UMPQUA HOLDINGS CORPORATION EMPLOYMENT AGREEMENT

Exhibit 10.2

UMPQUA HOLDINGS CORPORATION

EMPLOYMENT AGREEMENT

FOR

DANIEL A. SULLIVAN

Dated as of February 1, 2009

Table of Contents

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EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”) is by and between Umpqua Holdings Corporation (“Umpqua”) and Daniel A. Sullivan (“Officer”), effective as of February 1, 2009.

1. PURPOSE AND DURATION OF AGREEMENT . The purpose of this Agreement is to set forth the terms of Officer’s employment with Umpqua and to provide Officer benefits in circumstances where Officer’s employment is terminated or a Change in Control (defined below) occurs and to supersede and replace that certain Terms of Employment and Severance Agreement dated as of September 15, 2003 (as amended by that certain Amendment to Terms of Employment and Severance Agreement dated January 5, 2005 and that certain Second Amendment to Terms of Employment and Severance Agreement dated effective June 1, 2007) that would otherwise expire September 15, 2009. This Agreement, including the severance provisions governed by ERISA, shall expire on December 31, 2014.

2. EMPLOYMENT . Umpqua, either directly or through one of its wholly owned subsidiaries, employs the Officer and the Officer accepts that employment on the terms and conditions contained in this Agreement.

3. NO TERM OF EMPLOYMENT . Notwithstanding the term of this Agreement, Umpqua may terminate Officer’s employment at any time for any lawful reason or for no reason at all, subject to the provisions of this Agreement.

4. DUTIES; POSITION .

4.1 Position . Officer shall be employed as Executive Vice President of Strategic Initiatives, and will perform such duties as may be designated by his direct supervisor (the “Supervisor”) or by Umpqua’s Chief Executive Officer.

4.2 Obligations of Officer .

(a) Officer agrees that to the best of Officer’s ability and experience, Officer will at all times loyally and conscientiously perform all of the duties and obligations required of Officer pursuant to the express and implicit terms of this Agreement and as directed by Umpqua’s Chief Executive Officer or the Supervisor.

(b) Officer shall devote Officer’s entire working time, attention and efforts to Umpqua’s business and affairs, shall faithfully and diligently serve Umpqua’s interests and shall not engage in any business or employment activity that is not on Umpqua’s behalf (whether or not pursued for gain or profit) except for (a) activities approved in writing in advance by Umpqua and (b) passive investments that do not involve Officer providing any advice or services to the businesses in which the investments are made.

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5. BASE COMPENSATION . For services performed under this Agreement, Officer shall be entitled to a base salary of $17,500.00 per month ($210,000.00 on annualized basis) (“Base Salary”), which Umpqua may increase in its sole discretion, as well as perquisites provided to Umpqua’s officers. Officer shall be entitled to participate, under the terms of the respective plans, in the bonus compensation plans, group health insurance, long-term disability insurance, as well as such other compensation or benefits as approved by the Board. Officer is entitled to four weeks vacation per year.

6. TERMINATION . Officer’s employment may be terminated before the expiration of this Agreement as described in this Section, in which event Officer’s compensation and benefits shall terminate except as otherwise provided in this Agreement.

6.1 For Cause . Upon Umpqua’s termination of Officer’s employment for Cause (as defined in Section 7.1 below) (“Termination For Cause”).

6.2 Without Cause . Upon Umpqua’s termination of Officer’s employment without Cause, with or without notice, at any time in Umpqua’s sole discretion, for any reason (other than for Cause, death, or Disability) or for no reason (“Termination Without Cause”). A Change in Control does not in and of itself constitute Termination Without Cause.

6.3 For Good Reason . Upon Officer’s termination of the employment for Good Reason (as defined in Section 7.2 below) (“Termination For Good Reason”).

6.4 Death or Disability . Upon Officer’s death or Disability (as defined in Section 7.3 below).

6.5 Separation of Service . For the purposes of this Agreement, the term “termination” means a termination of employment that meets the definition of “separation of service” as defined in Section 409A of the Internal Revenue Code and regulations promulgated thereunder.

7. DEFINITIONS .

7.1 Cause . For the purposes of this Agreement, “Cause” for Officer’s termination will exist upon the occurrence of one or more of the following events:

(a) Dishonest or fraudulent conduct by Officer with respect to the performance of Officer’s duties with Umpqua;

(b) Conduct by Officer that materially discredits Umpqua or any of its subsidiaries or is materially detrimental to the reputation of Umpqua or any of its subsidiaries, including but not limited to conviction or a plea of nolo contendere of Officer of a felony or crime involving moral turpitude;

(c) Officer’s willful misconduct or gross negligence in performance of Officer’s duties under this Agreement, including but not limited to Officer’s refusal to comply in any material respect with the legal directives of the Board or the Supervisor, if such misconduct or negligence has not been remedied or is not being remedied to Umpqua’s reasonable satisfaction within thirty (30) days after written notice, including a detailed description of the misconduct or negligence, has been delivered to Officer;

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(d) An order or directive from a state or federal banking regulatory agency requesting or requiring removal of Officer or a finding by any such agency that Officer’s performance threatens the safety or soundness of Umpqua or any of its subsidiaries; or

(e) A material breach of Officer’s fiduciary duties to Umpqua if such breach has not been remedied or is not being remedied to Umpqua’s reasonable satisfaction within thirty (30) days after written notice, including a detailed description of the breach, has been delivered to Officer.

7.2 Good Reason . For purposes of this Agreement, “Good Reason” for Officer’s termination of employment will exist upon the occurrence of one or more of the following events, without Officer’s consent, if Officer has informed Umpqua in writing of the circumstances described below in this Section that could give rise to termination for Good Reason within thirty (30) days of its occurrence and Umpqua has not removed the circumstances within thirty (30) days of the written notice:

(a) A material reduction of Officer’s Base Salary, unless the reduction is in connection with, and commensurate with, reductions in the salaries of all or substantially all senior officers of Umpqua; or

(b) A requirement for Officer to relocate to a facility or location more than 30 miles from the location where Officer is currently employed.

7.3 Disability . For purposes of this Agreement, “Disability” means (i) Officer is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; or (ii) Officer is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than three months under an accident and health plan covering Umpqua employees.

7.4 Change in Control . For purposes of this Agreement, a “Change in Control” shall be deemed to have occurred when any of the following events take place:

(a) Any person (including any individual or entity), or persons acting in concert, become(s) the beneficial owner of voting shares representing fifty percent (50%) or more of Umpqua;

(b) A majority of the Board is removed from office by a vote of Umpqua’s shareholders over the recommendation of the Board then serving; or

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(c) Umpqua is a party to a plan of merger or plan of exchange and upon consummation of such plan, the shareholders of Umpqua immediately prior to the transaction do not own or continue to own (i) at least forty percent (40%) of the shares of the surviving company (if the then current CEO of Umpqua continues as CEO of the surviving organization), or (ii) at least a majority of the shares of the surviving organization (if the then current CEO of Umpqua does not continue as CEO of the surviving organization).

8. PAYMENT UPON TERMINATION . Upon termination of Officer’s employment for any of the reasons set forth in Section 6 above, Officer will receive payment for all Base Salary and benefits earned as of the date of Officer’s termination (“Earned Compensation”), which shall be paid by the end of the business day following termination or sooner if required by applicable law.

9. SEVERANCE BENEFIT . Subject to Section 12, in the event of Termination Without Cause or Termination for Good Reason, in addition to receiving Earned Compensation, Officer will receive a severance benefit equal to the greater of: (i) nine months Base Salary, based on Officer’s Base Salary immediately prior to termination or (ii) two weeks salary for every year of employment with Umpqua (the “Severance Benefit”). Subject to Section 12.3 below, the Severance Benefit shall be paid in equal installments over the number of months of continued Base Salary, starting on the next regular payday following termination. Receipt of the Severance Benefit is conditioned on Officer having executed the Employment Separation Agreement and Release of Claims in substantially the form attached hereto as Exhibit A (the “Separation Agreement”) and the revocation period having expired without Officer having revoked the Separation Agreement. Receipt and continued receipt of the Severance Benefit is further conditioned on Officer not being in violation of any material term of this Agreement or in violation of any material term of the Separation Agreement. Officer shall not be required to mitigate the amount of any payments under this Section (whether by seeking new employment or otherwise) and no such payment shall be reduced by earnings that Officer may receive from any other source.

10. CHANGE IN CONTROL BENEFIT . Subject to Section 12, after announcement of a proposed Change in Control and for a period continuing for one year following a Change in Control, in the event of Termination Without Cause or Termination For Good Reason, instead of receiving the Severance Benefit set forth in Section 9 above, Officer shall be entitled to receive 24 months Base Salary, based on Officer’s Base Salary just prior to the termination of employment, as well as 200% of the incentive compensation Officer received for services performed in the previous year (the aforementioned Base Salary and incentive are collectively referred to as the “Change in Control Benefit”). Subject to Section 12.3 below, the Change in Control Benefit shall be paid in equal installments over 24 months, starting on the next regular payday following termination. Receipt of the Change in Control Benefit is conditioned on Officer having executed the Separation Agreement in substantially the form attached hereto as Exhibit A and the revocation period having expired without Officer having revoked the Separation Agreement. Receipt and continued receipt of the Change in Control Benefit is further conditioned on Officer not being in violation of any material term of this Agreement or in violation of any material term of the Separation Agreement. Officer shall not be required to mitigate the amount of any payments under this Section (whether by seeking new employment or otherwise) and no such payment shall be reduced by earnings that Officer may receive from any other source, provided, however, that the provisions of Section 14.2 related to forfeiture of payments under certain circumstances remain applicable.

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11. CHANGE IN CONTROL RETENTION INCENTIVE . If Officer remains employed for 12 months following a Change in Control, Officer will receive twelve months Base Salary and 100% of the incentive compensation Officer received for services performed in the previous year (the aforementioned Base Salary and incentive are collectively referred to as the “Retention Incentive”). The Retention Incentive shall be paid in equal installments over twelve months, starting on the next regular payday following the first anniversary of the Change in Control. Receipt of the Retention Incentive is conditioned on Officer not being in violation of any material term of this Agreement. If Officer receives a benefit under this Section 11, such benefit shall cease when Officer begins to receive any benefit under Section 10.

12. LIMITATION ON BENEFITS .

12.1 IRC 280G Adjustment . If the benefit payments under this Agreement, either alone or together with other payments to which the Officer is entitled to receive from Umpqua, would constitute an “excess parachute payment” as defined in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”), such benefit payments shall be reduced to the largest amount that will result in no portion of benefit payments under this Agreement being subject to the excise tax imposed by Section 4999 of the Code. The determination of any reduction in the benefit payments pursuant to the foregoing provisions, shall be made by mutual agreement of Umpqua and Officer or if no agreement is possible, by Umpqua’s accountants.

12.2 Limitation on Severance or Change in Control Benefit . Notwithstanding any other provision in this Agreement, Umpqua shall make no payment of any benefit provided for herein to the extent that such payment would be prohibited by the provisions of Part 359 of the regulations of the Federal Deposit Insurance Corporation (the “FDIC”) as the same may be amended from time to time, and if such payment is so prohibited, Umpqua shall use its best efforts to secure the consent of the FDIC or other applicable banking agencies to make such payments in the highest amount permissible, up to the amount provided for in this Agreement.

12.3 IRC 409A . To the extent the Severance Benefit or Change in Control Benefit is subject to Section 409A of the Code and Executive is deemed to be a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, commencement of payment of the Severance Benefit shall be delayed for six (6) months following Executive’s termination of employment and the first installment payment made in the seventh month following termination of employment shall equal the aggregate installment payments Executive would have received during the first six months of the Installment Period (the “Aggregate Payments”), plus the payment Executive is otherwise entitled to receive for the seventh month of the Installment Period. If Umpqua or Officer believes, at any time, that this Agreement does not comply with Section 409A, it will promptly advise the other party and will negotiate reasonably and in good faith to amend the terms of the Agreement, if permitted under Section 409A, with the most limited possible economic effect on Umpqua and Officer, such that it complies.

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13. EXECUTIVE SEVERANCE PLAN

13.1 In General . Those provisions of this Agreement (including this Section) related to the Severance Benefit set forth in Section 9 and Change in Control Benefit set forth in Section 10 constitute part of the terms of the Umpqua Holdings Corporation Executive Severance Plan (the “Executive Severance Plan”) with respect to the Officer, and such terms and the general terms of an executive severance plan, if any, established by Umpqua shall comprise the entirety of the Executive Severance Plan as it applies to the Officer. Umpqua intends for the Plan to be considered a welfare benefit plan within the meaning of Section 3(1) of the Employee Retirement Income Security Act (“ERISA”), and a plan which is unfunded and maintained by Umpqua solely for the purpose of providing benefits for a select group of management or highly compensated employees within the meaning of ERISA Regulation Section 2520.104-24. A copy of the Executive Severance Plan (if an executive severance plan separate from or in addition to the terms of this Section 13 is established) will be furnished to the Officer upon request.

13.2 Administration of Executive Severance Plan . Umpqua’s Chief Executive Officer and Human Resources Director are each plan administrators (the “Plan Administrator”) of the Executive Severance Plan and the Plan Administrator shall have the discretionary authority to administer and construe the terms of the Executive Severance Plan, including the authority to decide if Officer is entitled to the Severance Benefit or Change in Control Benefit and the authority to determine if there is Termination For Cause or Termination For Good Reason.

13.3 Claims Procedures . The Officer may file a claim for a payment under the Executive Severance Plan by filing a written request for such a payment with the Plan Administrator. If the Plan Administrator prescribes a form for such a claim, the claim must be filed on such form. The claim should be sent to the attention of the Plan Administrator of the Executive Severance Plan at the address set forth for Umpqua in Section 20.

If the Plan Administrator denies the claim, in whole or in part, the Plan Administrator shall notify the Officer within 90 days of the Plan Administrator’s receipt of the claim, unless the Plan Administrator determines that special circumstances require an extension of time for processing the claim. If the Plan Administrator determines that an extension of time is required, written notice of the extension shall be furnished to Officer prior to the termination of the initial 90-day period. Such extension notice shall indicate the special circumstances and the date by which the Plan Administrator expects to issue a determination with respect to the claim. The period of the extension will not exceed 90 days beyond the termination of the original 90-day period. If the Plan Administrator does not provide written notice, Officer may deem the claim denied and seek review according to the appeals procedures set forth below.

The notice of denial of Officer’s claim shall state:

a. the specific reasons for the denial;

b. specific references to pertinent provisions of the Executive Severance Plan on which the denial was based;

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c. a description of any additional material or information needed for Officer to perfect his or her claim and an explanation of why the material or information is needed; and

d. a statement (1) that Officer may request a review upon written application to the Plan Administrator,