continue Business Relationship. The Corporation and any its’
subsidiaries are not by this Option obligated to continue to maintain a business relationship with
the Optionee.

     7. Term of Option. This Option may be exercised only within the term set out in the
Notice, and may be exercised during such term only in accordance with the terms of this Option
Agreement.

     8. Tax Consequences. Some of the federal tax consequences relating to this Option, as
of the date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE
EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

          (a) Exercising the Option. The Optionee may incur regular federal income tax
liability upon exercise of the Option. The Optionee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess, if any, of the Fair
Market Value of the Exercised Shares on the date of exercise over their aggregate Exercise Price.
If the Optionee is an Employee or a former Employee, Connetics will be required to withhold from
his or her compensation or collect from Optionee and pay to the applicable taxing authorities an
amount in cash equal to a percentage of this compensation income at the time of

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exercise, and may
refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of
exercise.

          (b) Disposition of Shares. The Optionee holds the Shares acquired upon exercise of
the Option for at least one year, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes.

     9. No Rights as Stockholder until Exercise. The Optionee shall have no rights as a
stockholder with respect to the Shares until a stock certificate has been issued to the Optionee
and is fully paid for in accordance with paragraph 3. With respect to certain changes in the
capitalization of the Corporation, no adjustment shall be made for dividends or similar rights for
which the record date is prior to the date such stock certificate is issued.

     10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset Sale.

          (a) Changes in Capitalization. Subject to any required action by the stockholders of
Connetics, the number of shares of Common Stock covered by the Option as well as the Exercise Price
shall be proportionately adjusted for any increase or decrease in the number of issued shares of
Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the number of issued
shares of Common Stock effected without receipt of consideration by Connetics; provided, however,
that conversion of any convertible securities of Connetics shall not be deemed to have been
“effected without receipt of consideration.” Such adjustment shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive. Except as expressly provided
in this Option Agreement, no issuance by Connetics of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock subject to an Option.

          (b) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of Connetics, the Board shall notify the Optionee prior to the effective date of such
proposed transaction. The Board in its discretion may permit the Optionee to exercise the Option
prior to such transaction as to all of the Shares, including Shares as to which the Option would
not otherwise be vested and exercisable. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed action.

          (c) Merger or Asset Sale. In the event of a merger of Connetics with or into another
corporation, or the sale of substantially all of the assets of Connetics, the Option shall be
assumed or an equivalent option or right substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option, the Optionee shall fully vest in and have the right to
exercise the Option as to all of the Shares, including Shares as to which it would not otherwise be
vested and exercisable. If an Option becomes fully vested and exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify the Optionee in

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writing or electronically that the Option shall be fully vested and exercisable for a period of
time as determined by the Board, and the Option shall terminate upon the expiration of such period.
For the purposes of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the option confers the right to purchase or receive, for each Share
subject to the Option immediately prior to the merger or sale of assets, the consideration (whether
stock, cash, or other securities or property) received in the merger or sale of assets by holders
of Common Stock for each share held on the effective date of the transaction (and if holders were
offered a choice of consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); provided, however, that if such
consideration received in the merger or sale of assets is not solely common stock of the
successor corporation or its Parent, the Board may, with the consent of the successor corporation,
provide for the consideration to be received upon the exercise of the Option, for each Share
subject to the Option, to be solely common stock of the successor corporation or its Parent equal
in fair market value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.

     11. Entire Agreement; Governing Law. This Option Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and supersedes in its entirety
all prior undertakings and agreements of Connetics and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee’s interest except by means of a writing
signed by Connetics and Optionee. This agreement is governed by the internal substantive laws, but
not the choice of law rules, of California.

     12. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE
VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE OF THIS AGREEMENT IS EARNED ONLY BY CONTINUING
AS A SERVICE PROVIDER AT THE WILL OF CONNETICS (AND NOT THROUGH THE ACT OF BEING HIRED, BEING
GRANTED AN OPTION OR PURCHASING SHARES UNDER THIS AGREEMENT). OPTIONEE FURTHER ACKNOWLEDGES AND
AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED UNDER THIS AGREEMENT AND THE VESTING
SCHEDULE SET FORTH IN THIS AGREEMENT DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED
ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT
INTERFERE WITH OPTIONEE’S RIGHT OR CONNETICS’ RIGHT TO TERMINATE OPTIONEE’S RELATIONSHIP AS A
SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE.

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III. DEFINITIONS

          A. “Applicable Laws” means the requirements relating to the administration of stock
options under U. S. state corporate laws, U.S. federal and state securities laws, the Code, any
stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable
laws of any foreign country or jurisdiction where the Optionee may be resident.

          B. “Board” means the Board of Directors of Connetics.

          C. “Code” means the Internal Revenue Code of 1986, as amended.

          D. “Common Stock” means the common stock of Connetics.

          E. “Corporation” means Connetics Corporation, a Delaware corporation.

          F. “Consultant” means any person, including an advisor, engaged by Connetics or a
Parent or Subsidiary to render services to such entity.

          G. “Director” means a member of the Board.

          H. “Disability” means total and permanent disability as defined in Section 22(e)(3) of
the Code.

          I. “Employee” means any person, including Officers and Directors, employed by
Connetics or any Parent or Subsidiary of Connetics. A Service Provider shall not cease to be an
Employee in the case of (i) any leave of absence approved by Connetics or (ii) transfers between
locations of Connetics or between Connetics, its Parent, any Subsidiary, or any successor. Neither
service as a Director nor payment of a director’s fee by Connetics shall be sufficient to
constitute “employment” by Connetics.

          J. “Exchange Act” means the Securities Exchange Act of 1934, as amended.

          K. “Fair Market Value” means, as of any date, the value of Common Stock determined as
follows:

(i) If the Common Stock is listed on any established stock exchange or a national
market system, including without limitation the Nasdaq National Market or The Nasdaq
SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were reported)
as quoted on such exchange or system on the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;

(ii) If the Common Stock is regularly quoted by a recognized securities dealer but
selling prices are not reported, the Fair Market Value of a Share of Common

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Stock shall be the mean between the high bid and low asked prices for the
Common Stock on the date of determination, as reported in The Wall Street Journal or
such other source as the Board deems reliable; or

(iii) In the absence of an established market for the Common Stock, the Fair Market
Value shall be determined in good faith by the Board.

          L. “Officer” means a person who is an officer of Connetics within the meaning of
Section 16 of the Exchange Act and the rules and regulations promulgated under the Exchange Act.

          M. “Parent” means a “parent corporation,” whether now or hereafter existing, as
defined in Section 424(e) of the Code.

          N. “Service Provider” means an Employee, Director or Consultant.

          O. “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing,
as defined in Section 424(f) of the Code.

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     By your signature and the signature of Connetics’ representative below, you and Connetics
agree that this Option is granted under and governed by the terms and conditions of the this Option
Agreement. Optionee has reviewed this Option Agreement in its’ entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option Agreement and fully understands all
provisions of this Option Agreement. Optionee hereby agrees to accept as binding, conclusive and
final all decisions or interpretations of the Board upon any questions relating to this Option
Agreement. Optionee further agrees to notify Connetics upon any change in the residence address
indicated below.

	 	 	 
	OPTIONEE:

	 	CONNETICS CORPORATION
	 

	 	 
	 
	 	 
	/s/ James A. Trah

	 	/s/ Thomas G. Wiggans
	

	 	

	Signature

	 	By: Thomas G. Wiggans
	 
	 	 
	James A. Trah

	 	Chief Executive Officer
	

	 	

	Print Name

	 	Title
	 
	 	 
	

	 	 
	Residence Address
	 	 
	 
	 	 
	

	 	 

8 --exv10wa

 

Exhibit 10.a

EXECUTION

EMPLOYMENT AGREEMENT

     EMPLOYMENT AGREEMENT (this “Agreement”) dated as of September 1, 2004
among Bay View Capital Corporation, a Delaware corporation having its principal
place of business at 1840 Gateway Drive, San Mateo, CA 94404 (“BVCC”), Bay View
Acceptance Corporation, a Nevada corporation having its principal place of
business at 818 Oak Park Road, Covina, CA 91724 (“BVAC”), and P.K. Chatterjee,
an individual residing at 25 Falling Oaks Trail, Austin, Texas 78738 (the
“Executive”).

WITNESSETH:

     WHEREAS, BVAC is a wholly owned subsidiary of BVCC;

     WHEREAS, BVCC and BVAC (collectively, the “Employers”) desire to employ
the Executive, and the Executive desires to be employed by the Employers, all
in accordance with the terms and subject to the conditions set forth herein;
and

     WHEREAS, the parties are entering into this Agreement to set forth and
confirm their respective rights and obligations with respect to the Executive’s
employment by the Employers;

     NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto, intending to be legally bound hereby,
mutually agree as follows:

     1.      Employment
and Term.

           (a)      Effective on September 7, 2004 (the “Effective Date”), (i) BVCC shall
employ the Executive, and the Executive shall be employed by BVCC, as the
Executive Vice President and Director of Retail Operations of BVCC and (ii)
BVAC shall employ the Executive, and the Executive shall be employed by BVAC,
as the President and Chief Executive Officer of BVAC (with all such positions
described in clauses (i) and (ii) hereof being collectively referred to herein
as the “Position”), in accordance with the terms and subject to the conditions
set forth herein for a term (the “Term”) that shall commence on the Effective
Date and, subject to paragraphs 1(b), 1(c), 1(d) and 1(e), shall continue for a
period of three years. BVCC and BVAC shall be jointly and severally liable to
the Executive with respect to (i) all liabilities of BVAC to the Executive
hereunder and (ii) all liabilities of BVCC to the Executive hereunder;
provided, however, that BVCC shall not be responsible for any

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liability of BVAC to the Executive to the extent that such liability has
been discharged by BVAC, and BVAC shall not be responsible for any liability of
BVCC to the Executive to the extent that such liability has been discharged by
BVCC. Promptly following the Effective Date, BVAC agrees to elect the
Executive as a member of its Board of Directors.

           (b)      Unless written notice in accordance with this paragraph 1 terminating
the automatic extension of the term of the Executive’s employment hereunder is
given by either of the Employers or the Executive, on each day this Agreement
is in effect, the Term shall be automatically extended for one additional day
so that at all times this Agreement shall have a then current three-year Term.
Unless otherwise provided herein or agreed by the parties hereto, all of the
terms and conditions of this Agreement shall continue in full force and effect
throughout the Term and, with respect to those terms and conditions that apply
after the Term, after the Term.

           (c)      Notwithstanding paragraph 1(b), the Employers, by action of their
Boards of Directors (the “Boards”) and effective as specified in a written
notice thereof to the Executive in accordance with the terms hereof, shall have
the right to terminate the Executive’s employment hereunder at any time during
the Term hereof for Cause (as defined herein) or other than for Cause or on
account of the Executive’s death or Permanent Disability (as defined herein),
subject to the provisions of this paragraph 1.

                     (i)      “Cause” shall mean (A) the Executive’s willful and continued failure
substantially to perform his material duties with the Employers as set forth in
this Agreement, or the commission by the Executive of any activities
constituting a violation or breach under any material federal, state or local
law or regulation applicable to the activities of BVAC or BVCC, in each case,
after notice thereof from the Employers to the Executive and a reasonable
opportunity for the Executive to cease such failure, breach or violation in all
material respects, (B) fraud, breach of fiduciary duty, dishonesty,
misappropriation or other intentional material damage to the property or
business of BVAC or BVCC by the Executive, (C) the Executive’s repeated
absences other than for physical or mental impairment or illness, (D) the
Executive’s admission or conviction of, or plea of nolo contendere to, any
felony or any other crime that, in the reasonable judgment of the Boards,
adversely affects BVAC’s or BVCC’s reputation or the Executive’s ability to
carry out his obligations under this Agreement or (E) the Executive’s
non-compliance with the provisions of paragraph 2(b) hereof after notice
thereof from the Employers to the Executive and a reasonable opportunity for
the Executive to cure such non-compliance. Notwithstanding the foregoing, the
Employers may not terminate the Executive’s employment hereunder for Cause
unless the Executive is given (A) written notice, in accordance with the
By-laws of the Employers, of a special meeting of the Boards to consider the
termination of the Executive’s employment hereunder for Cause and (B) the
opportunity for the Executive to address such special meeting.

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                     (ii)      “Permanent Disability” shall mean a physical or mental disability
such that the Executive is substantially unable to perform those duties that he
would otherwise be expected to continue to perform and the nonperformance of
such duties has continued for a period of 240 consecutive days, provided,
however, that in order to terminate the Executive’s employment hereunder on
account of Permanent Disability, the Employers must provide the Executive with
written notice of the Boards’ good faith determination to terminate the
Executive’s employment hereunder for reason of Permanent Disability not less
than 30 days prior to such termination, which notice shall specify the date of
termination. Until the specified effective date of termination by reason of
Permanent Disability, the Executive shall continue to receive compensation at
the rates set forth in paragraph 3. No termination of the Executive’s
employment hereunder because of Permanent Disability shall impair any rights of
the Executive under any disability insurance policy maintained by the Employers
at the commencement of the aforesaid 240-day period.

           (d)      The Executive shall have the right to terminate his employment
hereunder at any time during the Term hereof for Good Reason or in the event a
Change in Control occurs. As used herein:

                     (i)      “Good Reason” shall mean (A) the Executive’s Position or the scope of
the Executive’s authority, duties or responsibilities as described in this
Agreement are materially diminished without the Executive’s written consent,
excluding for this purpose any action not taken by the Employers in bad faith
and that is remedied by the Employers promptly following written notice thereof
from the Executive to the Employers; (B) a material breach by either Employer
of its respective obligations to the Executive under this Agreement, which
breach is not cured in all material respects to the reasonable satisfaction of
the Executive within 30 days (except in the case of a payment default for which
the cure period shall be 10 days), in each case following written notice
thereof from the Executive to the Employers or (C) any termination of the
Executive’s employment hereunder without Cause; and

                     (ii)      “Change in Control” shall mean the first to occur of (A) the
acquisition of shares of BVCC by any “person” or “group” (as such terms are
used in Rule 13d-3 under the Securities Exchange Act of 1934 as now or
hereafter amended) in a transaction or series of transactions that result in
such person or group directly or indirectly first owning beneficially more than
50% of BVCC’s Common Stock after the date of this Agreement or (B) the
consummation of a merger or other business combination after which the holders
of voting capital stock of BVCC do not collectively own 50% or more of the
voting capital stock of the entity surviving such merger or other business
combination (any of the foregoing being referred to herein as a “Transaction”).
A Transaction constituting a Change in Control shall only be deemed to have
occurred upon the closing of the Transaction.

           (e)   (i)      If (A) the Employers terminate the Executive’s employment
hereunder for any reason other than for Cause and such termination occurs as of
a date that

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is within 270 days preceding or within 180 days after the consummation of
a Change in Control (such 270-day period and such 180-day period being
hereinafter collectively referred to as a “Change in Control Period”), (B) this
Agreement is terminated as a result of the death or Permanent Disability of the
Executive effective as of a date within a Change in Control Period, (C) the
Executive terminates his employment hereunder for Good Reason effective as of a
date within a Change in Control Period or (D) the Executive elects to terminate
his employment hereunder within 180 days after the consummation of a Change in
Control, the Employers shall pay to the Executive or his estate, provided the
Executive or his estate concurrently signs and delivers to the Employers a
general release in a form mutually acceptable to the Employers and the
Executive, promptly after the event giving rise to such payment occurs an
amount equal to the sum of (y) (1) the Executive’s Base Salary (as defined
herein) accrued but unpaid through the date the termination of the Executive’s
employment hereunder is effective, (2) the Incentive Bonus (as defined herein)
payable to the Executive pursuant to paragraph 3(b)(i) for such year which
shall be determined by multiplying the average percentage of the Executive’s
Base Salary paid to the Executive as an Incentive Bonus for all full years of
employment hereunder prior to the year in which the Change in Control occurs by
the Executive’s Base Salary on the date of the Change in Control, provided that
BVAC is on track to achieve all performance goals for such year and (3) any
amount in respect of excise taxes required to be paid to the Executive pursuant
to paragraph 1(f), with such payments, rights and benefits described in clauses
(y)(1), (y)(2) and (y)(3) hereof being collectively referred to herein as the
“Accrued Obligations and (z) a severance payment equal to 2.99 times the sum of
(1) the Executive’s annual Base Salary as of the effective date of termination
of the Executive’s employment hereunder and (2) the Incentive Bonus payable to
the Executive pursuant to paragraph 3(b)(i) for the year in which such
termination is effective calculated based on the average percentage for all
full years of employment hereunder prior to the year in which such termination
occurs.

                     (ii)      If (A) the Employers terminate the Executive’s employment hereunder
for any reason other than for Cause effective as of a date that is not within a
Change in Control Period or (B) the Executive terminates his employment
hereunder for Good Reason effective as of a date that is not within a Change in
Control Period, the Employers shall pay the Executive, provided the Executive
concurrently signs and delivers to the Employers a general release in a form
mutually acceptable to the Employers and the Executive, an amount equal to the
sum of (y) the Accrued Obligations and (z) the amount of Base Salary the
Executive would have received had he remained employed hereunder for the
remainder of the Term.

                     (iii)      If (A) the Employers terminate the Executive’s employment hereunder
for Cause, (B) the Executive terminates his employment hereunder for any reason
other than Good Reason, his death or Permanent Disability or (C) this Agreement
is terminated by the Employers as a result of the death or Permanent Disability
of the Executive

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effective as of a date that is not within a Change in Control Period, the sole
obligation of the Employers shall be to pay the Accrued Obligations to the
Executive.

                     (iv)      The Employers and the Executive shall each have the right, upon prior
written notice delivered to the other on or prior to August 1, 2005, to
terminate Executive’s employment without Cause effective as of September 30,
2005. In the event of a termination of the Executive’s employment pursuant to
this paragraph 1(e)(iv) that is within a Change in Control Period, the
Employers shall pay the Executive, provided the Executive concurrently signs
and delivers to the Employers a general release in a form mutually acceptable
to the Employers and the Executive, an amount equal to the sum of (y) the
Accrued Obligations and (z) a severance payment equal to 2.99 times the sum of
(1) the Executive’s annual Base Salary as of the effective date of termination
of the Executive’s employment hereunder and (2) the Incentive Bonus payable to
the Executive pursuant to paragraph 3(b)(i) for 2004. In the event of a
termination of the Executive’s employment pursuant to this Section 1(e)(iv)
that is not within a Change in Control Period, the Employers shall pay the
Executive, provided the Executive concurrently signs and delivers to the
Employers a general release in a form mutually acceptable to the Employers and
the Executive, an amount equal to the sum of (y) the Accrued Obligations and
(z) the amount of Base Salary the Executive would have received had he remained
employed hereunder for one year from the date of the Executive’s termination.

           (f)      In the event that the independent public accountants of either of the
Employers or the Internal Revenue Service determines that any payment, coverage
or benefit provided to the Executive pursuant hereto is subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the “Code”) or any successor provision thereof or any interest or penalties
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the “Excise Tax”), the Employers, within 30 days thereafter,
shall pay to the Executive, in addition to any other payment, coverage or
benefit due and owing hereunder, an amount determined by multiplying the rate
of Excise Tax then imposed by Section 4999 by the amount of the “excess
parachute payment” received by the Executive, determined without regard to any
payments made to the Executive pursuant to this paragraph 1(f), and dividing
the product so obtained by the amount obtained by subtracting the aggregate
local, state and federal income and FICA and health insurance taxes applicable
to the receipt by the Executive of the “excess parachute payment” and taking
into account the deductibility for federal income tax purposes of the payment
of state and local income taxes thereon (as affected by those provisions of the
Code that act to reduce the deductibility of itemized deductions), from the
amount obtained by subtracting from 1.00 the rate of Excise Tax then imposed by
Section 4999 of the Code, it being the intention of the parties hereto that the
Executive’s net after tax position (after taking into account any interest or
penalties imposed with respect to such taxes) upon the receipt of the payments
provided for by this Agreement be no less advantageous to the Executive than
the net after tax position to the

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Executive that would have been obtained had Sections 280G and 4999 of the
Code not been applicable to such payments. Except as otherwise provided
herein, all determinations to be made under this paragraph 1(f) shall be made
by tax counsel whose selection shall be reasonably acceptable to the Executive
and the Employers and whose fees and costs shall be paid for by the Employers.

           (g)      Any notice of termination of this Agreement by the Employers to the
Executive or by the Executive to the Employers shall be given in accordance
with the provisions of paragraph 10 hereof.

           (h)      The Employers agree to reimburse the Executive for the reasonable fees
and expenses of the Executive’s attorneys and for court and related costs in
any proceeding to enforce the provisions of this Agreement in which the
Executive is successful on the merits.

     2.    Duties
of the Executive.

           (a)      Subject to the ultimate control and discretion of the Boards of the
Employers, the Executive shall serve in the Position and perform all duties and
services commensurate with the Position. Throughout the Term, the Executive
shall perform all duties reasonably assigned or delegated to him under the
By-laws of BVAC and BVCC or from time to time by the Boards of the Employers or
the Chief Executive Officer of BVCC consistent with the Position. Except for
travel normally incidental and reasonably necessary to the business of BVAC and
BVCC and the duties of the Executive hereunder, the duties of the Executive
shall be performed in the greater Los Angeles, California metropolitan area.

           (b)      The Executive shall devote substantially all of the Executive’s
business time and attention to the performance of the Executive’s duties
hereunder and, during the term of his employment hereunder, the Executive shall
not engage in any other business enterprise that requires any significant
amount of the Executive’s personal time or attention, unless granted the prior
permission of the Boards. The Boards have approved the Executive’s position as
a member and 10%-owner of Battle Advisory Group, LLC. The foregoing provision
shall not prevent the Executive’s purchase, ownership or sale of any interest
in, or the Executive’s engaging (but not to exceed an average of five hours per
week) in, any business that does not compete with the business of BVAC or BVCC
or the Executive’s involvement in charitable or community activities, provided,
that the time and attention that the Executive devotes to such business and
charitable or community activities does not materially interfere with the
performance of his duties hereunder and that a material portion of the time
devoted by the Executive to charitable or community activities are devoted to
charitable or community activities within BVAC’s market area and further
provided that such conduct complies in all material respects with applicable
policies of BVAC and BVCC.

6

 

           (c)      The Executive shall be entitled to six weeks of vacation during each
calendar year with full compensation, and to be taken at such time or times, as
the Executive and BVAC shall mutually determine. Earned but unused vacation
shall be accrued in accordance with BVCC’s vacation policy of 20 hours per
month.

     3.    Compensation. For all services to be rendered by the Executive
hereunder:

           (a)      Base
Salary. The Employers shall pay the Executive a base salary (the
“Base Salary”) at a monthly rate of Twenty-Five Thousand Dollars ($25,000),
plus such other compensation as may, from time to time, be determined by the
Employers. At the end of each fiscal year of the Employers, the Employers
shall review the amount of the Executive’s Base Salary, and shall increase such
Base Salary for the following year to such amount as the Boards may determine
in their discretion. Such Base Salary and other compensation shall be payable
in accordance with the Employers’ normal payroll practices as in effect from
time to time.

           (b)      Bonus. The Employers agree that the Executive shall be eligible to
receive, in accordance in all material respects with applicable policies of
BVCC relating to incentive compensation for executive officers, an annual bonus
(the “Bonus”) payable in cash, determined as follows:

                     (i)      an annual performance incentive bonus (the “Incentive Bonus”),
determined in the discretion of the Boards, of up to 50% of the Executive’s
Base Salary, based upon BVAC’s and the Executive’s attainment of performance
goals established by the Boards, which Incentive Bonus for 2004 shall be
pro-rated based on the fact that the Executive served the Employers for only
four months of 2004.

                     (ii)      In the event that BVAC and the Executive exceed all pre-determined
performance goals for a calendar year, an annual supplemental bonus (the
“Supplemental Bonus”), determined in the discretion of the Boards, of up to 2%
of the amount by which BVAC’s pre-tax profit for such calendar year exceeds
BVAC’s pre-tax profit for the immediately preceding calendar year. In the case
of 2004 only, the Supplemental Bonus shall be determined, in the discretion of
the Boards, based upon the amount by which BVAC’s pre-tax profit for 2004
exceeds $6,434,000.

           (c)      Stock
Options. Subject to any required stockholder approval, BVCC
hereby grants the Executive options (the “Options”) to purchase an aggregate of
50,000 shares of BVCC’s Common Stock at a price per share equal to 100% of the
closing price of BVCC’s Common Stock on the New York Stock Exchange on the date
of grant (the “Exercise Price”). Of the Options, Options to purchase 5,000
shares shall be incentive stock options and Options to purchase 45,000 shares
shall be non-qualified stock options. The Exercise Price of the Options may be
reduced from time to time in the discretion of the Board by the per share
amount of any cash distribution to BVCC’s stockholders arising from BVCC’s Plan
of Partial

7

 

Liquidation. The Options shall be subject to the terms and conditions of
the BVCC stock option agreement or agreements pursuant to which the Options are
granted, and shall have the following other principal terms:

                     (i)      the Options shall become exercisable and be vested, and remain
exercisable and vested for a term of five years from and after the Effective
Date, in three cumulative installments as follows:

                              (A)      the first installment, consisting of an incentive stock option to
purchase 5,000 shares and a non-qualified stock option to purchase 11,667
shares of BVCC’s Common Stock, shall become exercisable from and after first
anniversary the Effective Date;

                              (B)      the second installment, consisting of non-qualified stock options to
purchase 16,666 shares of BVCC’s Common Stock, shall become exercisable from
and after the second anniversary of the Effective Date; and

                              (C)      the third installment, consisting of non-qualified options to purchase
16,666 shares of BVCC’s Common Stock, shall become exercisable from and after
the third anniversary of the Effective Date;

                     (ii)      the Options shall become immediately exercisable and shall remain
exercisable for the remainder of their term in the event of (A) a Change in
Control of BVCC, (B) the sale of all or substantially all of the capital stock
or assets of BVAC to a party other than an affiliate of the Employers, but
excluding therefrom any securitization of BVAC’s assets, (C) a termination of
this Agreement by the Employers without Cause or (D) a termination of this
Agreement by the Executive for Good Reason;

                     (iii)      the Options shall terminate immediately in the event of (A) a
termination of this Agreement by the Employers for Cause or (B) a termination
of this Agreement by the Executive without Good Reason;

                     (iv)      the Options shall remain exercisable until the earlier of the
expiration of their term or three years after the termination of this Agreement
by the Employers because of the Executive’s death or Permanent Disability and
the Options shall become immediately exercisable if such termination occurs
during the 270 days preceding consummation of a Change in Control;

                     (v)      in the event that after the Effective Date the outstanding shares of
BVCC Common Stock subject to the Options are increased or decreased or changed
into or exchanged for a different number or kind of shares of BVCC or other
securities of BVCC or of another corporation by reason of a reorganization,
merger, consolidation, reclassification, stock split, reverse stock split,
stock dividend or combination of shares of Common Stock, the Board of Directors
of BVCC shall make an appropriate and equitable adjustment in the

8

 

number and kind of shares as to which the Options or portion thereof then
unexercised shall be exercisable and in the Exercise Price. Such adjustment in
the Options shall be made without any change in the total price applicable to
the unexercised portion of the Options, except for any change in the aggregate
price resulting from rounding-off of share amounts or prices, and with any
necessary corresponding adjustment in the Exercise Price.

           (d)      Other
Benefits. Throughout the Term:

                     (i)      The Employers shall provide the Executive with an automobile at the
Employers’ sole cost and expense. Such automobile shall be owned or leased by
BVCC or BVAC. The Employers shall bear all gas, insurance, repairs,
maintenance, car telephone and other business operating expenses for the
automobile.

                     (ii)      In connection with his relocation to the greater Los Angeles area,
the Executive shall be entitled to receive: (A) reimbursement of all
reasonable expenses for housing and needs for the first month of the
Executive’s employment and (B) commencing with the second month of the
Executive’s employment, $3,000 per month (grossed-up for taxes) for temporary
housing in the greater Los Angeles area for the lesser of twelve months or the
date on which the Executive takes possession of a purchased residence in the
greater Los Angeles area; provided, however, that upon expiration of such
twelve-month period, the Compensation Committee of BVCC may consider an
extension of the temporary housing allowance if so requested by the Executive.

                     (iii)      The Employers shall reimburse the Executive for the cost of not more
than twelve first-class airfares for the Executive and Executive’s immediate
family between Texas and California.

                     (iv)      Commencing on the first day of the month following the Effective
Date, the Executive shall be eligible to participate in BVCC’s 401(k) plan in
accordance with the terms and conditions thereof as the same are in effect from
time to time. Commencing on the first anniversary of the Effective Date, BVCC
will annually match 50% of the Executive’s contribution to the 401(k) plan up
to 6% of the Executive’s Base Salary.

                     (v)      During the first 90 days of the Executive’s employment, the Employers
will reimburse the Executive for COBRA health insurance premiums paid by the
Executive for himself and his family. If the Executive elects not to
participate in the Employer’s health insurance plans, the Employers will pay
the Executive $450 per month to defray the cost of health insurance coverage.

                     (vi)      If the Executive sells his current primary residence in Texas and
purchases a primary residence in the Los Angeles metropolitan area, the
Employers will reimburse the Executive for his actual and reasonably documented
costs of his relocation to the Los Angeles metropolitan area and the costs of
selling his current primary residence in

9

 

Texas and of purchasing a new primary residence in the Los Angeles
metropolitan area, exclusive of the purchase price thereof and costs related to
obtaining financing of such purchase price. The Employers will also reimburse
the Executive for any amount by which the fair market sale price of the
Executive’s current primary residence in Texas is less than the sum of the
purchase price the Executive paid for such residence and any reasonably
documented capital improvements to such residence.

                     (vii)      The Employers will reimburse the Executive for the membership dues
of a social club in Southern California in such amount as is mutually agreed.

                     (viii)      The compensation provided for in this paragraph 3 shall be in
addition to such rights as the Executive may have, during the Executive’s
employment hereunder, to participate in and receive benefits from or under any
benefit plans the Employers currently maintain or may in their discretion
establish in the future for their employees or executives. To the extent any
of such benefits are taxable to the Executive, the Executive shall be solely
responsible for such taxes.

           (e)      BVCC
Board Membership. BVCC acknowledges that it intends to recommend
to the Nominating Committee of BVCC’s Board of Directors that it nominate the
Executive for election as a director of BVCC at BVCC’s April 2005 annual
meeting of stockholders.

     4.    Expenses. The Employers shall promptly reimburse the Executive for all
reasonable expenses paid or incurred by the Executive in connection with the
performance of the Executive’s duties and responsibilities hereunder, upon
presentation of expense vouchers or other appropriate documentation therefor,
and all reasonable professional expenses, such as licenses and dues and
professional educational expenses, paid or incurred by the Executive during the
Term.

     5.    Indemnification. Notwithstanding anything in the Employers’
certificate of incorporation or their By-laws to the contrary, the Executive
shall at all times during his employment by the Employers, and thereafter, be
indemnified by the Employers to the fullest extent permitted by applicable law
for any matter in any way relating to the Executive’s affiliation with the
Employers and their respective subsidiaries; provided, however, that if the
Executive’s employment shall have been terminated by the Employers for Cause,
then the Employers shall have no obligation whatsoever to indemnify the
Executive for any claim arising out of the matter for which his employment
shall have been terminated for Cause or for any conduct of the Executive not
within the scope of the Executive’s duties under this Agreement.

     6.    Confidential
Information. The Executive understands that in the course
of his employment by the Employers the Executive will receive confidential
information concerning the business of the Employers and that the Employers
desire to protect. The Executive agrees

10

 

that he will not at any time during or after the period of his employment
by the Employers reveal to anyone outside BVAC or BVCC, or use for his own
benefit, any such information that has been designated as confidential by the
Employers or understood by the Executive to be confidential without specific
written authorization by the Employers. Upon termination of this Agreement,
and upon the request of the Employers, the Executive shall promptly deliver to
the Employers any and all written materials, records and documents, including
all copies thereof, made by the Executive or coming into his possession during
the Term and retained by the Executive containing or concerning confidential
information of the Employers and all other written materials furnished to and
retained by the Executive by the Employers for his use during the Term,
including all copies thereof, whether of a confidential nature or otherwise.

     7.    Representation
and Warranty of the Executive. The Executive represents
and warrants that he is not under any obligation, contractual or otherwise, to
any other firm or corporation, which would prevent his entry into the employ of
the Employers or his performance of the terms of this Agreement.

     8.    Entire
Agreement; Amendment. This Agreement contains the entire
agreement between the Employers and the Executive with respect to the subject
matter hereof, and may not be amended, waived, changed, modified or discharged
except by an instrument in writing executed by the parties hereto.

     9.    Assignability. This Agreement shall be binding upon, and inure to the
benefit of, the Employers and their successors and assigns. This Agreement
shall not be assignable by the Executive, but shall inure to the benefit of the
Executive’s heirs, executors, administrators and legal representatives.

     10.    Notice. Any notice that may be given hereunder shall be in writing
and be deemed given when hand delivered and acknowledged or, if mailed, one day
after mailing by registered or certified mail, return receipt requested, or if
delivered by an overnight delivery service, one day after the notice is
delivered to such service, to either party hereto at their respective addresses
stated above, or at such other address as either party may by similar notice
designate. Copies of such notices also shall be sent to the Employers
attention: General Counsel, 1840 Gateway Drive, San Mateo, California 94404 and
to the Executive’s counsel, attention:
_______________________________________.

     11.    Specific Performance. The parties agree that irreparable damage would
occur in the event that any of the provisions of paragraph 6 were not performed
in accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of paragraph 6 and to enforce specifically the
terms and provisions of paragraph 6 hereof, this being in addition to any other
remedy to which any party is entitled at law or in equity.

11

 

     12.    No
Third Party Beneficiaries. Nothing in this Agreement, express or
implied, is intended to confer upon any person or entity other than the parties
(and the Executive’s heirs, executors, administrators and legal
representatives) any rights or remedies of any nature under or by reason of
this Agreement.

     13.    Successor
Liability. The Employers shall require any subsequent
successor, whether direct or indirect, by purchase, merger, consolidation or
otherwise, to all or substantially all of the business or assets of the
Employers to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Employers would be required to perform
it if no such succession had taken place.

     14.    Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment or benefit
provided for in this Agreement be reduced by any compensation earned by the
Executive as the result of employment by another employer or by retirement
benefits payable after the termination of this Agreement, except that the
Employers shall not be required to provide the Executive and his eligible
dependents with medical insurance coverage as long as the Executive and his
eligible dependents are receiving comparable medical insurance coverage from
another employer.

     15.    Arbitration. Any dispute that may arise between the parties hereto,
including, without limitation, any dispute arising out of or relating to this
Agreement, shall be submitted to binding arbitration in accordance with the
Rules of the American Arbitration Association, except for any dispute excluded
from arbitration by law; provided that any such dispute shall first be
submitted to the Boards in an effort to resolve such dispute without resort to
arbitration, and provided, further, that the Boards shall have a period of 60
days within which to respond to the Executive’s submitted dispute, and if the
Boards fail to respond within said time, or the Executive’s dispute is not
resolved, the matter shall then be submitted for arbitration. The results of
any arbitration pursuant to this Agreement shall be final and binding on the
parties hereto.

     16.    Waiver
of Breach. The failure at any time to enforce or exercise any
right under any of the provisions of this Agreement or to require at any time
performance by the other parties of any of the provisions hereof shall in no
way be construed to be a waiver of such provisions or to affect either the
validity of this Agreement or any part hereof, or the right of any party
hereafter to enforce or exercise its rights under each and every provision in
accordance with the terms of this Agreement.

     17.    No
Attachment. Except as required by law, no right to receive
payments under this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or
to execution, attachment, levy or similar process or assignment by operation of
law, and any attempt, voluntary or involuntary, to effect any such action shall
be null, void and of no effect; provided, however, that nothing in

12

 

this paragraph 17 shall preclude the assumption of such rights by
executors, administrators or other legal representatives of the Executive or
his estate and their assigning any rights hereunder to the person or persons
entitled hereto.

     18.    Severability. The invalidity or unenforceability of any term, phrase,
clause, paragraph, restriction, covenant, agreement or other provision hereof
shall in no way affect the validity or enforceability of any other provision,
or any part thereof, but this Agreement shall be construed as if such invalid
or unenforceable term, phrase, clause, paragraph, restriction, covenant,
agreement or other provision had never been contained herein unless the
deletion of such term, phrase, clause, paragraph, restriction, covenant,
agreement or other provision would result in such a material change as to cause
the covenants and agreements contained herein to be unreasonable or would
materially and adversely frustrate the objectives of the parties as expressed
in this Agreement.

     19.    Survival
of Benefits. Any provision of this Agreement that provides a
benefit to the Executive and that by the express terms hereof does not
terminate upon the expiration of the Term shall survive the expiration of the
Term and shall remain binding upon the Employers until such time as such
benefits are paid in full to the Executive or his estate.

     20.    Construction. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California, without giving
effect to principles of conflict of laws. All headings in this Agreement have
been inserted solely for convenience of reference only, are not to be
considered a part of this Agreement and shall not affect the interpretation of
any of the provisions of this Agreement.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.

 

	 	 	 
	
BAY VIEW CAPITAL CORPORATION
	By:	 	
/s/ John Okubo

Name: John Okubo

Title: Executive Vice President and CFO
	
BAY VIEW ACCEPTANCE CORPORATION
	By:	 	
/s/ John Okubo

Name: John Okubo

Title: Executive Vice President and CFO
	 	 	
/s/ P.K. Chatterjee

P.K. Chatterjee

13

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