[FORM OF PLAN]
Exhibit 10.3
[FORM OF PLAN]
ZIONS BANCORPORATION
2003 - 2005 Value Sharing Plan
Subsidiary Banks
The Company administers a senior management long term executive incentive compensation plan (2003-2005 Value Sharing Plan) for each of its subsidiary banks; namely, California Bank & Trust, The Commerce Bank of Washington, National Bank of Arizona, Nevada State Bank, Vectra Bank Colorado, and Zions First National Bank in the form attached hereto.
[FORM OF PLAN]
[Name of Subsidiary Bank]
2003 - 2005 Value Sharing Plan
Objective: The purpose of the 2003 – 2005 [Name of Subsidiary Bank] Value Sharing Plan (the “Plan”) is to provide a three-year incentive plan for selected members of the senior management group and other key managers of [Name of Subsidiary Bank] (the “Bank”) and its subsidiaries. It is designed to create long-term shareholder value by focusing the Participant’s attention on improving the Bank’s financial results over a three-year period.
Eligibility: Selected key members of the senior management group and other key managers in the Bank its subsidiaries as determined by the Zions Bancorporation (the “Company”) Board of Directors (the “Board”) or its Executive Compensation Committee (the “Committee”).
Effective Date: January 1, 2003, through December 31, 2005 (the “Award Period”).
Frequency of Awards: Subject to the deferral provisions enumerated in the Plan, the incentives, if any, earned under this Plan will be paid within ninety days after the end of the Award Period.
Plan Administrator: The Plan is to be governed and interpreted by the Committee.
How the Plan Works:
A) Establishment of Award Fund
| 1) | An Award Fund will be established, the size of which will be based upon the cumulative pre-tax earnings of the Bank during the Award Period, and the achievement of return on equity targets, as more fully outlined in the Appendix, and in “Calculation Methodology,” below. |
B) Participation Units
| 1) | Each Participant designated by the Committee shall be awarded a specific number of Participation Units (“Units”), representing a pro-rata claim, in proportion to the total number of designated Units, on any Award Fund generated under this Plan during the Award Period. |
C) Calculation Methodology
| 1) | In order for any Award Fund to be established under this Plan, a minimum level of cumulative pre-tax earnings (“Qualifying Earnings”) and marginal return on equity (“Marginal ROE”) must be achieved during the Award Period, as indicated in the Appendix. |
| 2) | Qualifying Earnings is defined as the total of the following items during the Award Period: |
| a) | cumulative income before taxes; |
| b) | plus, a pre-tax equivalent adjustment for income from bank-qualified tax-exempt investments, or from qualifying tax credits, as determined by the Zions Bancorporation Tax Department; |
| c) | plus, pre-tax equivalent income arising from any allocation of interest rate swap income which is not reflected on the Bank’s Call Report, but which is included in the Bank’s operating segment income on the Company’s Form 10-K for any year during the Award Period; |
| [Note: | item d as follows is not included in the Zions First National Bank (Core Bank plan)] |
| d) | minus, any gain or loss from investment in Wasatch Venture Funds; |
| e) | minus (or plus), any adjustment required to bring the Bank’s Allowance for Loan and Lease Losses (“ALLL”) to a level which is not less than the mid-point of the acceptable range as established by the Company’s Credit Examination Department. (In the event that the Credit Examination Department determines that the ALLL should be at a level greater than the midpoint of the low-high range, then this adjustment shall be the amount which is required to bring the actual ALLL to the required level); |
| f) | minus, the amount by which the Bank’s ALLL at the inception of the Plan exceeds the mid-point of the low-high range established by the Credit Examination Department at that point in time (as indicated in the Appendix). |
| g) | plus (or minus), any adjustment deemed necessary by the Committee to normalize Qualifying Earnings as a result of changes in internal cost or income allocations, relative to the Base Period of 2002 (“Base Period”), arising from a change in allocations procedures which produce a change in costs (or income) which cannot be offset by a corresponding change in cost or income within the Bank. |
| 3) | Marginal ROE is defined as: |
| a) | The cumulative GAAP net income after tax for the three-year Award Period, less, three times the adjusted net income after tax for the base period of 2002 (“Base Period”) as indicated in the Appendix; |
| Divided by, |
| The sum of the average shareholders’ equity in each of the three years of the Award Period, less, three times the average shareholders’ equity in the Base Period. |
| b) | An adjustment shall be made to neutralize the effect on Marginal ROE of any dividends or additions to capital which have the effect of |
| artificially altering the ratio of average shareholders’ equity to average assets during the Award Period from the ratio in effect during the Base Period. |
| 4) | Other Adjustments |
| a) | In the event the Bank engages in one or more acquisitions during the Award Period, the Committee may make such adjustments to Qualifying Earnings and/or Marginal ROE as are required to neutralize, to the extent possible, the effects of any such acquisition on the Award Fund. Such adjustments shall be made at the Committee’s sole discretion, but shall generally be based upon the pro-forma financial projections presented to the Board in justification of the acquisition. |
| b) | Any Award Fund established under this Plan must be fully accrued and reflected in Qualifying Earnings. |
| c) | Unusual or “one-time” gains or losses may be subtracted from or added to Qualifying Earnings at the sole discretion of the Committee. |
| D) | Other Administrative Provisions |
| (1) | This is a discretionary Plan governed and interpreted by the Committee, whose decisions shall be final. The intent of the Plan is to fairly reward Participants for increasing shareholder value. If any adjustments need to be made to allow this Plan to accomplish its purpose, the Committee in its sole discretion can make those adjustments. |
| (2) | The Board may, at its sole discretion, alter the terms of the Plan at any time during an Award Period. |
| (3) | Participants will not vest in any benefits available under the Plan until the conclusion of the Award Period. |
| (4) | Participants must be employed by the Company or one of its subsidiaries at the time payment is made. Nevertheless, upon death, permanent disability, or normal or early retirement (unless upon early retirement the Participant becomes employed by an entity which competes with Zions Bancorporation or any of its subsidiaries), Participant (or his/her estate) shall be eligible to receive a pro-rata incentive payment at the conclusion of the Award Period. This award will be based upon the Participant’s calculated award as approved by the Board or Committee for the performance achieved for the number of full calendar quarters the Participant was engaged as an officer of the Company or its subsidiaries prior to death, disability or retirement. |
If a Participant elects early retirement and becomes employed by a competitor, no payment will be made.
| (5) | Each Participant will be required to defer for one year any incentive payment amount in excess of 100% of his/her base salary (except that, in |
the event the deferred amount is less than $10,000, the entire amount shall be immediately payable within ninety days of the end of the Award Period). Payment of the deferred amount will be paid by March 15, 2007, if conditions established in paragraph D) 4 above are met.
| (6) | The Company shall retain the right to withhold payment of incentives to Participants in the event of a significant deterioration in the Bank’s or the Company’s financial condition, or if so required by regulatory authorities, or for any other reason considered valid by the Board in its sole discretion. |
| (7) | Designation as a Participant in the Plan does not create a contract of employment for any specified time, nor shall such act to alter or amend the Company’s “at-will” policy of employment. |
| (8) | In the event a Participant transfers within Zions Bancorporation during the Award Period, he/she will be eligible to receive a pro-rata award from each participating Zions entity based on the number of months in each entity and each entity’s financial performance. |
| (9) | Units that are forfeited after a Participant is no longer eligible to participate in the Plan will not be transferable without the express approval of the Committee. |
| (10) | In the event of a change in control of the Company (as defined in the Company’s Change in Control Plan), the Plan will be terminated and payments shall be made in accordance with the provisions of section 3 (b) of the Change in Control Plan. |
| (11) | This document is intended to provide a guideline for the creation and distribution of incentive compensation. Nothing herein creates a contractual obligation binding on the Board, and no Participant shall have any legal rights with respect to an Award until such Award is distributed. |
| [Note: | Item 12 as follows is part of the Zions First National Bank (Core Bank) Plan only] |
| (12) | Zions First National Bank (Core Bank) shall be defined to mean Zions First National Bank and its subsidiaries, excluding: |
| (a) | Division D121 (ZFNB Investment Non Bank); |
| (i) | Except that, cost centers 213 (ZFNB Investment ZIS) and 532 (ZFNB Investment—Wasatch Venture) shall be included; |
| (b) | Cost center 324 (ZFNB Corporate Funds Transfer Pricing) |
| (c) | Cost center 1345 (ZISI Corporate Trading) |
| (d) | Company 107 (Digital Signature Trust Co.—Inactive) |
| (e) | Company 122 (Kelling Northcross) |
| (f) | Company 129 (Enterprise Vault) |
| (g) | Company 136 (Zions Investment Management, Inc.) |
| (h) | Company 139 (Wasatch Venture Capital) |
| (i) | Company 148 (ZFNB SBIC LLC) |
| (j) | Company 154 (DST Holding Inc) |
| (k) | Tax adjustments and minority interests pertaining to DST, Enterprise Vault and Wasatch I. |
CALIFORNIA BANK & TRUST
APPENDIX
| • | Qualifying Earnings shall equal the cumulative pre-tax income of California Bank & Trust for the period January 1, 2003 through December 31, 2005, (as adjusted in accordance with sections C and D of the Plan) |
| • | The minimum total Qualifying Earnings of California Bank & Trust which must be achieved for payment of awards under this Plan is $648,897,000, which represents 5% annual compounded growth in adjusted pre-tax income over the course of the Award Period. (Adjusted Base Period pre-tax income is $196,034,000.) |
| • | An Award Fund shall be established, equal to 5.52% of the Qualifying Earnings in excess of $588,102,000. |
| • | The minimum Marginal ROE of California Bank & Trust that must be achieved for payment of awards under this Plan is 11.00%. |
| • | The Award Fund shall be increased by a multiplier, based upon the achievement of Marginal ROE during the Award Period as follows: |
| If the Marginal ROE is: | Then the multiplier is: | |
| 11.00% or less | – 0 – | |
| 14.00% | 1.00 | |
| 17.00% | 1.50 | |
| 20.00% | 2.00 | |
| 21.50% or greater | 2.25 |
The multiplier will be interpolated for Marginal ROE levels falling between these benchmarks.
| • | The maximum Award Fund that may be created under this Plan is $33,292,000. |
| • | The value of each Unit shall be equal to the total amount in the Award Fund, divided by 7,800,000. |
| Example: |
If a Participant in the California Bank & Trust 2003 – 2005 Value Sharing Plan is awarded 60,000 units, and the total Qualifying Earnings over the course of the three-year Award Period amount to $783,000,000 and the Marginal ROE over the course of the Award Period is 17.5%, the amount of the incentive award would be:
Unadjusted Award Fund:
$783,000,000
–588,102,000
194,898,000
X 5.52%
$ 10,758,370
Multiplier:
1.5 + (.175 – .17) X (2.0 – 1.5) = 1.5833
(.20 – .17)
Total Award Fund:
$10,758,370 X 1.5833 = $17,033,727
Individual Unit Value:
$17,033,727 / 7,800,000 = $2.1838
Total Value of Units:
60,000 X $2.1838 = $131,028.00
COMMERCE BANK OF WASHINGTON
APPENDIX
| • | Qualifying Earnings shall equal the cumulative pre-tax income of Commerce Bank of Washington for the period January 1, 2003 through December 31, 2005, (as adjusted in accordance with sections C and D of the Plan) |
| • | The minimum total Qualifying Earnings of Commerce Bank of Washington which must be achieved for payment of awards under this Plan is $50,377,000, which represents 5% annual compounded growth in adjusted pre-tax income over the course of the Award Period. (Adjusted Base Period pre-tax income is $15,219,000.) |
| • | An Award Fund shall be established, equal to 4.80% of the Qualifying Earnings in excess of $45,657,000. |
| • | The minimum Marginal ROE of Commerce Bank of Washington that must be achieved for payment of awards under this Plan is 11.00%. |
| • | The Award Fund shall be increased by a multiplier, based upon the achievement of Marginal ROE during the Award Period as follows: |
| If the Marginal ROE is: | Then the multiplier is: | |
| 11.00% or less | – 0 – | |
| 14.00% | 1.00 | |
| 17.00% | 1.50 | |
| 20.00% | 2.00 | |
| 21.50% or greater | 2.25 |
The multiplier will be interpolated for Marginal ROE levels falling between these benchmarks.
| • | The maximum Award Fund that may be created under this Plan is $2,246,000. |
| • | The value of each Unit shall be equal to the total amount in the Award Fund, divided by 530,000. |
| Example: |
If a Participant in the Commerce Bank of Washington 2003 – 2005 Value Sharing Plan is awarded 60,000 units, and the total Qualifying Earnings over the course of the three-year Award Period amount to $61,000,000 and the Marginal ROE over the course of the Award Period is 17.5%, the amount of the incentive award would be:
Unadjusted Award Fund:
$61,000,000
–45,657,000
15,343,000
X 4.80%
$ 736,464
Multiplier:
1.5 + (.175–.17) X (2.0 – 1.5) = 1.5833
(.20 –.17)
Total Award Fund:
$ 736,464 X 1.5833 = $1,166,043
Individual Unit Value:
$1,166,043 / 530,000 = $2.2001
Total Value of Units:
60,000 X $2.2001 = $132,006.00
NATIONAL BANK OF ARIZONA
APPENDIX
| • | Qualifying Earnings shall equal the cumulative pre-tax income of National Bank of Arizona for the period January 1, 2003 through December 31, 2005, (as adjusted in accordance with sections C and D of the Plan) |
| • | The minimum total Qualifying Earnings of National Bank of Arizona which must be achieved for payment of awards under this Plan is $194,199,000, which represents 5% annual compounded growth in adjusted pre-tax income over the course of the Award Period. (Adjusted Base Period pre-tax income is $58,668,000.) |
| • | An Award Fund shall be established, equal to 6.04% of the Qualifying Earnings in excess of $176,004,000. |
| • | The minimum Marginal ROE of National Bank of Arizona that must be achieved for payment of awards under this Plan is 11.00%. |
| • | The Award Fund shall be increased by a multiplier, based upon the achievement of Marginal ROE during the Award Period as follows: |
| If the Marginal ROE is: | Then the multiplier is: | |
| 11.00% or less | – 0 – | |
| 14.00% | 1.00 | |
| 17.00% | 1.50 | |
| 20.00% | 2.00 | |
| 21.50% or greater | 2.25 |
The multiplier will be interpolated for Marginal ROE levels falling between these benchmarks.
| • | The maximum Award Fund that may be created under this Plan is $10,907,000. |
| • | The value of each Unit shall be equal to the total amount in the Award Fund, divided by 2,560,000. |
Example:
If a Participant in the National Bank of Arizona 2003 – 2005 Value Sharing Plan is awarded 60,000 units, and the total Qualifying Earnings over the course of the three-year Award Period amount to $234,000,000 and the Marginal ROE over the course of the Award Period is 17.5%, the amount of the incentive award would be:
| Unadjusted Award Fund: |
| $ 234,000,000 |
| – 176,004,000 |
| 57,996,000 |
| X 6.04% |
| $ 3,502,958 |
| Multiplier: |
| 1.5 + (.175 – .17) X (2.0 – 1.5) = 1.5833 |
| (.20 –.17) |
| Total Award Fund: |
| $ 3,502,958 X 1.5833 = $5,546,233 |
| Individual Unit Value: |
| $5,546,233 / 2,560,000 = $2.1665 |
| Total Value of Units: |
| 60,000 X $2.1665 = $129,990.00 |
NEVADA STATE BANK
APPENDIX
| • | Qualifying Earnings shall equal the cumulative pre-tax income of Nevada State Bank for the period January 1, 2003 through December 31, 2005, (as adjusted in accordance with sections C and D of the Plan) |
| • | The minimum total Qualifying Earnings of Nevada State Bank which must be achieved for payment of awards under this Plan is $198,663,000, which represents 5% annual compounded growth in adjusted pre-tax income over the course of the Award Period. (Adjusted Base Period pre-tax income is $60,083,000.) |
| • | An Award Fund shall be established, equal to 4.17% of the Qualifying Earnings in excess of $180,249,000. |
| • | The minimum Marginal ROE of Nevada State Bank that must be achieved for payment of awards under this Plan is 11.00%. |
| • | The Award Fund shall be increased by a multiplier, based upon the achievement of Marginal ROE during the Award Period as follows: |
| If the Marginal ROE is: | Then the multiplier is: | |
| 11.00% or less | –0– | |
| 14.00% | 1.00 | |
| 17.00% | 1.50 | |
| 20.00% | 2.00 | |
| 21.50% or greater | 2.25 |
The multiplier will be interpolated for Marginal ROE levels falling between these benchmarks.
| • | The maximum Award Fund that may be created under this Plan is $7,616,000. |
| • | The value of each Unit shall be equal to the total amount in the Award Fund, divided by 1,800,000. |
Example:
If a Participant in the Nevada State Bank 2003 – 2005 Value Sharing Plan is awarded 60,000 units, and the total Qualifying Earnings over the course of the three-year Award Period amount to $240,000,000 and the Marginal ROE over the course of the Award Period is 17.5%, the amount of the incentive award would be:
| Unadjusted Award Fund: |
| $ 240,000,000 |
| – 180,249,000 |
| 59,751,000 |
| X 4.17% |
| $ 2,491,617 |
| Multiplier: |
| 1.5 + (.175 – .17) X (2.0 – 1.5) = 1.5833 |
| (.20 – ..17) |
| Total Award Fund: |
| $ 2,491,617 X 1.5833 = $3,944,977 |
| Individual Unit Value: |
| $3,944,977 / 1,800,000 = $2.1917 |
| Total Value of Units: |
| 60,000 X $2.1917 = $131,502.00 |
VECTRA BANK COLORADO
APPENDIX
| • | Qualifying Earnings shall equal the cumulative pre-tax income of Vectra Bank Colorado for the period January 1, 2003 through December 31, 2005, (as adjusted in accordance with sections C and D of the Plan) |
| • | The minimum total Qualifying Earnings of Vectra Bank Colorado which must be achieved for payment of awards under this Plan is $101,975,000, which represents 5% annual compounded growth in adjusted pre-tax income over the course of the Award Period. (Adjusted Base Period pre-tax income is $30,807,000.) |
| • | An Award Fund shall be established, equal to 7.58% of the Qualifying Earnings in excess of $92,421,000. |
| • | The minimum Marginal ROE of Vectra Bank Colorado that must be achieved for payment of awards under this Plan is 11.00%. |
| • | The Award Fund shall be increased by a multiplier, based upon the achievement of Marginal ROE during the Award Period as follows: |
| If the Marginal ROE is: | Then the multiplier is: | |
| 11.00% or less | -0- | |
| 14.00% | 1.00 | |
| 17.00% | 1.50 | |
| 20.00% | 2.00 | |
| 21.50% or greater | 2.25 |
The multiplier will be interpolated for Marginal ROE levels falling between these benchmarks.
| • | The maximum Award Fund that may be created under this Plan is $7,185,000. |
| • | The value of each Unit shall be equal to the total amount in the Award Fund, divided by 1,690,000. |
Example:
If a Participant in the Vectra Bank Colorado 2003 – 2005 Value Sharing Plan is awarded 60,000 units, and the total Qualifying Earnings over the course of the three-year Award Period amount to $123,000,000 and the Marginal ROE over the course of the Award Period is 17.5%, the amount of the incentive award would be:
| Unadjusted Award Fund: |
| $ 123,000,000 |
| – 92,421,000 |
| 30,579,000 |
| X 7.58% |
| $ 2,317,888 |
| Multiplier: |
| 1.5 + (.175 – .17) X (2.0 – 1.5) = 1.5833 |
| (.20 – ..17) |
| Total Award Fund: |
| $ 2,317,888 X 1.5833 = $3,669,912 |
| Individual Unit Value: |
| $3,669,912 / 1,690,000 = $2.1715 |
| Total Value of Units: |
| 60,000 X $2.1715 = $130,290.00 |
ZIONS FIRST NATIONAL BANK (CORE BANK)
APPENDIX
| • | Qualifying Earnings shall equal the cumulative pre-tax income of Zions First National Bank (Core Bank) for the period January 1, 2003 through December 31, 2005, (as adjusted in accordance with sections C and D of the Plan) |
| • | The minimum total Qualifying Earnings of Zions First National Bank (Core Bank) which must be achieved for payment of awards under this Plan is $626,702,000, which represents 5% annual compounded growth in adjusted pre-tax income over the course of the Award Period. (Adjusted Base Period pre-tax income is $189,329,000.) |
| • | An Award Fund shall be established, equal to 5.28% of the Qualifying Earnings in excess of $567,987,000. |
| • | The minimum Marginal ROE of Zions First National Bank (Core Bank) that must be achieved for payment of awards under this Plan is 11.00%. |
| • | The Award Fund shall be increased by a multiplier, based upon the achievement of Marginal ROE during the Award Period as follows: |
| If the Marginal ROE is: | Then the multiplier is: | |
| 11.00% or less | –0– | |
| 14.00% | 1.00 | |
| 17.00% | 1.50 | |
| 20.00% | 2.00 | |
| 21.50% or greater | 2.25 |
The multiplier will be interpolated for Marginal ROE levels falling between these benchmarks.
| • | The maximum Award Fund that may be created under this Plan is $30,785,000. |
| • | The value of each Unit shall be equal to the total amount in the Award Fund, divided by 7,200,000 |
Example:
If a Participant in the Zions First National Bank (Core Bank) 2003 – 2005 Value Sharing Plan is awarded 60,000 units, and the total Qualifying Earnings over the course of the three-year Award Period amount to $756,000,000 and the Marginal ROE over the course of the Award Period is 17.5%, the amount of the incentive award would be:
| Unadjusted Award Fund: |
| $ 756,000,000 |
| – 567,987,000 |
| 188,013,000 |
| X 5.28% |
| $ 9,927,086 |
| Multiplier: |
| 1.5 + (.175–.17) X (2.0 – 1.5) = 1.5833 |
| (.20–.17) |
| Total Award Fund: |
| $ 9,927,086 X 1.5833 = $15,717,555 |
| Individual Unit Value: |
| $15,671,100 / 7,200,000 = $2.1830 |
| Total Value of Units: |
| 60,000 X $2.1830 = $130,980.00 |
