<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION DECEMBER 23, 1997.
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
VIB CORP
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
INCORPORATED UNDER THE LAWS OF CALIFORNIA
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
6712
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
33-0780371
(I.R.S. EMPLOYER IDENTIFICATION NO.)
1498 MAIN STREET
EL CENTRO, CALIFORNIA 92243
(760) 337-3200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
S. ALAN ROSEN, ESQ.
HORGAN, ROSEN, BECKHAM & COREN, L.L.P.
21700 OXNARD STREET, SUITE 1400
LOS ANGELES, CALIFORNIA 91365
(818) 340-6100
(818) 340-6190 (FAX)
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: JANUARY 23, 1998.
IF THE SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE WITH
GENERAL INSTRUCTION G, CHECK THE FOLLOWING BOX. [ ]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING
PURSUANT TO RULE 462(b) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX
AND LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER
EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(d)
UNDER THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]
(FACING PAGE CONTINUED)
<PAGE> 2
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED PER UNIT PRICE REGISTRATION FEE
- --------------------- ------------ ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
COMMON STOCK
NO PAR VALUE......... 6,200,000(1) $ 17.50(2) $ 108,500,000 $ 32,007
WARRANTS ............ 103,103(3) $ 22.06(3) $ 2,274,452 $ 671
----------------
TOTAL ............... $ 32,678
================
</TABLE>
- ----------
(1) The estimated maximum number of shares to be issued; includes
approximately 50,000 shares anticipated to be issued pursuant to the
exercise of outstanding stock options.
(2) Based upon the closing quotation on Nasdaq for Valley Independent Bank's
Common Stock on December 16, 1997 pursuant to Rule 457(f)(1).
(3) Assumes all outstanding Warrants will be exercised at the maximum
exercise price. Includes the shares of Common Stock to be issued upon
exercise.
----------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 3
VIB CORP
CROSS-REFERENCE SHEET
Pursuant to Rule 404(a) of the Securities Act
Showing the Location or Heading in the Prospectus and Proxy Statement
Information Required by Part I of Form S-4
<TABLE>
<CAPTION>
Form S-4 Location or Heading in
Item Number and Caption Prospectus and Proxy Statement
- ----------------------- ------------------------------
<S> <C>
A. Information About the Transaction
1. Forepart of the Registration Statement and
Outside Cover Page of Prospectus ............Cover Page of Registration Statement; Outside Front
Cover Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus .........................Available Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information ...............Outside Front Cover Page of Proxy
Statement/Prospectus; Introduction
4. Terms of the Transaction ....................Proposal 1 - Bank Holding Company Reorganization
5. Pro Forma Financial Information .............Not Applicable
6. Material Contracts with the Company
Being Acquired ..............................Proposal 1 - Bank Holding Company Reorganization
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters ...................Not Applicable
8. Interests of Named Experts and Counsel ......Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities .................................Proposal 1 - Bank Holding Company Reorganization -
Comparison of Valley Independent Bank and VIB
Corp Corporate Structures
B. Information About the Registrant
10. Information with Respect to S-3 Registrants...Not Applicable
11. Incorporation of Certain Information by
Reference.....................................Not Applicable
12. Information with Respect to S-2 or S-3
Registrants...................................Not Applicable
13. Incorporation of Certain Information by
Reference.....................................Not Applicable
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants.............Proposal 1 - Bank Holding Company Reorganization -
The Holding Company
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Form S-4 Location or Heading in
Item Number and Caption Prospectus and Proxy Statement
- ----------------------- ------------------------------
<S> <C>
C. Information About the Company
Being Acquired
15. Information with Respect to S-3 Companies ....Proposal 1 - Bank Holding Company Reorganization -
Business of Valley Independent Bank; - Supervision
and Regulation - Valley Independent Bank; -
Financial and Statistical Information
16. Information with Respect to S-2 or
S-3 Companies ................................Not Applicable
17. Information with Respect to Companies
Other Than S-3 or S-2 Companies ..............Not Applicable
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited ...........Introduction; Voting Securities; Shareholdings of
Certain Beneficial Owners and Management; Proposal
1 - Bank Holding Company Reorganization -
Directors and Executive Officers; -
Compensation and Other Transactions with
Management and Others
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
in an Exchange Offer .........................Not Applicable
</TABLE>
<PAGE> 5
Preliminary Copy Dated December 23, 1997
PROSPECTUS
VIB CORP
VALLEY INDEPENDENT BANK
1498 Main Street
El Centro, California 92243
Telephone: (760) 337-3200
January 23 [?], 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Valley Independent Bank which will be held on Tuesday, February 24, 1998, at the
Bank's Main Office, 1448 Main Street, El Centro, California 92243, at 6:00 p.m.
You will be asked at the meeting to approve a merger agreement pursuant
to which the Bank will become a wholly-owed subsidiary of a newly formed bank
holding company, VIB Corp, which has been organized at the direction of your
Board of Directors. If the merger is approved, your Bank stock will be
converted, without recognition of gain or loss for tax purposes, into stock of
VIB Corp on a share-for-share basis. Your current stock certificates will
represent shares in the holding company, and it will not be necessary for you to
exchange stock certificates, although you may do so if you so desire. Similarly,
all outstanding warrants to purchase Bank stock will become warrants to purchase
holding company stock. It is contemplated that the holding company stock will be
traded in the Nasdaq National Market System after the merger is effective. A
detailed explanation of the proposed merger is contained in the accompanying
Proxy Statement.
Management believes that the formation of a holding company will provide
business alternatives for your Bank which are desirable to compete with other
major banks and larger regional banks, many of which have been similarly
reorganized. Your Board of Directors unanimously believes that the proposed
merger is in the best interests of the Bank's shareholders and recommends a vote
"For" the proposal.
At the meeting you will also be asked to consider and approve the VIB
Corp 1997 Stock Option Plan which is more fully described in the accompanying
Proxy Statement. Your favorable vote on this matter is also requested by your
Board of Directors.
It is important that your shares be represented at the meeting. Whether
or not you plan to attend the meeting you are requested to complete, date, sign
and return the enclosed Proxy in the enclosed envelope, at your earliest
convenience.
The accompanying Proxy Statement is also deemed under federal securities
laws to be a prospectus by which VIB Corp offers the common stock which you will
receive in the proposed merger. This is the reason for the statement in
bold-face type below which is required on all prospectuses.
Sincerely yours,
Dennis L. Kern,
President and Chief
Executive Officer
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 23 [?], 1998
<PAGE> 6
VALLEY INDEPENDENT BANK
1498 Main Street
El Centro, California 92243
Telephone: (760) 337-3200
------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 24, 1998
AT 6:00 P.M.
------------------
TO THE SHAREHOLDERS OF VALLEY INDEPENDENT BANK:
NOTICE IS HEREBY GIVEN that, pursuant to the Bylaws of Valley
Independent Bank and the call of its Board of Directors, a Special Meeting of
Shareholders (the "Meeting") of Valley Independent Bank (the "Bank") will be
held at the Bank's Main Office, 1448 Main Street, El Centro, California 92243,
on Tuesday, February 24, 1998, at 6:00 p.m., for the purpose of considering and
voting on the following matters:
1. APPROVAL OF BANK HOLDING COMPANY REORGANIZATION. Considering
and voting on a Plan of Reorganization and Merger Agreement dated
November 18, 1997 (the "Merger Agreement"), which provides for the
merger of the Bank with a wholly-owned subsidiary of the newly-formed
holding company, VIB Corp, as a result of which shareholders of the Bank
will receive for their shares of the Bank's Common Stock an equal number
of shares of VIB Corp's Common Stock. These transactions are more fully
described in the enclosed Proxy Statement and in the Merger Agreement
attached as Exhibit A to the Proxy Statement.
2. STOCK OPTION PLAN. Approving, as prospective shareholders of
VIB Corp, the VIB Corp 1997 Stock Option Plan described in the enclosed
Proxy Statement.
3. OTHER BUSINESS. Transacting such other business as may
properly come before the Meeting and any adjournment or adjournments
thereof.
The Board of Directors has fixed the close of business on December 26,
1997, as the record date for determination of shareholders entitled to notice
of, and the right to vote at, the Meeting.
SINCE IMPORTANT MATTERS ARE TO BE CONSIDERED AT THE MEETING, IT IS VERY
IMPORTANT THAT EACH SHAREHOLDER VOTE.
WE URGE YOU TO SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. THE ENCLOSED
PROXY IS SOLICITED BY THE BANK'S BOARD OF DIRECTORS. ANY SHAREHOLDER WHO
EXECUTES AND DELIVERS SUCH A PROXY HAS THE RIGHT TO REVOKE IT AT ANY TIME BEFORE
IT IS EXERCISED BY GIVING WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF THE
BANK, BY SUBMITTING PRIOR TO THE MEETING A PROPERLY EXECUTED PROXY BEARING A
LATER DATE, OR BY BEING PRESENT AT THE MEETING AND ELECTING TO VOTE IN PERSON BY
ADVISING THE CHAIRMAN OF THE MEETING OF SUCH ELECTION.
PLEASE INDICATE ON THE PROXY WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING SO THAT THE BANK CAN ARRANGE FOR ADEQUATE ACCOMMODATIONS.
By Order of the Board of Directors
Charlotte Studer, Secretary
January 23 [?], 1998
<PAGE> 7
VALLEY INDEPENDENT BANK
1498 Main Street
El Centro, California 92243
Telephone: (760) 337-3200
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FEBRUARY 24, 1998
TABLE OF CONTENTS
PAGE
<TABLE>
<CAPTION>
<S> <C>
AVAILABLE INFORMATION........................................................ii
INTRODUCTION..................................................................1
Agenda for the Meeting................................................1
The Bank Holding Company Reorganization...............................1
Reasons for the Merger................................................1
Federal Income Tax Consequences.......................................1
Comparison in the Rights of Shareholders..............................1
Anti-Takeover Effect of the Reorganization............................1
Government Regulation and Supervision.................................2
Rights of Dissenting Shareholders.....................................2
Conditions for Consummation; Anticipated
Effective Date; Termination........................................2
Revocability of Proxies...............................................2
Persons Making the Solicitation.......................................2
VOTING SECURITIES.............................................................2
SHAREHOLDINGS OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.....................3
PROPOSAL 1 - BANK HOLDING COMPANY REORGANIZATION..............................4
General...............................................................4
Reasons for the Merger................................................5
Description of the Merger.............................................5
Ratification and Approval of the Merger...............................6
Description of VIB Corp Common Stock..................................6
Comparison of Valley Independent Bank and VIB Corp
Corporate Structures..............................................7
The Holding Company...................................................9
Directors and Executive Officers......................................9
Supervision and Regulation - VIB Corp................................11
Permitted Non-Banking Activities.....................................11
Federal Income Tax Consequences......................................13
Dissenters' Rights...................................................13
Restrictions on Affiliates...........................................13
Business of Valley Independent Bank..................................14
Market Area..........................................................14
Competition..........................................................14
Supervision and Regulation - Valley Independent Bank................15
Impact of Monetary Policies..........................................23
Trading in the Bank's and the Holding Company's Common Stock.........24
Dividends............................................................24
Financial and Statistical Information................................25
Vote Required........................................................26
</TABLE>
-i-
<PAGE> 8
<TABLE>
<CAPTION>
<S> <C>
COMPENSATION AND OTHER TRANSACTIONS WITH MANAGEMENT AND OTHERS................27
Summary Compensation..................................................27
Stock Options.........................................................27
Employment Agreements.................................................28
Directors' Compensation...............................................28
Profit Sharing and 401(k) Plan........................................29
Employee Stock Ownership Plan.........................................29
Compensation Committee Interlocks and Insider Participation...........29
Compensation Committee Report on Executive Compensation...............29
Stock Performance Graph...............................................30
Certain Transactions..................................................31
PROPOSAL 2 - APPROVAL OF 1997 STOCK OPTION PLAN...............................31
Introduction..........................................................31
Summary of the Plan...................................................31
Federal Income Tax Consequences.......................................33
Certain Information Concerning All Options............................35
Exchange of Options in Reorganization.................................35
Vote Required.........................................................36
INDEPENDENT ACCOUNTANTS.......................................................36
OTHER MATTERS.................................................................36
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT IN CONNECTION WITH THE
OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY VIB CORP OR
VALLEY INDEPENDENT BANK. THIS PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THOSE TO
WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN ANY JURISDICTION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT NOR ANY
SALE MADE HEREUNDER SHALL CREATE, UNDER ANY CIRCUMSTANCES, AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF VALLEY INDEPENDENT BANK OR VIB CORP
SINCE THE DATE HEREOF.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE WITHOUT COST UPON REQUEST FROM HARRY G. GOODING, III, EXECUTIVE VICE
PRESIDENT AND CHIEF FINANCIAL OFFICER, 1498 MAIN STREET, EL CENTRO, CALIFORNIA
92243 (760) 337-3200. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY
REQUEST SHOULD BE MADE BY FEBRUARY 19, 1998.
AVAILABLE INFORMATION
Valley Independent Bank's Common Stock is registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, therefore,
the Bank is subject to the reporting and other requirements of the Exchange Act.
In accordance with Sections 12, 13 and 14 of the Exchange Act, the Bank files
certain reports, proxy materials, information statements and other information
with the Board of Governors of the Federal Reserve System (the "FRB")
(previously the Bank filed its reports with the Federal Deposit Insurance
Corporation (the "FDIC)) and Nasdaq, copies of which can be obtained from the
FRB at the Division of Banking Supervision and Regulation, Board of Governors of
the Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, D.C. 20551, or by calling the FRB public reference facilities at
(202) 452-3244, and for earlier reports from the FDIC at 550 West 17th Street,
N.W., Washington, D.C. 20429.
Pursuant to the merger, the Holding Company will assume reporting
responsibilities under the Exchange Act, similar to the responsibilities
previously performed by the Bank. Following the merger, the Holding Company must
comply with the reporting requirements of the Securities and Exchange Commission
(the "SEC"), and will file such reports with the SEC rather than the FRB.
-ii-
<PAGE> 9
The Holding Company has filed with the SEC a Registration Statement (the
"Registration Statement") on Form S-4 under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the shares of the Holding Company's
Common Stock and Warrants to be issued in connection with the merger. As
permitted by the rules and regulations of the SEC, certain information included
in the Registration Statement is omitted from this Proxy Statement/Prospectus.
For further information and reference, the Registration Statement, including the
exhibits and schedules filed as a part thereof, can be inspected and copied at
the public reference room of the SEC, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and copies of such materials can be obtained by mail
from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. The SEC maintains an Internet web
site that contains reports, proxy and information statements and other
information regarding issuers who file electronically with the SEC. The address
of that site is http://www.sec.gov. In addition, copies of such materials are
available for inspection and reproduction at the public reference facilities of
the SEC at its New York Regional Office, 7 World Trade Center, Suite 1300, New
York, New York 10048; and at its Chicago Regional Office, Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Certain statements in this Proxy Statement/Prospectus regarding future
expectations and financial performance may be regarded as "forward-looking
statements" within the meaning of the U.S. Securities Litigation Reform Act.
They are subject to various risks and uncertainties, such as economic changes,
and legislative and regulatory developments. Actual results may vary materially.
iii
<PAGE> 10
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation of
Proxies for use at a Special Meeting of Shareholders (the "Meeting") of Valley
Independent Bank (the "Bank") to be held at the Bank's Main Office, 1448 Main
Street, El Centro, California 92243, on Tuesday, February 24, 1998, at 6:00
p.m., and at any and all adjournments thereof.
It is expected that this Proxy Statement and accompanying Notice and
form of Proxy will be mailed to shareholders on or about January 23 [?], 1998.
AGENDA FOR THE MEETING
The matters to be considered and voted upon at the Meeting will be:
1. APPROVAL OF BANK HOLDING COMPANY REORGANIZATION. Considering
and voting on a Plan of Reorganization and Merger Agreement dated
November 18, 1997 (the "Merger Agreement"), which provides for the
merger of the Bank with a wholly-owned subsidiary of the newly-formed
holding company, VIB Corp, as a result of which shareholders of the Bank
will receive for their shares of the Bank's Common Stock an equal number
of shares of VIB Corp's Common Stock. These transactions are more fully
described herein and in the Merger Agreement attached as Exhibit A
hereto.
2. STOCK OPTION PLAN. Approving, as prospective shareholders of
VIB Corp, the VIB Corp 1997 Stock Option Plan, as described more fully
herein.
3. OTHER BUSINESS. Transacting such other business as may
properly come before the Meeting and any adjournment or adjournments
thereof.
THE BANK HOLDING COMPANY REORGANIZATION
At the direction of the Bank, the Holding Company was incorporated on
November 7, 1997 under the laws of the State of California to serve as the
holding company for the Bank. At the effective date of the merger, shareholders
of the Bank will automatically become shareholders of the Holding Company;
accordingly, shareholders will not be requested to surrender their Bank stock
certificates for new certificates. The Bank will conduct its business in
substantially the same manner and from the same offices as the Bank did prior to
the merger. (See "PROPOSAL 1 - BANK HOLDING COMPANY REORGANIZATION - Description
of the Merger.")
REASONS FOR THE MERGER
The Board of Directors believes the establishment of a holding company
structure for the Bank will provide greater flexibility in responding to the
expanding financial needs of the Bank's customers and in meeting increasing and
ever-changing forms of competition for the furnishing of financial services.
(See "PROPOSAL 1 - BANK HOLDING COMPANY REORGANIZATION - Reasons for the
Merger.")
FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to qualify for federal income tax purposes as a
tax-free "reorganization" under Section 368(a)(1)(A) of the Internal Revenue
Code in which no gain or loss will be recognized by a Bank stockholder upon the
receipt of Holding Company common stock in exchange for Bank common stock. (See
"PROPOSAL 1 BANK HOLDING COMPANY REORGANIZATION - Federal Income Tax
Consequences.")
COMPARISON IN THE RIGHTS OF SHAREHOLDERS
The Articles of Incorporation of the Holding Company contain provisions
that vary in several respects from the Articles of Incorporation of the Bank.
These differences are addressed specifically in this Proxy Statement. (See
"PROPOSAL 1 - BANK HOLDING COMPANY REORGANIZATION - Comparison of Valley
Independent Bank and VIB Corp Corporate Structures.")
ANTI-TAKEOVER EFFECT OF THE REORGANIZATION
The Holding Company's Articles of Incorporation contain certain
provisions designed to enhance the ability of the Board of Directors to deal
with attempts to acquire control of the Holding Company. These provisions, and
the ability of the Board of Directors to issue shares of Preferred Stock without
shareholder approval and to set the voting rights, preferences and other terms
thereof, may be deemed to have an anti-takeover effect and may discourage
takeover attempts which have not been approved by the Board of Directors. The
protective provisions contained in
1
<PAGE> 11
the Holding Company's Articles of Incorporation are discussed in further detail
in this Proxy Statement. (See "PROPOSAL 1 - BANK HOLDING COMPANY REORGANIZATION
- - Comparison of Valley Independent Bank and VIB Corp Corporate Structures.")
GOVERNMENT REGULATION AND SUPERVISION
After the merger, the Holding Company will be subject to the Bank
Holding Company Act of 1956, as amended (the "BHCA"), and will be subject to
regulation by the Board of Governors of the Federal Reserve System (the "FRB")
with respect to its operations as a bank holding company. The Bank will continue
to be subject to regulation by the same governmental agencies that currently
regulate the Bank. (See "PROPOSAL 1 - BANK HOLDING COMPANY REORGANIZATION -
Supervision and Regulation - VIB Corp" and "- Supervision and Regulation -
Valley Independent Bank .")
RIGHTS OF DISSENTING SHAREHOLDERS
Those shareholders of the Bank who object to the merger are not entitled
to dissent from the merger and receive payment of the fair value of their
shares.
CONDITIONS FOR CONSUMMATION; ANTICIPATED EFFECTIVE DATE; TERMINATION
The consummation of the Merger is subject to, among other things: (i)
the affirmative vote of the holders of a majority of the outstanding shares of
the Bank's Common Stock; (ii) the approval of the California Department of
Financial Institutions; (iii) the approval of the Federal Deposit Insurance
Corporation; and (iv) the approval of the FRB. Applications for the regulatory
approvals have been filed. The merger is expected to be consummated on or about
February 27, 1998. The merger may be terminated by either the Holding Company or
the Bank prior to the approval of the merger by the shareholders of such party
or by the mutual consent of the Boards of Directors of the Holding Company and
the Bank after any shareholder group has taken the requisite affirmative action.
(See "PROPOSAL 1 - BANK HOLDING COMPANY REORGANIZATION - Ratification and
Approval of the Merger.")
REVOCABILITY OF PROXIES
A form of Proxy for voting your shares at the Meeting is enclosed. Any
shareholder who executes and delivers such a Proxy has the right to revoke it at
any time before it is exercised by filing with the Secretary of the Bank an
instrument revoking it or a duly executed Proxy bearing a later date. In
addition, the powers of the Proxy Holders will be revoked if the person
executing the Proxy is present at the Meeting and elects to vote in person by
advising the Chairman of such election. Subject to such revocation, all shares
represented by a properly executed Proxy received in time for the Meeting will
be voted by the Proxy Holders in accordance with the instructions specified on
the Proxy. IF NO INSTRUCTION IS SPECIFIED WITH RESPECT TO A PROPOSAL TO BE ACTED
UPON, THE SHARES REPRESENTED BY YOUR EXECUTED PROXY WILL BE VOTED IN FAVOR OF
THE PROPOSAL LISTED ON THE PROXY. IF ANY OTHER BUSINESS IS PROPERLY PRESENTED AT
THE MEETING, THE PROXY WILL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF
THE BANK'S BOARD OF DIRECTORS.
PERSONS MAKING THE SOLICITATION
This solicitation of Proxies is being made by the Board of Directors of
the Bank. The expense of preparing, assembling, printing and mailing this Proxy
Statement and the materials used in the solicitation of Proxies for the Meeting
will be borne by the Bank. It is contemplated that Proxies will be solicited
principally through the use of the mail, but officers, directors and employees
of the Bank may solicit Proxies personally or by telephone, without receiving
special compensation therefor. Although there is no formal agreement to do so,
the Bank may reimburse banks, brokerage houses and other custodians, nominees
and fiduciaries for their reasonable expenses in forwarding these Proxy
Materials to shareholders whose stock in the Bank is held of record by such
entities. In addition, the Bank may use the services of individuals or companies
it does not regularly employ in connection with this solicitation of Proxies, if
Management determines it advisable.
VOTING SECURITIES
There were issued and outstanding ________ shares of the Bank's Common
Stock on December 26, 1997, which has been fixed as the record date for the
purpose of determining the shareholders entitled to notice of, and to vote at,
the Meeting (the "Record Date"). On any matter submitted to the vote of the
shareholders, each holder of Common Stock will be entitled to one vote, in
person or by Proxy, for each share of Common Stock held of record on the books
of the Bank as of the record date for the Meeting.
2
<PAGE> 12
Approval of the Merger Agreement requires the approval of the holders of
a majority of the outstanding shares of the Bank's Common Stock. Approval of the
Stock Option Plan requires the approval of a majority vote of the shares
represented at the Meeting. Abstentions and broker non-votes are counted towards
a quorum but abstentions and broker non-votes are the equivalent of "no" votes
with respect to the approvals of the Merger Agreement and the Stock Option Plan.
SHAREHOLDINGS OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Except as set forth below, Management of the Bank does not know of any
person who owns beneficially or of record, more than 5% of the Bank's
outstanding Common Stock. The following table sets forth certain information as
of December 26, 1997, concerning the beneficial ownership of the Bank's
outstanding Common Stock by each of the directors and executive officers(1) and
by all directors and executive officers of the Bank as a group. Management is
not aware of any change in control of the Bank which has occurred since January
1, 1997, or of any arrangement which may, at a subsequent date, result in a
change in control of the Bank, except the bank holding company reorganization.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF SHARES OF SUBJECT TO VESTED
COMMON STOCK STOCK OPTION(3) AND PERCENT OF CLASS
NAME AND POSITION HELD BENEFICIALLY OWNED(2) OUTSTANDING WARRANTS BENEFICIALLY OWNED(3)
- ---------------------- --------------------- -------------------- ---------------------
<S> <C> <C> <C>
Jack Brittain, Jr., 12,053(4) 2,692 %
Executive Vice President
and Chief Credit Officer
Charles Ellis, 16,573 21,717 %
Director
R. Stephen Ellison, 152,795(5) 27,301 %
Director
Richard D. Foss, 77,098(6) 27,057 %
Chairman of the Board
of Directors
Harry G. Gooding, III, 4,452(7) 8,233 %
Executive Vice President
and Chief Financial Officer
</TABLE>
- --------
(1) As used throughout this Proxy Statement, the term "executive officer"
means the President and Chief Executive Officer, the Executive Vice
President and Chief Administrative Officer, the Executive Vice President
and Chief Credit Officer, the Executive Vice President and Chief
Financial Officer, and the Executive Vice President and Branch
Administrator. The Bank's Chairman of the Board, Vice Chairmen of the
Board, Secretary, and other vice presidents are not deemed to be
executive officers of the Bank.
(2) Includes shares beneficially owned, directly and indirectly, together
with associates, except for shares subject to vested stock options and
outstanding warrants. Also includes shares held as trustee and held by
or as custodian for minor children. Unless otherwise noted, all shares
are held as community property under California law or with sole
investment and voting power.
(3) Shares subject to options held by directors or executive officers that
were exercisable within 60 days after December 26, 1997 ("vested") and
outstanding warrants are treated as issued and outstanding for the
purpose of computing the percent of the class owned by such person but
not for the purpose of computing the percent of class owned by any other
person.
(4) Includes 1,399 shares allocated to Mr. Brittain pursuant to the Bank's
401(k) Plan and 2,979 shares in the ESOP.
(5) Includes 128,213 shares held as trustee of the Bank's ESOP. The
trustees have voting rights over these shares to the extent not
exercised by the ESOP's participants. These shares are included for each
of Messrs. Ellison, Kern and Pedersen, the trustees, and are included
once for the category "All Directors and Executive Officers as a Group."
(6) Includes 8,874 shares held in trust for the benefit of Mr. Foss.
(7) Includes 1,292 shares allocated to Mr. Gooding pursuant to the Bank's
401(k) Plan and 2,347 shares in the ESOP.
3
<PAGE> 13
<TABLE>
<CAPTION>
NUMBER OF SHARES
NUMBER OF SHARES OF SUBJECT TO VESTED
COMMON STOCK STOCK OPTION(3) AND PERCENT OF CLASS
NAME AND POSITION HELD BENEFICIALLY OWNED(2) OUTSTANDING WARRANTS BENEFICIALLY OWNED(3)
- ---------------------- --------------------- -------------------- ---------------------
<S> <C> <C> <C>
Dennis L. Kern,(8) 211,715(5)(9) 109,645 %
Director, President, and
Chief Executive Officer
Edward McGrew, 27,890 27,343
Director
Ronald A. (Rusty) Pedersen,(10) 381,111(5) 14,489 %
Vice Chairman of the
Board of Directors
Martin E. Plourd, 12,292(11) 5,294 %
Executive Vice President
and Branch Administrator
John L. Skinner, 46,890 18,835
Director
Thomas Topuzes, 14,611(12) 11,239
Executive Vice President and
Chief Administrative Officer
Alice Helen Lowery Westerfield,(13) 289,434(14) 22,846 %
Vice Chairman of the Board of
Directors; Customer Relations,
Coachella Valley
All Directors and Executive 990,488(5) 296,691
Officers as a Group
(12 in number)
</TABLE>
PROPOSAL 1
BANK HOLDING COMPANY REORGANIZATION
GENERAL
Shareholders will consider and vote upon a Plan of Reorganization and
Merger Agreement pursuant to which the business of the Bank will be conducted as
a wholly-owned subsidiary of VIB Corp, a California corporation, and each
outstanding share of the Bank's Common Stock will be converted into an equal
number of shares of VIB Corp's no par value common stock, if approved by the
Bank's shareholders and the regulatory authorities.
- --------
(8) Mr. Kern's business address is 1498 Main Street, El Centro, California
92243.
(9) Includes 6,774 shares allocated to Mr. Kern pursuant to the Bank's
401(k) Plan and 5,124 shares in the ESOP.
(10) Mr. Pedersen's business address is 330 West Aten Road, Imperial,
California 92251.
(11) Includes 183 shares allocated to Mr. Plourd pursuant to the Bank's
401(k) Plan and 2,713 shares in the ESOP.
(12) Includes 2,107 shares allocated to Mr. Topuzes pursuant to the Bank's
401(k) Plan and 3,339 shares in the ESOP.
(13) Ms. Westerfield's business address is 1491 South Sixth Street,
Coachella, California 92236.
(14) Includes 112 shares allocated to Ms. Westerfield pursuant to the
Bank's 401(k) Plan and 1,602 shares in the ESOP.
4
<PAGE> 14
THE BOARD OF DIRECTORS OF THE BANK HAS UNANIMOUSLY APPROVED THE PROPOSED
MERGER AND IS RECOMMENDING THAT THE BANK'S SHAREHOLDERS VOTE "FOR" THE PROPOSAL.
The summaries of the provisions of the Merger Agreement set forth herein
do not purport to be complete statements thereof and are qualified in their
entirety by reference to the Merger Agreement attached as Exhibit A hereto and
incorporated herein by this reference.
REASONS FOR THE MERGER
Management believes a holding company will permit shareholders of the
Bank to participate in the ownership of a more flexible entity for financing and
growth within the banking field and in areas related to banking. For example, in
the event an opportunity for the acquisition of another bank were to develop, it
might be desirable to maintain the separate existence of the other bank after
the acquisition rather than merging it into the Bank. The existence of a holding
company would allow such an acquisition.
A bank holding company may provide more alternatives in the raising of
funds required by the Bank, or by the holding company, under changing conditions
in financial and monetary markets. For example, if a subsidiary bank required
additional capital, the holding company might raise funds by relying on its own
borrowing ability without having to go to the equity market.
The merger will also provide certain flexibility for acquiring or
establishing other banking operations, or engaging in other businesses related
to banking. Prudent bank management might dictate that some of those activities
be carried on wholly apart from the Bank. A holding company would easily permit
that kind of separation.
Finally, it is believed that the merger will enhance the Bank's ability
to continue to satisfy ever changing and expanding needs of present customers
for banking and banking-related services and to continue to attract new
customers for financial services. The recommended corporate form will better
suit expansion into new areas of service and interstate banking acquisitions
than would the existing structure. Most major banking institutions in the United
States and in California have been reorganized into bank holding companies and
the Bank's directors believe that such reorganization is desirable for the Bank
to maintain and enhance its competitive position.
DESCRIPTION OF THE MERGER
VIB Corp (the "Holding Company") has been organized as a bank holding
company under the laws of the State of California at the direction of the Bank's
Board of Directors and holds all of the stock of VIB Merger Company (the
"Subsidiary"), a newly organized California corporation.(1) The merger is
proposed to be accomplished by merging the Subsidiary into the Bank pursuant to
the terms of the Merger Agreement, a copy of which is attached as Exhibit A
hereto. Upon the effective date of the merger of the Subsidiary into the Bank,
the shares of capital stock of the respective corporate parties to the Merger
Agreement shall be converted as follows:
1. Each outstanding share of the Bank's Common Stock shall be
converted into one share of the Holding Company's Common Stock.
Shareholders of the Bank will be entitled to exchange their present
share certificates for new certificates evidencing shares of the Common
Stock of the Holding Company. If no request is made, new certificates
will be issued whenever old certificates are surrendered for transfer.
Until so exchanged, the certificates for the Bank's shares will
represent the Holding Company's shares into which the Bank's shares have
been converted.
2. Each outstanding warrant(2) to purchase the Bank's Common
Stock shall be converted into a warrant to purchase the Holding
Company's Common Stock. Holders of the Bank's warrants will be entitled
to exchange their present warrant certificates for new warrant
certificates evidencing warrants to purchase the Holding Company's
Common Stock. If no request is made, new warrant certificates will be
issued whenever new certificates are surrendered for partial exercise or
transfer. Until so exchanged, the
- --------
(1) VIB Corp was incorporated on November 7, 1997. VIB Merger Company was
incorporated on November 4, 1997. Both corporations were organized at
the direction of the Bank's Board of Directors for the purpose of
facilitating the merger and neither organization has conducted any
business.
(2) The 1997 Unit Offering commenced by the Bank on September 9, 1997 was
concluded on November 21, 1997. The Offering originally intended to
raise $5.3 million through the sale of 60,000 Units consisting of five
shares of The Bank's Common Stock and one warrant to purchase one
additional share of the Bank's Common Stock. The Unit price was $87.50.
After receiving additional regulatory approvals and conducting a
recission offer, the Bank ultimately sold 101,082 Units, raising a total
of $8.8 million. Each warrant is exercisable through October 31, 1998 at
$19.50 per share and thereafter, through October 29, 1999, at $22.50 per
share. The Warrants expire on October 29, 1999. The foregoing figures
have not been adjusted to reflect the Bank's 2% stock dividend paid to
shareholders of record on December 26, 1997.
5
<PAGE> 15
warrant certificates to purchase the Bank's Common Stock will represent
warrant certificates to purchase the Holding Company's Common Stock into
which the Bank's Common Stock has been converted.
3. The Subsidiary will disappear and all the outstanding shares
of the Bank's Common Stock will be owned by the Holding Company.
4. The shareholders of the Bank will be the shareholders of the
Holding Company. As shareholders of the Holding Company, they will have
essentially the same rights to govern that corporation's activities as
they have with respect to the Bank; however, as shareholders of the
Holding Company, they will not be entitled to vote on matters requiring
the approval of the Bank's shareholder. A discussion of those rights is
contained in the section entitled "BANK HOLDING COMPANY REORGANIZATION
Comparison of Valley Independent Bank and VIB Corp Corporate Structures"
herein.
RATIFICATION AND APPROVAL OF THE MERGER
Applications for approval for the proposed reorganization have been
filed with the California Department of Financial Institutions (the
"Commissioner"), the Federal Deposit Insurance Corporation (the "FDIC") and the
Federal Reserve Bank of San Francisco (the "FRB"). These applications are
presently pending. Management is not aware of any reason why the required
approvals will not be received; however, no assurances can be given.
Implementation of the merger requires the affirmative vote of the
holders of a majority of the outstanding shares of the Bank's Common Stock. The
directors of the Bank, the Holding Company, and the Subsidiary have unanimously
approved the Merger Agreement.
The merger will become effective when all necessary ratifications and
approvals have been obtained and the requisite filings, as described in the
Merger Agreement, have been made. It is anticipated that, if all approvals are
obtained, the merger will not become effective until late February, 1998.
If any action, suit, proceeding or claim has been instituted, made or
threatened relating to the merger so as to make its consummation inadvisable in
the opinion of the Board of Directors of the Bank, then the merger may be
terminated at any time before it becomes effective.
Should the shareholders of the Bank fail to approve the merger or should
it be otherwise terminated, the Merger Agreement would be cancelled and the Bank
would continue to operate with the same shareholders as it had prior to adoption
of the Merger Agreement. Upon termination, there shall be no liability by reason
of the merger or the termination thereof on the part of the Bank, the
Subsidiary, the Holding Company or their respective directors, officers,
employees, agents or shareholders.
The expenses of the merger are estimated at approximately $90,000. In
the event the merger is consummated, the Bank and the Holding Company, as the
surviving corporations, will bear the expense. In the event the merger is not
consummated, the expenses incurred will be assumed by the Bank.
DESCRIPTION OF VIB CORP COMMON STOCK
The authorized capital stock of the Holding Company consists of
20,000,000 shares of common stock, no par value (the "Holding Company's Common
Stock" or "VIB Corp's Common Stock"), and 10,000,000 shares of preferred stock
(the "Preferred Stock"). The Preferred Stock may be divided into such number of
series as the Board of Directors may determine. The Board of Directors is
authorized to determine and alter the rights, preferences, privileges and
restrictions granted to and imposed upon any wholly unissued series of Preferred
Stock, and to fix the number of shares of any series of Preferred Stock and the
designation of any such series of Preferred Stock. The Board of Directors,
within the limits and restrictions stated in any resolution or resolutions of
the Board of Directors originally fixing the number of shares constituting any
series, may increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any series subsequent to the
issue of shares of that series.
The issuance of Preferred Stock could affect the rights of holders of
Common Stock. No shares of Preferred Stock will be issued in connection with the
merger and there are no plans to issue Preferred Stock at the present time.
Holder of shares of the Holding Company's Common Stock are entitled to
one vote for each share held of record on all matters voted upon by
shareholders. The Holding Company's Articles of Incorporation provide for the
elimination of cumulative voting in connection with the election of directors
and, further, provides for the classification of the Holding Company's Board of
Directors into two or three classes, depending on whether there are less than
nine or more than eight directors, respectively. Cumulative voting entitles a
shareholder to give one nominee as many votes as are equal to the number of
directors to be elected, multiplied by the number of shares owned, or to
6
<PAGE> 16
distribute his or her votes on the same principle between two or more nominees
as he or she sees fit. The elimination of cumulative voting and the
classification of the Board of Directors will be effective only when the Holding
Company becomes a "listed corporation" which will occur when the Bank's listing
on Nasdaq is converted to the Holding Company, which is scheduled to occur when
the merger becomes effective. (See "BANK HOLDING COMPANY REORGANIZATION -
Comparison of Valley Independent Bank and VIB Corp Corporate Structures"
herein.)
Upon liquidation or dissolution of the Holding Company, the assets
legally available for distribution to holders of shares of the Holding Company's
Common Stock, after payment of all obligations of the Holding Company and
payment of any liquidation preference of all other classes and series of stock
entitled thereto, including Preferred Stock, if any, are distributable ratably
among the holders of the Holding Company's Common Stock.
The holders of the Holding Company's Common Stock have no preemptive
rights to subscribe for new issue securities, and shares of the Holding
Company's Common Stock are not subject to redemption, conversion, or sinking
fund provisions. The shares of the Common Stock, when issued in connection with
the merger, will be validly issued, fully paid, and non assessable.
After the preferential dividends upon all other classes and series of
stock entitled thereto shall have been paid or declared and set apart for
payment and after the Holding Company shall have complied with all requirements,
if any, with respect to the setting aside of sums as a sinking fund or for a
redemption account on any class of stock, then the holders of the Holding
Company's Common Stock are entitled to such dividends as may be declared by the
Board of Directors out of funds legally available therefore under the laws of
the State of California. (See "BANK HOLDING COMPANY REORGANIZATION - Comparison
of Valley Independent Bank and VIB Corp Corporate Structures" herein.)
COMPARISON OF VALLEY INDEPENDENT BANK AND VIB CORP CORPORATE STRUCTURES
The following discusses some of the similarities and some of the
differences in the corporate structures of the Bank and the Holding Company.
Upon consummation of the merger, the Holding Company will have the same number
of shares issued and outstanding as were issued and outstanding for the Bank
just prior to consummation of the merger, but the Bank's shareholders will
become the Holding Company's shareholders and the Holding Company will become
the Bank's sole shareholder. Both corporations have the same liquidation rights;
and shareholders of both corporations have no preemptive rights.
The Articles of Incorporation of both corporations authorize
indemnification of directors, officers and agents to the fullest extent
permissible under California law, eliminate directors' liability for monetary
damages to the fullest extent permissible under California law, and authorize
the purchase of liability insurance. The Bank has such liability insurance and
it is anticipated that the Holding Company will assume the Bank's insurance
coverage. Further, the Holding Company has entered into indemnification
agreements with each of its directors and officers to implement the
indemnification provisions of its Articles of Incorporation. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be
permitted to directors, officers or persons controlling the Holding Company
pursuant to the foregoing provisions, the Holding Company has been informed that
in the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
Both corporations have different authorized capitalization. The Bank has
13,500,000 shares of common stock, no par value, authorized. The Holding Company
has 20,000,000 shares of common stock, no par value, authorized and 10,000,000
shares of preferred stock authorized.
Both corporations have different voting rights. The Bank has cumulative
voting in the election of directors and elects all of its directors to annual
terms. The Holding Company, effective upon the listing of its common stock on
Nasdaq, will have no cumulative voting in the election of directors and will
have a classified Board of Directors with two or three classes, depending on the
number of directors in office. "Classified" directors are elected for staggered
two or three year terms. Moreover, the Holding Company's Articles of
Incorporation provides that the elimination of cumulative voting and the
classification of its board of directors can only be amended by supermajority
shareholder vote, presently set at 66-2/3% of the outstanding shares.
Other differences include the authorized ranges for the number of
directors. The Bank's Bylaws provide for a range of eight to 15 directors, with
the exact number fixed by amendment to the Bylaws or by resolution adopted by
the Bank's Board of Directors or by the Bank's shareholders. The Holding
Company's Articles of Incorporation provide for a range of six to ten directors
and permits the Board of Directors or shareholders to fix the exact number
within that range. The range set forth in the Bank's Bylaws can be amended by
majority shareholder vote whereas the range set forth in the Holding Company's
Articles can only be amended by supermajority shareholder vote, presently set at
662/3% of the outstanding shares.
7
<PAGE> 17
The elimination of cumulative voting, the classification of the Board of
Directors, and the limitation on the ability to change the range of directors,
as well as the ability of the Holding Company's Board of Directors to issue
shares of Preferred Stock and to set the voting rights, preferences and other
terms thereof, may be characterized as "anti-takeover" provisions designed to
discourage an attempt to takeover control of the Holding Company through a proxy
solicitation contest, tender offer or merger. To the extent that such takeover
attempts are discouraged, temporary fluctuations in the market price of the
Holding Company's Common Stock resulting from actual or rumored takeover
attempts may be inhibited. These provisions also could discourage or make more
difficult a merger, tender offer or proxy contest, even though such transaction
may be favorable to the interests of shareholders, and could potentially
adversely affect the market price of the Holding Company's Common Stock.
The provisions included in the Holding Company's Articles of
Incorporation are not adopted in response to or with knowledge of any takeover
attempts or "unfriendly" efforts to gain control of the Bank. The Boards of
Directors of the Bank and the Holding Company have authorized these provisions
in order to provide standard corporate protections common among bank holding
companies and in the best interests of current Bank shareholders who will become
shareholders of the Holding Company upon consummation of the merger. Also, there
are no additional plans to adopt other anti-takeover provisions following the
merger. The Boards of Directors of the Bank and the Holding Company unanimously
authorized these provisions. The Holding Company Board of Directors has an
interest in the adoption of the these provisions. For example, the provision
providing for staggered terms serves to stabilize the composition of the Board
of Directors.
These provisions also contain supermajority voting requirements which
are designed to enhance the protections afforded. California law requires the
renewal every two years of all provisions in articles of incorporation which
contain supermajority vote requirements and, further, provides that the
supermajority vote requirement cannot exceed the lesser of the percentage of
shareholders voting in favor or 66-2/3%. VIB Corp intends to submit these
provisions and the "Fair Price Provision" discussed below to its shareholders at
the 1998 Annual Meeting for ratification.
VIB Corp's Articles of Incorporation also contain a Fair Price Provision
not contained in the Bank's Articles of Incorporation. The Fair Price Provision
is intended to prevent certain of the potential inequities of business
combinations to which the Holding Company may be a party which are part of a
"two-step" transaction. In the absence of the Fair Price Provision, a purchaser
who acquired control of the Holding Company could subsequently, by virtue of
such control, force the remaining shareholders to sell or exchange their shares
at a price which might not fully reflect any premium such purchaser may have
paid in order to acquire his controlling interest. The Fair Price Provision is
designed to ensure that shareholders of the Holding Company will receive fair
and equitable treatment in the event of a business combination or other
significant transaction between the Holding Company and a shareholder of the
Holding Company (or business entity controlled by such shareholder) who holds a
ten percent (10%) or more stock interest in the Holding Company at the time of
the proposed transaction. The most significant aspects of the Fair Price
Provision are: (i) imposing supermajority shareholder vote or disinterested
director approval requirements in connection with certain mergers, acquisitions
and other business combinations, unless specified minimum price and procedural
requirements are satisfied in the proposed transaction; and (ii) imposing a
supermajority shareholder vote requirement for an amendment, change or repeal of
the Fair Price Provision. The Fair Price Provision may also be characterized as
an "anti-takeover" provision as the overall effect of the Fair Price Provision
may be to discourage any attempt to take over control of the Holding Company.
The Fair Price Provision makes it more difficult for a large block of voting
securities of the Holding Company to acquire the Holding Company in a merger or
other transaction which has not been approved by the Holding Company's Board of
Directors. Accordingly, the effect of the Fair Price Provision may be to deprive
shareholders of an opportunity to sell their shares at a premium over prevailing
market prices as takeover bids frequently involve purchases of stock directly
from shareholders at such a premium.
The Bank's and the Holding Company's corporate structures differ with
respect to assessment, dividends, and amendments to their charter documents.
Under the provisions of California law, the shares of the Holding Company's
Common Stock are not subject to assessment, but the shares of the Bank's Common
Stock are subject to assessment under certain circumstances. If the contributed
capital of the Bank becomes impaired (that is, if there is an accumulated
deficit retained earnings in excess of 40% of contributed capital) the
Commissioner is required to order the Bank to restore its contributed capital
within 60 days of the making of such an order. If the contributed capital is not
restored by other means, the Bank's Board of Directors is required to levy an
assessment upon shares of the Bank's Common Stock to provide for such
restoration. If such assessment is not paid when due, the shares may be sold by
the Bank or be forfeited to the Bank in satisfaction of the assessment and
penalties thereon. Prior to the date of sale, a shareholder whose shares are
delinquent may redeem them by paying the full amount of the assessment, together
with a penalty of 5% of the amount of the assessment on such shares. The Bank's
only remedy for the collection of any such assessment is the sale or forfeiture
of the shares as described above.
Under California law, funds available for cash dividend payments by a
bank are restricted to the lesser of: (1) retained earnings; or (2) the bank's
net income for its last three fiscal years (less any distributions to
shareholders
8
<PAGE> 18
made during such period). Cash dividends may also be paid out of the greater of:
(i) net income for a bank's last preceding fiscal year; (ii) a bank's retained
earnings; or (iii) net income for a bank's current fiscal year, upon the prior
approval of the Commissioner. If the Commissioner finds that the stockholders'
equity of a bank is not adequate or that the payment of a dividend would be
unsafe or unsound for the bank, the Commissioner may order the bank not to pay
any dividend to the bank's shareholders. Under California law, the Holding
Company would be prohibited from paying dividends unless: (1) its retained
earnings immediately prior to the dividend payment equals or exceeds the amount
of the dividend; or (2) immediately after giving effect to the dividend (i) the
sum of the Holding Company's assets would be at least equal to 125% of its
liabilities, or, if the average of its earnings before taxes on income and
before interest expense for the two preceding fiscal years was less than the
average of its interest expense for the two preceding fiscal years, the current
assets of the Holding Company would be at least equal to 125% of its current
liabilities. Pursuant to the foregoing statutory formulas, as of December 31,
1997, the maximum amount the Bank would have been permitted to pay in cash
dividends would have been $4.1 million and the maximum amount the Holding
Company would have been permitted to pay in cash dividends, assuming the merger
was consummated prior to that date, would have been $4.1 million. (See "BANK
HOLDING COMPANY REORGANIZATION Dividends" herein.)
With respect to their charter documents, under California law,
amendments to the Bank's Articles of Incorporation require the Commissioner's
approval, in addition to any shareholder approvals which may be required.
Amendments to the Holding Company's Articles of Incorporation do not require the
Commissioner's approval.
Finally, after consummation of the merger, matters requiring the
approval of the Bank's shareholders, such as amendments to the Bank's Articles
of Incorporation or, a merger of the Bank and another corporation, will be
subject to the approval of the Holding Company as the Bank's sole shareholder.
The Bank's present shareholders will become the shareholders of the Holding
Company and will be entitled to vote on similar matters affecting that
corporation.
THE HOLDING COMPANY
The Holding Company was incorporated under the laws of the State of
California on November 7, 1997, at the direction of the Board of Directors of
the Bank for the purpose of acquiring all of the outstanding shares of the
Bank's Common Stock.
The Holding Company has filed an application with the FRB for prior
approval to become a bank holding company and applications with the FDIC and the
Commissioner for approval of the proposed merger. The Holding Company has not
yet engaged in business activity, and there are no current plans to engage in
any activities other than acting as a holding company for the Bank.
The Holding Company presently has total assets of $1,000, owns no
properties and, therefore, as necessary, will use the Bank's existing premises,
facilities and personnel. The Holding Company's needs in this regard are
expected to be minimal, and the Holding Company will reimburse the Bank for such
expenses. The Holding Company's offices are located in the Bank's offices at
1498 Main Street, El Centro, California. The Holding Company does not
contemplate any substantial expenditures for equipment, office space, or
additional personnel prior to consummation of the merger or for the foreseeable
future.
The Holding Company is not a party to any pending legal proceedings
before any court, administrative agency or other tribunal. Further, the Holding
Company is not aware of any material litigation which is threatened against it
or the Bank in any court, administrative agency, or other tribunal.
After consummation of the merger, the business of the Bank will then be
carried on as a subsidiary of the Holding Company. Administrative expenses and
taxes incurred in the operation of the Holding Company will be in addition to
those of the Bank; however, the merger is not expected to result in any change
in management remuneration or benefits. It is anticipated that the Bank will pay
a cash dividend in the amount of $350,000 to the Holding Company to provide the
Holding Company with liquid resources to fund its separate operations.
DIRECTORS AND EXECUTIVE OFFICERS
After the merger, the Bank's directors will remain the same and will, in
addition, continue to serve as the directors of the Holding Company until the
1998 Annual Meetings of Shareholders of both corporations or until their
successors are elected and have qualified. The following officers of the Bank
have been appointed to serve as the initial officers of the Holding Company:
9
<PAGE> 19
<TABLE>
<CAPTION>
POSITION WITH POSITION WITH THE
NAME THE BANK HOLDING COMPANY
- ---- -------- ---------------
<S> <C> <C>
Richard D. Foss Chairman of the Board Chairman of the Board
Dennis L. Kern President and Chief President and Chief
Executive Officer Executive Officer
Harry G. Gooding, III Executive Vice President and Executive Vice President and
Chief Financial Officer Chief Financial Officer
Charlotte Studer Corporate Secretary Corporate Secretary
</TABLE>
The following table provides certain information as of December 26,
1997, regarding the Bank's directors and executive officers. The persons
identified below as members of the Bank's Board of Directors were elected to the
Bank's Board by its shareholders at the annual meeting held on April 24, 1997,
and were appointed to the Holding Company's Board by the sole incorporator on
November 11, 1997. None of the directors or executive officers of the Bank were
selected pursuant to any arrangement or understanding, other than with the
directors and executive officers of the Bank, acting within their capacities as
such. There are no family relationships between the directors and executive
officers of the Bank and none of the directors or executive officers of the Bank
serve as directors of any other company which has a class of securities
registered under, or which is subject to the periodic reporting requirements of,
the Securities Exchange Act of 1934 or any investment company registered under
the Investment Company Act of 1940.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION YEAR FIRST ELECTED
OR EMPLOYMENT OR APPOINTED A
NAME AND TITLE AGE FOR THE PAST FIVE YEARS DIRECTOR OR OFFICER
- -------------- --- ----------------------- -------------------
<S> <C> <C> <C>
Jack Brittain, Jr., 49 Senior Vice President, 1988
Executive Vice President and Valley Independent Bank
Chief Credit Officer
Charles Ellis, 69 President, Coachella Valley Insurance 1995
Director Service, Inc.
R. Stephen Ellison, 48 President, Jordan/Central Implement 1990
Director (Machinery)
Richard D. Foss, 57 President, Foss Accountancy 1980
Chairman of the Board of Directors Corporation, Certified Public
Accountants
Harry G. Gooding, III, 50 Senior Vice President, 1991
Executive Vice President and Valley Independent Bank
Chief Financial Officer
Dennis L. Kern, 58 President and Chief Executive Officer, 1983
Director, President, and Valley Independent Bank
Chief Executive Officer
Edward McGrew, 59 Owner-Operator of MAGCO (general 1983
Director farming and cattle feeding)
Ronald A. (Rusty) Pedersen, 63 Owner, Imperial Pre-Mix Co. (cattle feed 1983
Vice Chairman of the supplement manufacturing)
Board of Directors
Martin E. Plourd, 39 Senior Vice President, 1986
Executive Vice President and Valley Independent Bank
Branch Administrator
John L. Skinner, 67 Owner, T.C. Worthy Cash & Carry 1990
Director
</TABLE>
10
<PAGE> 20
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION YEAR FIRST ELECTED
OR EMPLOYMENT OR APPOINTED A
NAME AND TITLE AGE FOR THE PAST FIVE YEARS DIRECTOR OR OFFICER
- -------------- --- ----------------------- -------------------
<S> <C> <C> <C>
Thomas Topuzes, 50 Senior Vice President, 1991
Executive Vice President and Valley Independent Bank
Chief Administrative Officer
Alice Helen Lowery Westerfield, 68 Regional Customer Relations Officer 1992
Vice Chairman of the Board of Valley Independent Bank (1993 to
Directors 1997); previously Chairman, President
and Chief Executive Officer, The First
National Bank in Coachella
</TABLE>
SUPERVISION AND REGULATION - VIB CORP
The Bank Holding Company Act of 1956, as amended, places the Holding
Company under supervision of the Board of Governors of the Federal Reserve
System (the "FRB"). In the future, the Holding Company will be required to
obtain the approval of the FRB before it may acquire all or substantially all of
the assets of any bank, or ownership or control of any voting securities of any
bank if, after giving effect to such acquisition, the Holding Company would own
or control more than 5% of the voting shares of such bank.
A bank holding company is prohibited from engaging in, or acquiring
direct or indirect control of more than 5% of the voting shares of any company
engaged in, non-banking activities unless the FRB, by order or regulation, has
found such activities to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In making such
determinations, the FRB considers whether the performance of such activities by
a bank holding company would offer advantages to the public which outweigh
possible adverse effects. (See "BANK HOLDING COMPANY REORGANIZATION - Permitted
Non-Banking Activities" herein.)
The Holding Company will be required to file reports with the FRB and
provide such additional information as the FRB may require. The FRB will also
have the authority to examine the Holding Company and each of its subsidiaries
with the cost thereof to be borne by the Holding Company.
Under California banking law, the Holding Company and its subsidiaries
are also subject to examination by, and may be required to file reports with,
the Commissioner. Regulations have not yet been proposed or adopted or steps
otherwise taken to implement the Commissioner's powers in this regard.
The Holding Company and any subsidiaries which it may acquire or
organize after the merger will be deemed affiliates of the Bank within the
meaning of the Federal Reserve Act. Pursuant thereto, loans by the Bank to
affiliates, investments by the Bank in affiliates' stock, and taking affiliates'
stock by the Bank as collateral for loans to any borrower will be limited to 10%
of the Bank's capital in the case of all affiliates. (See "COMPENSATION AND
OTHER TRANSACTIONS WITH MANAGEMENT AND OTHERS - Certain Transactions" herein.)
The Holding Company and its subsidiaries will also be subject to certain
restrictions with respect to engaging in the underwriting, public sale and
distribution of securities.
The Holding Company and its subsidiaries are prohibited from engaging in
certain tying arrangements in connection with any extension of credit, sale or
lease of property or furnishing of services. For example, with certain
exceptions the Bank may not condition an extension of credit on a customer's
obtaining other services provided by it, the Holding Company or any other
subsidiary, or on a promise from its customer not to obtain other services from
a competitor.
The shares of the Holding Company's Common Stock to be issued in
connection with the merger will be registered with the SEC pursuant to the
Securities Act of 1933. Future stock issuances by the Holding Company will be
subject to registration with the SEC, absent available exemptions, in accordance
with the SEC's rules and regulations.
The shares of the Holding Company's Common Stock to be issued in
connection with the merger will be exempt from registration or qualification
with the California Department of Corporations (the "DOC").
PERMITTED NON-BANKING ACTIVITIES
The FRB's Regulation "Y" sets out those activities which are regarded as
closely related to banking or managing or controlling banks and, thus,
permissible for bank holding companies under the law, subject to the FRB's
11
<PAGE> 21
approval or prior notification; depending on the activity. The future scope of
permitted activities may change; however, the major non-banking activities which
may presently be carried on by a bank holding company or its affiliates are:
(1) Making or acquiring loans or other extensions of credit for its own
account or for the account of others.
(2) Servicing loans and other extensions of credit for any person.
(3) Operating an industrial bank, Morris Plan bank, or industrial loan
company, as authorized under state law, so long as the institution is not
a bank.
(4) Operating a trust company in the manner authorized by federal or state
law, so long as the institution is not a bank and does not make loans or
investments or accept deposits, except as permitted under the FRB's
Regulation Y.
(5) Subject to certain limitations, acting as an investment or financial
adviser to investment companies and other persons.
(6) Leasing personal and real property or acting as agent, broker, or adviser
in leasing such property in accordance with various restrictions imposed
by Regulation Y, including a restriction that it is reasonably anticipated
that each lease will compensate the lessor for not less than the lessor's
full investment in the property.
(7) Making equity and debt investments in corporations or projects designed
primarily to promote community welfare.
(8) Providing financial, banking, or economic data processing and data
transmission services, facilities, data bases, or providing access to such
services, facilities, or data bases.
(9) Acting as principal, agent, or broker for insurance directly related to
extensions of credit which are limited to assuring the repayment of debts
in the event of death, disability, or involuntary unemployment of the
debtor.
(10) Acting as agent or broker for insurance directly related to extensions of
credit by a finance company subsidiary.
(11) Owning, controlling, or operating a savings association provided that the
savings association engages only in activities permitted for bank holding
companies under Regulation Y.
(12) Providing courier services of limited character.
(13) Providing management consulting advice to non-affiliated bank and nonbank
depository institutions, subject to the limitations imposed by Regulation
Y.
(14) Selling money orders, travelers' checks and U.S. Savings Bonds.
(15) Appraisal of real estate and personal property.
(16) Acting as an intermediary for the financing of commercial or industrial
income-producing real estate.
(17) Providing securities brokerage services, related securities credit
activities pursuant to Regulation T, and other incidental activities.
(18) Underwriting and dealing in obligations of the U.S., general obligations
of states and their political subdivisions, and other obligations
authorized for state member banks under federal law.
(19) Providing general information and statistical forecasting, advisory and
transactional services with respect to foreign exchange through a
separately incorporated subsidiary.
12
<PAGE> 22
(20) Acting as a futures commission merchant for non-affiliated persons in the
execution and clearance on major commodity exchanges of futures contracts
and options on futures contracts through a separately incorporated
subsidiary.
(21) Providing investment advice, including counsel, publications, written
analysis and reports, as a futures commission merchant with respect to the
purchase and sale of futures contracts and options on futures contracts.
(22) Providing advice, educational courses, and instructional materials to
consumers on individual financial management matters.
(23) Providing individuals, businesses, and nonprofit organizations and tax
planning and tax preparation services.
(24) Providing check guaranty services.
(25) Operating an agency for the collection of overdue accounts.
(26) Operating a consumer credit bureau for the collection and reporting of
consumer credit information.
FEDERAL INCOME TAX CONSEQUENCES
The Merger Agreement has been structured to qualify the merger as a
tax-free reorganization under Section 368(a)(1)(A) of the Internal Revenue Code
of 1986, as amended. An advance ruling from the Internal Revenue Service to that
effect has not been obtained and will not be sought. The following summarizes
the federal income tax consequences of the merger:
(1) No gain or loss will be recognized by the parties to the merger as a
result of the merger;
(2) The basis and holding periods of the assets exchanged between the parties
to the merger shall remain the same as those prior to the merger;
(3) No gain or loss will be recognized by the shareholders of the Bank upon
the exchange of their shares of the Bank's Common Stock and warrants
solely for shares of the Holding Company's Common Stock and warrants and
the basis in their shares of the Holding Company's Common Stock and
warrants received will be the same as that in their shares in the Bank's
Common Stock and warrants exchanged; and
(4) Where shareholders held their shares in the Bank's Common Stock and
warrants as a capital asset, the period of time for which they have held
such stock and warrants shall be included in their holding period for the
Holding Company's Common Stock and warrants received in the exchange.
MANAGEMENT CANNOT ADVISE INDIVIDUAL SHAREHOLDERS AND PROSPECTIVE
SHAREHOLDERS OF THE PROPER TAX CONSEQUENCES OR SUGGEST THE METHODS OF REPORTING
THE MERGER. EACH SHAREHOLDER OR PROSPECTIVE SHAREHOLDER IS ADVISED TO CONTACT
HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE MERGER AND THE MEANS OF REPORTING
THE TRANSACTION, AS WELL AS REGARDING STATE OR LOCAL TAX CONSEQUENCES, WHICH MAY
OR MAY NOT PARALLEL THE FEDERAL INCOME TAX CONSEQUENCES.
DISSENTERS' RIGHTS
California law does not provide dissenters' rights for holders of the
Bank's Common Stock who object to the merger.
RESTRICTIONS ON AFFILIATES
The obligation of the Bank and the Holding Company to consummate the
merger is subject to the condition that each person who is an "affiliate" of the
Bank for the purposes of Rule 145 promulgated under the Securities Act of 1933,
as amended (the "Securities Act"), executes and delivers a letter to the effect
that, among other things: (1) such person will not dispose of any shares of the
Holding Company's Common Stock to be received by him pursuant to the Merger
Agreement (a) in violation of the Securities Act or the rules and regulations of
the SEC promulgated thereunder (and, accordingly, that any public offering or
sale of such shares will require either registration under the Securities Act or
compliance with the resale provisions of Rule 145 or the availability of another
exemption from the registration requirements of the Securities Act), or (b)
prior to such time as financial results covering at least 30 days
13
<PAGE> 23
of post-merger combined operations have been published; and (2) such person
consents to the placing of a legend on the certificate evidencing such shares
referring to the issuance of such shares in a transaction to which Rule 145 is
applicable and to the giving of stop-transfer instructions to the Holding
Company's transfer agent with respect to such certificates.
For the purposes of Rule 145, affiliates include the Bank's directors,
executive officers, and principal shareholders. According to Rule 145, the
affiliates will be restricted in their ability to resell their stock. The
restrictions include the limitation, subject to certain exemptions, that not
more than 1% of the total number of shares outstanding be sold for the account
of any affiliate in any three month period.
BUSINESS OF VALLEY INDEPENDENT BANK
Valley Independent Bank was incorporated under the laws of the State of
California on March 28, 1980, and commenced operations as a California
state-chartered bank on March 19, 1981. The Bank's deposit accounts are insured
under the Federal Deposit Insurance Act up to the maximum legal limits thereof
and the Bank is a member of the Federal Reserve System. The Bank's Main office
is located in the City of El Centro. The Bank has branch offices in Brawley,
Calexico and Holtville, in Imperial County, Blythe, Coachella, Indio, La Quinta,
Palm Desert and Thousand Palms, in Riverside County, and Julian and Tecate, in
San Diego County. The Bank also operates three loan production offices, one in
El Centro, one in Indio and one in Yuma, Arizona.
The Bank has grown through de novo branching and acquisitions. On
December 31, 1992, the Bank consummated its first acquisition, acquiring the
Coachella branch office through the merger of The First National Bank in
Coachella. During 1996 the Bank consummated two acquisitions. On June 21, 1996,
the Bank acquired the Calexico branch office of California Commerce Bank and
combined its Calexico branch with and into the acquired facility. On September
12, 1996, the Bank acquired four branches, Indio, La Quinta, Palm Desert and
Thousand Palms, by the merger of Bank of the Desert, N.A. During 1997 the Bank
consummated another acquisition. On February 14, 1997, the Bank purchased two
branches from Wells Fargo Bank, N.A., Blythe in Riverside County and Tecate in
San Diego County. These acquisitions enhanced the Bank's market share in the
Coachella Valley and the City of Calexico and expanded the Bank's geographic
market areas.
The Bank offers a full range of commercial banking services, including
the making of commercial loans and various types of consumer loans; the
acceptance of checking, savings and time deposits; NOW, super NOW and
money-market deposit accounts; and provides travelers' checks, pre-approved
overdraft lines, safe deposit and other customary non-deposit banking services.
The Bank is an agent for VISA(R) and MasterCard(R) credit cards, and is a
merchant depository for cardholder drafts under both types of credit cards. At
the present time, the Bank does not have a trust department but can provide that
service through a correspondent bank. The Bank has 24-hour automated teller
machines at its branches, which are integrated into multi-state ATM networks; as
well as drive-through banking service at the majority of its branch locations.
MARKET AREA
With its main office and branch offices, the Bank's primary service
areas includes the cites and surrounding rural areas in the Imperial Valley and
Coachella Valley. Agriculture is the major economic activity within Imperial
County, with year-round harvesting. El Centro is Imperial County's largest city
and also serves as the county's financial center. Agriculture is also the most
significant economic activity in the Coachella Valley, although the tourism,
retail and service industries are growing. The Bank's customers include
individuals, many of whom are farmers or ranchers, and small-to-medium sized
businesses.
The Julian office, opened in 1995, and the Tecate office, acquired in
1997, expand the Bank's service area to eastern San Diego County. The Julian
office serves customers in that and neighboring eastern San Diego County
mountain communities. The Tecate office services customers on both sides of the
international border.
The Blythe office, acquired in 1997, extends the Bank's service area to
the Palo Verde Valley, along the Colorado River, in eastern Riverside County.
Blythe, the only incorporated city on the eastern side of Riverside County along
Interstate 10, serves as the major service and retail center for eastern
Riverside County and the Palo Verde Valley, including communities on the Arizona
side of the river.
The Bank has its own "home page" address on the world wide web as an
additional means of expanding its market and providing banking services through
the internet. The Bank's internet address is: http://www.vibank.com.
COMPETITION
The banking business in California, generally, and in the Bank's service
areas, is highly competitive with respect to both loans and deposits and is
dominated by a number of major banks which have many offices operating over wide
geographic areas. The Bank competes for deposits and loans principally with
these major banks, savings
14
<PAGE> 24
and loan associations, finance companies, credit unions and other financial
institutions located in the Bank's market area. Among the advantages which the
major banks have over the Bank are their ability to finance extensive
advertising campaigns and to allocate their investment assets to regions of
highest yield and demand. Many of the major commercial banks operating in the
Bank's service area offer certain services (such as trust and international
banking services) which are not offered directly by the Bank and, by virtue of
their greater total capitalization, such banks have substantially higher lending
limits than the Bank.
Moreover, banks generally, and the Bank in particular, face increasing
competition for loans and deposits from non-bank financial intermediaries such
as savings and loan associations, thrift and loan associations, credit unions,
mortgage companies, insurance companies, and other lending institutions. The
Depository Institutions Deregulation and Monetary Control Act of 1980 ("DIDA")
authorized savings and loan associations and credit unions to make certain
consumer loans. The Garn-St. Germain Depository Institutions Act of 1982 (the
"Garn-St. Germain Act") and California legislation further expanded the power of
savings and loan associations to make consumer and commercial loans in
competition with commercial banks. Further, DIDA and a 1979 amendment to the
usury provisions of the California Constitution have resulted in the inflow of
lendable funds from out-of-state lenders and in increased competition from
previously non-exempt in-state lenders for loans.
Historically, banks were not permitted to pay the same rates of interest
on similar deposit accounts as those offered by savings and loan associations,
credit unions and money-market funds. DIDA began the process of deregulating
interest rate controls and the Garn-St. Germain Act, which authorized banks and
savings and loan associations to pay money-market interest rates on most types
of accounts and eliminated interest rate differentials between banks and savings
and loan associations, and subsequent actions of federal regulatory agencies
have accelerated the deregulation process, enabling banks to compete more
effectively for deposits.
However, banks have faced increasing competition for deposits because
these same legislative and regulatory developments have permitted non-bank
financial intermediaries to offer certain types of deposit accounts not
previously permitted.
Further, the recent trend has been for other institutions, such as
brokerage firms, credit card companies, and even retail establishments, to offer
alternative investment vehicles, such as money market funds, as well as to offer
traditional banking services such as check access to money market funds and cash
advances on credit card accounts. In addition, other entities (both public and
private) seeking to raise capital through the issuance and sale of debt or
equity securities also compete with the Bank in the acquisition of deposits.
In order to compete with the other financial institutions in its market
areas the Bank relies principally upon local promotional activity, personal
contacts by its officers, directors, employees and shareholders, and specialized
services. In conjunction with the Bank's business plan to serve the financial
needs of local residents and small- to medium-sized businesses, the Bank also
relies on a formalized officer calling program to existing and prospective
customers and the Bank focuses its overall marketing efforts towards the local
community. The Bank's promotional activities emphasize the advantages of dealing
with a locally-owned and headquartered institution sensitive to the particular
needs of the local community. For customers whose loan demands exceed the Bank's
lending limit, the Bank attempts to arrange for such loans on a participation
basis with other banks. The Bank also assists customers requiring services not
offered by the Bank to obtain these services from its correspondent banks.
SUPERVISION AND REGULATION - VALLEY INDEPENDENT BANK
GENERAL. As a state-chartered bank whose deposits are insured by the
Federal Deposit Insurance Corporation up to the maximum extent provided by law,
the Bank is subject to supervision, examination and regulation by the California
Department of Financial Institutions and by federal bank regulatory agencies.
The Bank's primary federal bank regulatory agency is the Board of Governors of
the Federal Reserve System but the Bank is also subject to certain regulations
of the FDIC. The regulations of these agencies govern most aspects of the Bank's
business, including capital adequacy ratios, reserves against deposits,
restrictions on the rate of interest which may be paid on some deposit
instruments, limitations on the nature and amount of loans which may be made,
the location of branch offices, borrowings, and dividends. Supervision,
regulation and examination of the Bank by the regulatory agencies are generally
intended to protect depositors and are not intended for the protection of the
Bank's shareholders.
RECENT LEGISLATION AND REGULATORY CHANGES
1. INTRODUCTION
General. From time to time legislation is proposed or enacted which has
the effect of increasing the cost of doing business and changing the competitive
balance between banks and other financial and non-financial institutions.
Various federal laws enacted over the past several years have provided, among
other things, for the maintenance of mandatory reserves with the Federal Reserve
Bank on deposits by depository institutions (state reserve requirements have
been eliminated); the phasing-out of the restrictions on the amount of interest
which financial
15
<PAGE> 25
institutions may pay on certain of their customers' accounts; and the
authorization of various types of new deposit accounts, such as NOW accounts,
"Money Market Deposit" accounts and "Super NOW" accounts, designed to be
competitive with money market mutual funds and other types of accounts and
services offered by various financial and non-financial institutions. The
lending authority and permissible activities of certain non-bank financial
institutions such as savings and loan associations and credit unions have been
expanded, and federal regulators have been given increased authority and means
for providing financial assistance to insured depository institutions and for
effecting interstate and cross-industry mergers and acquisitions of failing
institutions. These laws have generally had the effect of altering competitive
relationships existing among financial institutions, reducing the historical
distinctions between the services offered by banks, savings and loan
associations and other financial institutions, and increasing the cost of funds
to banks and other depository institutions.
Other legislation has been proposed or is pending before the United
States Congress which would effect the financial institutions industry. Such
legislation includes wide-ranging proposals to further alter the structure,
regulation and competitive relationships of the nation's financial institutions,
to reorganize the federal regulatory structure of the financial institutions
industry, to subject banks to increased disclosure and reporting requirements,
and to expand the range of financial services which banks and bank holding
companies can provide. Other proposals which have been introduced or are being
discussed would equalize the relative powers of savings and loan holding
companies and bank holding companies, and authorize such holding companies to
engage in insurance underwriting and brokerage, real estate development and
brokerage, and certain securities activities, including underwriting and dealing
in United States Government securities and municipal securities, sponsoring and
managing investment companies and underwriting the securities thereof. It cannot
be predicted whether or in what form any of these proposals will be adopted, or
to what extent they will effect the various entities comprising the financial
institutions industry.
Certain of the potentially significant changes which have been enacted
in the past several years are discussed below.
Interstate Banking. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle- Neal Act"), enacted on September 29, 1994,
repealed the McFadden Act of 1927, which required states to decide whether
national or state banks could enter their state, and, effective June 1, 1997,
allows banks to open branches across state lines. The Riegle-Neal Act also
repealed the 1956 Douglas Amendment to the Bank Holding Company Act, which
placed the same requirements on bank holding companies. The repeal of the
Douglas Amendment made it possible for bank holding companies to buy
out-of-state banks in any state after September 29, 1995, which, after June 1,
1997, may now be converted into interstate branches.
The Riegle-Neal Act permitted interstate banking to begin effective
September 29, 1995. The amendment to the Bank Holding Company Act permits bank
holding companies to acquire banks in other states provided that the acquisition
does not result in the bank holding company controlling more than 10 percent of
the deposits in the United States, or 30 percent of the deposits in the state in
which the bank to be acquired is located. However, the Riegle-Neal Act also
provides that states have the authority to waive the state concentration limit.
Individual states may also require that the bank being acquired be in existence
for up to five years before an out-of-state bank or bank holding company may
acquire it.
The Riegle-Neal Act provides that, since June 1, 1997, interstate
branching and merging of existing banks is permitted, provided that the banks
are at least adequately capitalized and demonstrate good management. Interstate
mergers and branch acquisitions were permitted at an earlier time if the state
choose to enact a law allowing such activity. The states were also authorized to
enact laws to permit interstate banks to branch de novo.
On September 28, 1995, the California Interstate Banking and Branching
Act of 1995 ("CIBBA") was enacted and signed into law. CIBBA authorized
out-of-state banks to enter California by the acquisition of or merger with a
California bank that has been in existence for at least 5 years, unless the
California bank is in danger of failing or in certain other emergency
situations. CIBBA allows a California state bank to have agency relationships
with affiliated and unaffiliated insured depository institutions and allows a
bank subsidiary of a bank holding company to act as an agent to receive
deposits, renew time deposits, service loans and receive payments for a
depository institution affiliate.
Proposed Expansion of Securities Underwriting Authority. Various bills
have been introduced in the United States Congress which would expand, to a
lesser or greater degree and subject to various conditions and limitations, the
authority of bank holding companies to engage in the activity of underwriting
and dealing in securities. Some of these bills would authorize securities firms
(through the holding company structure) to own banks, which could result in
greater competition between banks and securities firms. No prediction can be
made as to whether any of these bills will be passed by the United States
Congress and enacted into law, what provisions such a bill might contain, or
what effect it might have on the Bank.
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<PAGE> 26
Expansion of Investment Opportunities for California State-Chartered
Banks. Legislation enacted by the State of California has substantially expanded
the authority of California state-chartered banks to invest in real estate,
corporate stock and other corporate securities. National banks are governed in
these areas by federal law, the provisions of which are more restrictive than
California law. However, provisions of the Federal Deposit Insurance Corporation
Improvement Act of 1991, discussed below, limits state-authorized activities to
that available to national banks.
2. FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT
OF 1989.
General. On August 9, 1989, the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 ("FIRREA") was signed into law. This legislation has
resulted in major changes in the regulation of insured financial institutions,
including significant changes in the authority of government agencies to
regulate insured financial institutions.
Under FIRREA, the Federal Savings and Loan Insurance Corporation
("FSLIC") and the Federal Home Loan Bank Board were abolished and the FDIC was
authorized to insure savings associations, including federal savings
associations, state chartered savings and loans and other corporations
determined to be operated in substantially the same manner as a savings
association. FIRREA established two deposit insurance funds to be administered
by the FDIC. The money in these two funds is separately maintained and not
commingled. The FDIC Permanent Insurance Fund was replaced by the Bank Insurance
Fund (the "BIF") and the FSLIC deposit insurance fund was replaced by the
Savings Association Insurance Fund (the "SAIF").
Deposit Insurance Assessments. Under FIRREA, the premium assessments
made on banks and savings associations for deposit insurance were initially
increased, with rates set separately for banks and savings associations, subject
to statutory restrictions. The Omnibus Budget Reconciliation Act of 1990,
designed to address the federal budget deficit, increased the insurance
assessment rates for members of the BIF and the SAIF over that provided by
FIRREA, and eliminated FIRREA's maximum reserve-ratio constraints on the BIF.
The FDIC raised BIF premiums to .23(cent) per $100 in insured deposits for 1993
from a base of .12(cent) in 1990.
Effective January 1, 1994, the FDIC implemented a risk-based assessment
system, under which an institution's premium assessment is based on the
probability that the deposit insurance fund will incur a loss with respect to
the institution, the likely amount of such loss, and the revenue needs of the
deposit insurance fund. As long as BIF's reserve ratio is less than a specified
"designated reserve ratio," 1.25%, the total amount raised from BIF members by
the risk-based assessment system may not be less than the amount that would be
raised if the assessment rate for all BIF members were .23(cent) per $100 in
insured deposits. The FDIC determined that the designated reserve ratio was
achieved on May 31, 1995. Accordingly, on August 8, 1995, the FDIC issued final
regulations adopting an assessment rate schedule for BIF members of 4(cent) to
31(cent) per $100 in insured deposits that became effective June 1, 1995. On
November 14, 1995, the FDIC further reduced the BIF assessment rates by 4(cent)
so that effective January 1, 1996, the premiums ranged from zero to 27(cent) per
$100 in insured deposits, but in any event not less than $2,000 per year.
Under the risk-based assessment system, a BIF member institution such as
the Bank is categorized into one of three capital categories (well capitalized,
adequately capitalized, and undercapitalized) and one of three categories based
on supervisory evaluations by its primary federal regulator (in the Bank's case,
the FDIC). The three supervisory categories are: financially sound with only a
few minor weaknesses (Group A), demonstrates weaknesses that could result in
significant deterioration (Group B), and poses a substantial probability of loss
(Group C). The capital ratios used by the FDIC to define well-capitalized,
adequately capitalized and undercapitalized are the same as in the FDIC's prompt
corrective action regulations (discussed below). The BIF assessment rates since
January 1, 1996 are summarized below; assessment figures are expressed in terms
of cents per $100 in insured deposits.
ASSESSMENT RATES EFFECTIVE JANUARY 1, 1996
<TABLE>
<CAPTION>
Supervisory Group
Capital Group Group A Group B Group C
- ------------- ------- ------- -------
<S> <C> <C> <C>
Well Capitalized 0 3 17
Adequately Capitalized 3 10 24
Undercapitalized 10 24 27
</TABLE>
The Deposit Insurance Funds Act of 1996, signed into law on September
30, 1996, eliminated the minimum assessment, commencing with the fourth quarter
of 1996. In addition, after December 31, 1996, banks are required to share in
the payment of interest on Financing Corp. ("FICO") bonds. Previously, the FICO
debt was paid out of
17
<PAGE> 27
the SAIF assessment base. The assessments imposed on insured depository
institutions with respect to any BIF- assessable deposit will be assessed at a
rate equal to 1/5 of the rate of the assessments imposed on insured depository
institutions with respect to any SAIF-assessable deposit. For the first quarter
of 1997, the SAIF-FICO assessment rate was 6.48(cent) per $100 in insured
deposits. Accordingly, the BIF-FICO assessment rate was 1.296(cent) per $100 in
insured deposits. For the second quarter of 1997, the SAIF-FICO assessment rate
was 6.5(cent) per $100 in insured deposits and the BIF-FICO assessment rate was
1.3(cent) per $100 in insured deposits. Although the FICO assessment rates are
annual rates, they are subject to change quarterly. Since the FICO bonds do not
mature until the year 2019, it is conceivable that banks will continue to share
in the payment of the interest on the bonds until then.
With certain limited exceptions, FIRREA prohibits a bank from changing
its status as an insured depository institution with the BIF to the SAIF and
prohibits a savings association from changing its status as an insured
depository institution with the SAIF to the BIF, without the prior approval of
the FDIC.
FDIC Receiverships. Pursuant to FIRREA, the FDIC may be appointed
conservator or receiver of any insured bank or savings association. In addition,
FIRREA authorized the FDIC to appoint itself as sole conservator or receiver of
any insured state bank or savings association for any, among others, of the
following reasons: (i) insolvency of such institution; (ii) substantial
dissipation of assets or earnings due to any violation of law or regulation or
any unsafe or unsound practice; (iii) an unsafe or unsound condition to transact
business, including substantially insufficient capital or otherwise; (iv) any
willful violation of a cease and desist order which has become final; (v) any
concealment of books, papers, records or assets of the institution; (vi) the
likelihood that the institution will not be able to meet the demands of its
depositors or pay its obligations in the normal course of business; (vii) the
incurrence or likely incurrence of losses by the institution that will deplete
all or substantially all of its capital with no reasonable prospect for the
replenishment of the capital without federal assistance; and (viii) any
violation of any law or regulation, or an unsafe or unsound practice or
condition which is likely to cause insolvency or substantial dissipation of
assets or earnings, or is likely to weaken the condition of the institution or
otherwise seriously prejudice the interest of its depositors.
As a receiver of any insured depository institution, the FDIC may
liquidate such institution in an orderly manner and make such other disposition
of any matter concerning such institution as the FDIC determines is in the best
interests of such institution, its depositors and the FDIC. Further, the FDIC
shall as the conservator or receiver, by operation of law, succeed to all
rights, titles, powers and privileges of the insured institution, and of any
stockholder, member, account holder, depositor, officer or director of such
institution with respect to the institution and the assets of the institution;
may take over the assets of and operate such institution with all the powers of
the members or shareholders, directors and the officers of the institution and
conduct all business of the institution; collect all obligations and money due
to the institution and preserve; and conserve the assets and property of such
institution.
Enforcement Powers. Some of the most significant provisions of FIRREA
were the expansion of regulatory enforcement powers. FIRREA has given the
federal regulatory agencies broader and stronger enforcement authorities
reaching a wider range of persons and entities. Some of those provisions
included those which: (i) expanded the category of persons subject to
enforcement under the Federal Deposit Insurance Act; (ii) expanded the scope of
cease and desist orders and provided for the issuance of a temporary cease and
desist orders; (iii) provided for the suspension and removal of wrongdoers on an
expanded basis and on an industry-wide basis; (iv) prohibited the participation
of persons suspended or removed or convicted of a crime involving dishonesty or
breach of trust from serving in another insured institution; (v) required
regulatory approval of new directors and senior executive officers in certain
cases; (vi) provided protection from retaliation against "whistleblowers" and
establishes rewards for "whistleblowers" in certain enforcement actions
resulting in the recovery of money; (vii) required the regulators to publicize
all final enforcement orders; (viii) required each insured financial institution
to provide its independent auditor with its most recent Report of Condition
("Call Report"); (ix) significantly increased the penalties for failure to file
accurate and timely Call Reports; and (x) provided for extensive increases in
the amounts and circumstances for assessment of civil money penalties, civil and
criminal forfeiture and other civil and criminal fines and penalties.
Crime Control Act of 1990. The Crime Control Act of 1990 further
strengthened the authority of federal regulators to enforce capital
requirements, increased civil and criminal penalties for financial fraud, and
enacted provisions allowing the FDIC to regulate or prohibit certain forms of
golden parachute benefits and indemnification payments to officers and directors
of financial institutions.
3. RISK-BASED CAPITAL GUIDELINES.
The federal banking agencies have established risk-based capital
guidelines. The risk-based capital guidelines include both a new definition of
capital and a framework for calculating risk weighted assets by assigning assets
and off-balance sheet items to broad credit risk categories. A bank's risk-based
capital ratio is calculated by dividing its qualifying capital (the numerator of
the ratio) by its risk weighted assets (the denominator of the ratio).
A bank's qualifying total capital consists of two types of capital
components: "core capital elements" (comprising Tier 1 capital) and
"supplementary capital elements" (comprising Tier 2 capital). The Tier 1
component
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of a bank's qualifying capital must represent at least 50% of qualifying total
capital and may consist of the following items that are defined as core capital
elements: (i) common stockholders' equity; (ii) qualifying noncumulative
perpetual preferred stock (including related surplus); and (iii) minority
interest in the equity accounts of consolidated subsidiaries. The Tier 2
component of a bank's qualifying total capital may consist of the following
items: (i) allowance for loan and lease losses (subject to limitations); (ii)
perpetual preferred stock and related surplus (subject to conditions); (iii)
hybrid capital instruments (as defined) and mandatory convertible debt
securities; and (iv) term subordinated debt and intermediate-term preferred
stock, including related surplus (subject to limitations).
Assets and credit equivalent amounts of off-balance sheet items are
assigned to one of several broad risk categories, according to the obligor, or,
if relevant, the guarantor or the nature of collateral. The aggregate dollar
value of the amount in each category is then multiplied by the risk weight
associated with that category. The resulting weighted values from each of the
risk categories are added together, and this sum is the bank's total risk
weighted assets that comprise the denominator of the risk-based capital ratio.
Risk weights for all off-balance sheet items are determined by a
two-step process. First, the "credit equivalent amount" of off-balance sheet
items such as letters of credit and recourse arrangements is determined, in most
cases by multiplying the off-balance sheet item by a credit conversion factor.
Second, the credit equivalent amount is treated like any balance sheet asset and
generally is assigned to the appropriate risk category according to the obligor,
or, if relevant, the guarantor or the nature of the collateral.
The supervisory standards set forth below specify minimum supervisory
ratios based primarily on broad risk considerations. The risk-based ratios do
not take explicit account of the quality of individual asset portfolios or the
range of other types of risks to which banks may be exposed, such as interest
rate, liquidity, market or operational risks. For this reason, banks are
generally expected to operate with capital positions above the minimum ratios.
All banks are required to meet a minimum ratio of qualifying total
capital to risk weighted assets of 8%, of which at least 4% should be in the
form of Tier 1 capital net of goodwill, and a minimum ratio of Tier 1 capital to
risk weighted assets of 4%. The maximum amount of supplementary capital elements
that qualifies as Tier 2 capital is limited to 100% of Tier 1 capital net of
goodwill. In addition, the combined maximum amount of subordinated debt and
intermediate-term preferred stock that qualifies as Tier 2 capital is limited to
50% of Tier 1 capital. The maximum amount of the allowance for loan and lease
losses that qualifies as Tier 2 capital is limited to 1.25% of gross risk
weighted assets. Allowance for loan and lease losses in excess of this limit
may, of course, be maintained, but would not be included in a bank's risk-based
capital calculation.
In addition to the risk-based guidelines, the federal banking agencies
require all banks to maintain a minimum amount of Tier 1 capital to total
assets, referred to as the leverage ratio. For a bank rated in the highest of
the five categories used by regulators to rate banks, the minimum leverage ratio
of Tier 1 capital to total assets is 3%. For all banks not rated in the highest
category, the minimum leverage ratio must be at least 4% to 5%. In addition to
these uniform risk-based capital guidelines and leverage ratios that apply
across the industry, the regulators have the discretion to set individual
minimum capital requirements for specific institutions at rates significantly
above the minimum guidelines and ratios.
In December, 1993, the federal banking agencies issued an interagency
policy statement on the allowance for loan and lease losses which, among other
things, establishes certain benchmark ratios of loan loss reserves to classified
assets. The benchmark set forth by the policy statement is the sum of: (a)
assets classified loss; (b) 50% of assets classified doubtful; (c) 15% of assets
classified substandard; and (d) estimated credit losses on other assets over the
upcoming twelve months.
The federal banking agencies have recently revised their risk-based
capital rules to take account of concentrations of credit and the risks of
non-traditional activities. Concentrations of credit refers to situations where
a lender has a relatively large proportion of loans involving one borrower,
industry, location, collateral or loan type. Non-traditional activities are
considered those that have not customarily been part of the banking business but
that start to be conducted as a result of developments in, for example,
technology or financial markets. The regulations require institutions with high
or inordinate levels of risk to operate with higher minimum capital standards.
The federal banking agencies also are authorized to review an institution's
management of concentrations of credit risk for adequacy and consistency with
safety and soundness standards regarding internal controls, credit underwriting
or other operational and managerial areas.
Further, the banking agencies recently have adopted modifications to the
risk-based capital rules to include standards for interest rate risk exposures.
Interest rate risk is the exposure of a bank's current and future earnings and
equity capital arising from adverse movements in interest rates. While interest
rate risk is inherent in a bank's role as financial intermediary, it introduces
volatility to bank earnings and to the economic value of the bank. The banking
agencies have addressed this problem by implementing changes to the capital
standards to include a bank's exposure to declines in the economic value of its
capital due to changes in interest rates as a factor that the banking agencies
will consider in evaluating an institution's capital adequacy. Bank examiners
consider a bank's historical financial
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performance and its earnings exposure to interest rate movements as well as
qualitative factors such as the adequacy of a bank's internal interest rate risk
management. The federal banking agencies recently considered adopting a uniform
supervisory framework for all institutions to measure and assess each bank's
exposure to interest rate risk and establish an explicit capital charge based on
the assessed risk, but ultimately elected not to adopt such a uniform framework.
Even without such a uniform framework, however, each bank's interest rate risk
exposure is assessed by its primary federal regulator on an individualized
basis, and it may be required by the regulator to hold additional capital for
interest rate risk if it has a significant exposure to interest rate risk or a
weak interest rate risk management process.
Effective April 1, 1995, the federal banking agencies issued rules which
limit the amount of deferred tax assets that are allowable in computing a bank's
regulatory capital. The standard had been in effect on an interim basis since
March, 1993. Deferred tax assets that can be realized for taxes paid in prior
carryback years and from future reversals of existing taxable temporary
differences are generally not limited. Deferred tax assets that can only be
realized through future taxable earnings are limited for regulatory capital
purposes to the lesser of: (i) the amount that can be realized within one year
of the quarter-end report date; or (ii) 10% of Tier 1 capital. The amount of any
deferred tax in excess of this limit would be excluded from Tier 1 capital,
total assets and regulatory capital calculations.
4. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991.
General. The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") was signed into law on December 19, 1991. FDICIA recapitalized
the FDIC's Bank Insurance Fund, granted broad authorization to the FDIC to
increase deposit insurance premium assessments and to borrow from other sources,
and continued the expansion of regulatory enforcement powers, along with many
other significant changes.
Prompt Corrective Action. FDICIA established five categories of bank
capitalization: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized" and mandated the establishment of a system of "prompt
corrective action" for institutions falling into the lower capital categories.
Under FDICIA, banks are prohibited from paying dividends or management fees to
controlling persons or entities if, after making the payment the bank would be
undercapitalized, that is, the bank fails to meet the required minimum level for
any relevant capital measure. Asset growth and branching restrictions apply to
undercapitalized banks, which are required to submit acceptable capital plans
guaranteed by its holding company, if any. Broad regulatory authority was
granted with respect to significantly undercapitalized banks, including forced
mergers, growth restrictions, ordering new elections for directors, forcing
divestiture by its holding company, if any, requiring management changes, and
prohibiting the payment of bonuses to senior management. Even more severe
restrictions are applicable to critically undercapitalized banks, those with
capital at or less than 2%, including the appointment of a receiver or
conservator after 90 days, even if the bank is still solvent.
The federal banking agencies have promulgated substantially similar
regulations to implement this system of prompt corrective action. Under the
regulations, a bank shall be deemed to be: (i) "well capitalized" if it has a
total risk-based capital ratio of 10.0% or more, has a Tier 1 risk-based capital
ratio of 6.0% or more, has a leverage capital ratio of 5.0% or more and is not
subject to specified requirements to meet and maintain a specific capital level
for any capital measure; (ii) "adequately capitalized" if it has a total
risk-based capital ratio of 8.0% or more, a Tier 1 risk- based capital ratio of
4.0% or more and a leverage capital ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized"; (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less than
8.0%, a Tier 1 risk-based capital ratio that is less than 4.0%, or a leverage
capital ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, a Tier 1 risk-based capital ratio that is less than 3.0% or a
leverage capital ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%.
FDICIA and the implementing regulations also provide that a federal
banking agency may, after notice and an opportunity for a hearing, reclassify a
well capitalized institution as adequately capitalized and may require an
adequately capitalized institution or an undercapitalized institution to comply
with supervisory actions as if it were in the next lower category if the
institution is in an unsafe or unsound condition or engaging in an unsafe or
unsound practice. (The FDIC may not, however, reclassify a significantly
undercapitalized institution as critically undercapitalized.)
Operational Standards. FDICIA also granted the regulatory agencies
authority to prescribe standards relating to internal controls, credit
underwriting, asset growth and compensation, among others, and required the
regulatory agencies to promulgate regulations prohibiting excessive compensation
or fees. Many regulations have been adopted by the regulatory agencies to
implement these provisions and subsequent legislation (the Riegal Community
Development Act, discussed below) gave the regulatory agencies the option of
prescribing the safety and soundness standards as guidelines rather than
regulations.
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Regulatory Accounting Reports. Each bank with $500 million or more in
assets is required to submit an annual report to the FDIC, as well as any other
federal banking agency with authority over the bank, and any appropriate state
banking agency. This report must contain a statement regarding management's
responsibilities for: (i) preparing financial statements; (ii) establishing and
maintaining adequate internal controls; and (iii) complying with applicable laws
and regulations. In addition to having an audited financial statement by an
independent accounting firm on an annual basis, the accounting firm must
determine and report as to whether the financial statements are presented fairly
and in accordance with generally accepted accounting principles and comply with
other requirements of the applicable federal banking authority. In addition, the
accountants must attest to and report to the regulators separately on
management's compliance with internal controls.
Truth in Savings. FDICIA further established a new truth in savings
scheme, providing for clear and uniform disclosure of terms and conditions on
which interest is paid and fees are assessed on deposits. The FRB's Regulation
DD, implementing the Truth in Savings Act, became effective June 21, 1993.
Brokered Deposits. Effective June 16, 1992, FDICIA placed restrictions
on the ability of banks to obtain brokered deposits or to solicit and pay
interest rates on deposits that are significantly higher than prevailing rates.
FDICIA provides that a bank may not accept, renew or roll over brokered deposits
unless: (i) it is "well capitalized"; or (ii) it is adequately capitalized and
receives a waiver from the FDIC permitting it to accept brokered deposits paying
an interest rate not in excess of 75 basis points over certain prevailing market
rates. FDIC regulations define brokered deposits to include any deposit
obtained, directly or indirectly, from any person engaged in the business of
placing deposits with, or selling interests in deposits of, an insured
depository institution, as well as any deposit obtained by a depository
institution that is not "well capitalized" for regulatory purposes by offering
rates significantly higher (generally more than 75 basis points) than the
prevailing interest rates offered by depository institutions in such
institution's normal market area. In addition to these restrictions on
acceptance of brokered deposits, FDICIA provides that no pass-through deposit
insurance will be provided to employee benefit plan deposits accepted by an
institution which is ineligible to accept brokered deposits under applicable law
and regulations.
Lending. New regulations have been issued in the area of real estate
lending, prescribing standards for extensions of credit that are secured by real
property or made for the purpose of the construction of a building or other
improvement to real estate. In addition, the aggregate of all loans to executive
officers, directors and principal shareholders and related interests may now not
exceed 100% (200% in some circumstances) of the depository institution's
capital.
State Authorized Activities. The new legislation also created
restrictions on activities authorized under state law. FDICIA generally
restricts activities through subsidiaries to those permissible for national
banks, unless the FDIC has determined that such activities would pose no risk to
the insurance fund of which it is a member and the bank is in compliance with
applicable regulatory capital requirements, thereby effectively eliminating real
estate investment authorized under California law, and provided for a five-year
divestiture period for impermissible investments. Insurance activities were also
limited, except to the extent permissible for national banks.
5. RIEGLE COMMUNITY DEVELOPMENT AND REGULATORY IMPROVEMENT ACT OF
1994.
The Riegle Community Development and Regulatory Improvement Act of 1994
(the "1994 Act"), which has been viewed as the most important piece of banking
legislation since the enactment of FDICIA, was signed into law on September 23,
1994. In addition to providing funding for the establishment of a Community
Development Financial Institutions Fund (the "Fund"), which provides assistance
to new and existing community development lenders to help to meet the needs of
low- and moderate-income communities and groups, the 1994 Act mandated changes
to a wide range of banking regulations. These changes included modifications to
the publication requirements for Call Reports, less frequent regulatory
examination schedules for small institutions, small business and commercial real
estate loan securitization, amendments to the money laundering and currency
transaction reporting requirements of the Bank Secrecy Act, clarification of the
coverage of the Real Estate Settlement Procedures Act for business, commercial
and agricultural real estate secured transactions, amendments to the national
flood insurance program, and amendments to the Truth in Lending Act to provide
greater protection for consumers by reducing discrimination against the
disadvantaged.
The "Paperwork Reduction and Regulatory Improvement Act," Title III of
the 1994 Act, required the federal banking agencies to consider the
administrative burdens that new regulations will impose before their adoption
and requires a transition period in order to provide adequate time for
compliance. This Act also requires the federal banking agencies to work together
to establish uniform regulations and guidelines as well as to work together to
eliminate duplicative or unnecessary requests for information in connection with
applications or notices. This act reduces the frequency of examinations for
well-rated institutions, simplifies the quarterly Call Reports and eliminated
the requirement that financial institutions publish their Call Reports in local
newspapers. This Act also established an internal regulatory appeal process and
independent ombudsman to provide a means for review of material supervisory
determinations. The Paperwork Reduction and Regulatory Improvement Act also
amended the Bank Holding Company Act and Securities Act of 1933 to simplify the
formation of bank holding companies.
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Title IV of the 1994 Act amended the Bank Secrecy Act by reducing the
reporting requirements imposed on financial institutions for large currency
transactions, expanding the ability of financial institutions to provide
exemptions to the reporting requirements for businesses that regularly deal in
large amounts of currency, and providing for the delegation of civil money
penalty enforcement from the Treasury Department to the individual federal
banking agencies.
6. SAFETY AND SOUNDNESS STANDARDS.
In July, 1995, the federal banking agencies adopted final guidelines
establishing standards for safety and soundness, as required by FDICIA and the
1994 Act. The guidelines set forth operational and managerial standards relating
to internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth and
compensation, fees and benefits. Guidelines for asset quality and earnings
standards will be adopted in the future. The guidelines establish the safety and
soundness standards that the agencies will use to identify and address problems
at insured depository institutions before capital becomes impaired. If an
institution fails to comply with a safety and soundness standard, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan or to implement an accepted
plan may result in enforcement action.
The federal banking agencies issued regulations prescribing uniform
guidelines for real estate lending. The regulations require insured depository
institutions to adopt written policies establishing standards, consistent with
such guidelines, for extensions of credit secured by real estate. The policies
must address loan portfolio management, underwriting standards and loan to value
limits that do not exceed the supervisory limits prescribed by the regulations.
Appraisals for "real estate related financial transactions" must be
conducted by either state certified or state licensed appraisers for
transactions in excess of certain amounts. State certified appraisers are
required for all transactions with a transaction value of $1,000,000 or more;
for all nonresidential transactions valued at $250,000 or more; and for
"complex" 1-4 family residential properties of $250,000 or more. A state
licensed appraiser is required for all other appraisals. However, appraisals
performed in connection with "federally related transactions" must now comply
with the agencies' appraisal standards. Federally related transactions include
the sale, lease, purchase, investment in, or exchange of, real property or
interests in real property, the financing or refinancing of real property, and
the use of real property or interests in real property as security for a loan or
investment, including mortgage-backed securities.
7. CONSUMER PROTECTION LAWS AND REGULATIONS
The bank regulatory agencies are focusing greater attention on
compliance with consumer protection laws and their implementing regulations.
Examination and enforcement have become more intense in nature, and insured
institutions have been advised to monitor carefully compliance with various
consumer protection laws and their implementing regulations. The Bank is subject
to many federal consumer protection laws and their regulations including, but
not limited to, the Community Reinvestment Act (the "CRA"), the Truth in Lending
Act (the "TILA"), the Fair Housing Act (the "FH Act"), the Equal Credit
Opportunity Act (the "ECOA"), the Home Mortgage Disclosure Act ("HMDA"), and the
Real Estate Settlement Procedures Act ("RESPA").
The CRA, enacted into law in 1977, is intended to encourage insured
depository institutions, while operating safely and soundly, to help meet the
credit needs of their communities. The CRA specifically directs the federal bank
regulatory agencies, in examining insured depository institutions, to assess
their record of helping to meet the credit needs of their entire community,
including low- and moderate-income neighborhoods, consistent with safe and sound
banking practices. The CRA further requires the agencies to take a financial
institution's record of meeting its community credit needs into account when
evaluating applications for, among other things, domestic branches, consummating
mergers or acquisitions, or holding company formations.
The federal banking agencies have adopted regulations which measure a
bank's compliance with its CRA obligations on a performance-based evaluation
system. This system bases CRA ratings on an institution's actual lending service
and investment performance rather than the extent to which the institution
conducts needs assessments, documents community outreach or complies with other
procedural requirements. The FDIC has rated the Bank "satisfactory" in complying
with its CRA obligations. The ratings range from "outstanding" to a low of
"substantial noncompliance."
The ECOA, enacted into law in 1974, prohibits discrimination in any
credit transaction, whether for consumer or business purposes, on the basis of
race, color, religion, national origin, sex, marital status, age (except in
limited circumstances), receipt of income from public assistance programs, or
good faith exercise of any rights under the Consumer Credit Protection Act. In
March, 1994, the Federal Interagency Task Force on Fair Lending issued a policy
statement on discrimination in lending. The policy statement describes the three
methods that federal agencies will use to prove discrimination: overt evidence
of discrimination, evidence of disparate treatment and
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evidence of disparate impact. This means that if a creditor's actions have had
the effect of discriminating, the creditor may be held liable -- even when there
is no intent to discriminate.
The FH Act, enacted into law in 1968, regulates may practices, including
making it unlawful for any lender to discriminate in its housing-related lending
activities against any person because of race, color, religion, national origin,
sex, handicap, or familial status. The FH Act is broadly written and has been
broadly interpreted by the courts. A number of lending practices have been found
to be, or may be considered, illegal under the FH Act, including some that are
not specifically mentioned in the FH Act itself. Among those practices that have
been found to be, or may be considered, illegal under the FH Act are: declining
a loan for the purposes of racial discrimination; making excessively low
appraisals of property based on racial considerations; pressuring, discouraging,
or denying applications for credit on a prohibited basis; using excessively
burdensome qualifications standards for the purpose or with the effect of
denying housing to minority applicants; imposing on minority loan applicants
more onerous interest rates or other terms, conditions or requirements; and
racial steering, or deliberately guiding potential purchasers to or away from
certain areas because of race.
The TILA, enacted into law in 1968, is designed to ensure that credit
terms are disclosed in a meaningful way so that consumers may compare credit
terms more readily and knowledgeably. As a result of the TILA, all creditors
must use the same credit terminology and expressions of rates, the annual
percentage rate, the finance charge, the amount financed, the total payments and
the payment schedule.
HMDA, enacted into law in 1975, grew out of public concern over credit
shortages in certain urban neighborhoods. One purpose of HMDA is to provide
public information that will help show whether financial institutions are
serving the housing credit needs of the neighborhoods and communities in which
they are located. HMDA also includes a "fair lending" aspect that requires the
collection and disclosure of data about applicant and borrower characteristics
as a way of identifying possible discriminatory lending patterns and enforcing
anti- discrimination statutes. HMDA requires institutions to report data
regarding applications for one-to-four family loans, home improvement loans, and
multifamily loans, as well as information concerning originations and purchases
of such types of loans. Federal bank regulators rely, in part, upon data
provided under HMDA to determine whether depository institutions engage in
discriminatory lending practices.
RESPA, enacted into law in 1974, requires lenders to provide borrowers
with disclosures regarding the nature and costs of real estate settlements.
Also, RESPA prohibits certain abusive practices, such as kickbacks, and places
limitations on the amount of escrow accounts.
Violations of these various consumer protection laws and regulations can
result in civil liability to the aggrieved party, regulatory enforcement
including civil money penalties, and even punitive damages.
8. CONCLUSION
As a result of the recent federal and California legislation, there has
been a competitive impact on commercial banking in general and the business of
the Bank in particular. There has been a lessening of the historical distinction
between the services offered by banks, savings and loan associations, credit
unions, and other financial institutions, banks have experienced increased
competition for deposits and loans which may result in increases in their cost
of funds, and banks have experienced increased costs. Further, the federal
banking agencies have increased enforcement authority over banks and their
directors and officers.
Future legislation is also likely to impact the Bank's business.
Consumer legislation has been proposed in Congress which may require banks to
offer basic, low-cost, financial services to meet minimum consumer needs.
Various proposals to restructure the federal bank regulatory agencies are
currently pending in Congress, some of which include proposals to expand the
ability of banks to engage in previously prohibited businesses. Further, the
regulatory agencies have proposed and may propose a wide range of regulatory
changes, including the calculation of capital adequacy and limiting business
dealings with affiliates. These and other legislative and regulatory changes may
have the impact of increasing the cost of business or otherwise impacting the
earnings of financial institutions. However, the degree, timing and full extent
of the impact of these proposals cannot be predicted.
IMPACT OF MONETARY POLICIES. Banking is a business which depends on rate
differentials. In general, the difference between the interest rate paid by the
Bank on its deposits and its other borrowings and the interest rate earned by
the Bank on loans, securities and other interest-earning assets comprises the
major source of the Bank's earnings. These rates are highly sensitive to many
factors which are beyond the control of the Bank and, accordingly, the earnings
and growth of the Bank are subject to the influence of economic conditions
generally, both domestic and foreign, including inflation, recession, and
unemployment; and also to the influence of monetary and fiscal policies of the
United States and its agencies, particularly the Federal Reserve Board. The
Federal Reserve Board implements national monetary policy, such as seeking to
curb inflation and combat recession, by its open-market dealings in United
States government securities, by adjusting the required level of reserves for
financial institutions subject to reserve requirements, by placing limitations
upon savings and time deposit interest rates, and through adjustments
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to the discount rate applicable to borrowings by banks which are members of the
Federal Reserve System. The actions of the Federal Reserve Board in these areas
influence the growth of bank loans, investments, and deposits and also affect
interest rates. The nature and timing of any future changes in such policies and
their impact on the Bank cannot be predicted; however, depending on the degree
to which the Bank's interest-earning assets and interest-bearing liabilities are
rate sensitive, increases in rates have a temporary effect of increasing the
Bank's net interest margin, while decreases in interest rates have the opposite
effect.
In addition, adverse economic conditions could make a higher provision
for loan losses prudent and could cause higher loan charge-offs, thus adversely
affecting the Bank's net income.
TRADING IN THE BANK'S AND THE HOLDING COMPANY'S COMMON STOCK
The Bank's Common Stock was listed on the Nasdaq National Market
("Nasdaq") on August 25, 1997 under the symbol "VAIB." Prior to listing the
stock was traded Over-the-Counter ("OTC"). OTC quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions. During the secondary stock offering which took place in the
third and fourth quarters of 1997, warrants were issued. Each warrant entitles
the holder to purchase one share of common stock at an exercise price of
$19.11(1) per share through October 31, 1998 and at $22.05(1) per share through
October 29, 1999, when they expire.
The Bank is aware of two securities dealers, Hoefer & Arnett, Inc., San
Francisco, California and Sutro & Company, Inc., Big Bear, California (the
"Market Makers"), which handled trades in and provided quotations for the Bank's
Common Stock prior to listing on Nasdaq.
The information in the following table indicates the high and low sales
prices and volume of trading for the Bank's Common Stock for each quarterly
period since January 1,1996, and is based upon information provided by the
Market Makers through August 25, 1997 and Nasdaq subsequent thereto, and
information available to manage ment. These prices do not include retail
mark-ups, mark-downs, or commissions.
<TABLE>
<CAPTION>
APPROXIMATE NUMBER
SALES PRICE(2) OF SHARES TRADED(2)
-------------------
QUARTER ENDED HIGH LOW
- ------------- ---- ---
<S> <C> <C> <C>
March 31, 1996.............. $ 10.21 $ 9.17 202,585
June 30, 1996............... 11.46 9.58 362,325
September 30, 1996.......... 12.08 10.63 107,313
December 31, 1986........... 13.96 11.78 238,136
March 31, 1997.............. 13.96 12.29 162,734
June 30, 1997............... 15.31 15.00 202,569
September 30, 1997.......... 19.00 17.25 139,187
December 31, 1997...........
</TABLE>
It is contemplated that, upon consummation of the merger, the Holding
Company's Common Stock will be listed on Nasdaq.
DIVIDENDS
To date, the Bank has paid one cash dividend, $.10(3) per share to
shareholders of record on May 11, 1988, and 15 stock dividends ranging from 2%
to 5% each, including at least one every year since 1989. Payment of stock or
cash dividends in the future will depend upon the Bank's earnings and financial
condition and other factors deemed
- --------
(1) These figures have been adjusted to reflect the 2% stock dividend paid to
shareholders of record on December 26, 1997.
(2) Does not include nominal amounts traded directly by shareholders or
through other dealers and not through the Market Makers. The figures have
not been adjusted to reflect stock dividends but have been adjusted to
reflect the three-for-two stock split effective October 20, 1995, and the
six-for-five stock split effective May 9, 1997.
(3) This figure has not been adjusted to reflect subsequent stock dividends
and stock splits, nor does this include cash dividends declared and paid
by The First National Bank in Coachella prior to its acquisition by the
Bank on December 31, 1992, which acquisition was accounted for by the
pooling of interests method.
24
<PAGE> 34
relevant by management. It is the current intention of the Bank's Board of
Directors to follow a policy of retaining most of the Bank's earnings to
increase its capital and provide additional basis for growth. Accordingly, no
assurance can be given that any additional cash dividends will be declared in
the next few years. It is the Bank's intention, however, to continue paying
stock dividends on a regular basis, based upon the foregoing factors. In the
event the merger is approved, it is anticipated that management of the Holding
Company will follow the same policy.
FINANCIAL AND STATISTICAL INFORMATION
Pursuant to the Exchange Act the Bank has filed Annual, Quarterly and
Current Reports and Proxy Statements with the FDIC and, more recently, with the
FRB. The Bank's latest Annual Report on Form F-2, Quarterly Reports on Form F-4,
Proxy Statement, and Current Reports on Forms F-3 and 8-K filed during 1997
contain financial and other information about the Bank.
The Bank's 1996 Annual Report, previously furnished to shareholders,
contains the Bank's Management's Discussion and Analysis of Financial Condition
and Results of Operations, selected five year financial information, the Bank's
audited financial statements and the opinion of its independent public
accountants, Vavrinek, Trine, Day & Co., LLP. The Bank's shareholders have also
received the Bank's Offering Circular dated September 9, 1997, which contains
the Bank's Management's Discussion and Analysis of Financial Condition and
Results of Operations, selected five year financial information, the Bank's
audited financial statements, June 30, 1997 and June 30, 1996 unaudited
financial statements, and other relevant information about the Bank. The
"Selected Financial Information," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and "Financial Statements"
sections of the Bank's Offering Circular and the Bank's Quarterly Report on Form
F-4 for September 30, 1997, are hereby incorporated herein by this reference.
Any shareholder desiring a copy of any of the Bank's reports filed pursuant to
the Exchange Act or an additional copy of the 1996 Annual Report or the Offering
Circular should contact Mr. Harry G. Gooding, III, Executive Vice President and
Chief Financial Officer, at the Bank, 1498 Main Street, El Centro, California
92243, telephone: (760) 337-3200.
The following table sets forth the actual capitalization of the Bank,
the Subsidiary and the Holding Company at December 31, 1997, and the pro forma
capitalization of the Holding Company on a consolidated basis, to reflect the
consummation of the merger:
25
<PAGE> 35
<TABLE>
<CAPTION>
VALLEY PRO FORMA
INDEPENDENT VIB MERGER VIB CORP,
BANK COMPANY(1) VIB CORP(2) CONSOLIDATED
---------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Stockholders' Equity:
Common Stock ................. $ $ 500 $ 1,000 $
Additional Paid-in
Capital ...................... 0 0
Retained Earnings ............ 0
Unrealized Gain
(Loss) on Securities.......... 0 0
----------- ----------- ----------- -----------
Total ..................... $ $ 500 $ 1,000 $
=========== =========== =========== ===========
Common Stock Data:
Authorized ................... 13,500,000 10,000,000 20,000,000 20,000,000
Outstanding .................. 6,___,___ 100 100 6,___,___
Preferred Stock Data:
Authorized ................... 0 0 10,000,000 10,000,000
Outstanding .................. 0 0 0 0
</TABLE>
VOTE REQUIRED
The merger requires the approval by a majority of the outstanding shares
of the Bank's Common Stock.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE OF "FOR" ON THIS PROPOSAL.
- --------
(1) Funds to capitalize the Subsidiary were obtained by issuing 100 shares to
the Holding Company for $500. At the time of the merger the shares will be
cancelled.
(2) Funds to capitalize the Holding Company were obtained by issuing 100
shares to Mr. Dennis L. Kern for $1,000. At the time of the merger and
pursuant to a written agreement, these shares will be repurchased for
$1,000 and cancelled by the Holding Company.
26
<PAGE> 36
COMPENSATION AND OTHER TRANSACTIONS
WITH MANAGEMENT AND OTHERS
SUMMARY COMPENSATION
The following table sets forth a summary of annual and long-term
compensation for services in all capacities to the Bank for the Bank's President
and Chief Executive Officer and the Bank's four other executive officers:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND TITLE YEAR SALARY BONUS COMPENSATION(1) OPTIONS(2) COMPENSATION(3)
- -------------- ---- ------ ----- --------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jack Brittain, Jr.,
Executive Vice 1996 $ 95,100 $ 7,716 -- -- $ 5,721
President and Chief 1995 $ 94,146 $ 18,700 -- 12,813 $ 7,015
Lending Officer 1994 $ 91,600 $ 15,774 -- 11,848 $ 8,924
Harry G. Gooding, III,
Executive Vice 1996 $ 93,312 $ 7,225 -- -- $ 6,315
President and 1995 $ 88,200 $ 18,300 -- 12,813 $ 6,574
Chief Financial 1994 $ 76,636 $ 14,168 -- -- $ 8,495
Officer --
Dennis L. Kern,
President and 1996 $180,000 $ 20,000 $ 14,400 6,364 $ 8,347
Chief Executive 1995 $172,000 $ 85,000 $ 14,400 -- $ 9,324
Officer 1994 $160,000 $ 65,000 $ 12,300 -- $ 12,148
Martin E. Plourd,
Executive Vice President 1996 $ 90,012 $ 7,265 -- -- $ 5,378
and Branch Administrator 1995 $ 85,668 $ 16,300 -- 12,813 $ 6,067
1994 $ 81,468 $ 15,061 -- -- $ 8,021
Thomas Topuzes,
Executive Vice President 1996 $104,016 $ 8,480 -- -- $ 6,382
and Chief Administrative 1995 $ 99,996 $ 27,350 -- 12,813 $ 8,084
Officer 1994 $ 94,339 $ 24,475 -- -- $ 10,598
</TABLE>
STOCK OPTIONS
The Bank's 1989 Stock Option Plan provides for the issuance of up to
1,613,602 shares, of which 789,775 shares have been exercised and options for
627,018 shares were outstanding, leaving 196,809 shares available for future
grants as of December 26, 1997. The following table sets forth certain
information regarding stock options granted to Messrs. Brittain, Gooding, Kern,
Plourd and Topuzes during 1996:
- --------
(1) These figures represent director's fees.
(2) All share figures have been adjusted for the stock dividends and the
three-for-two and five-for-six stock splits.
(3) These figures include the Bank's matching contributions to the 401(k) Plan
($1,542, $1,693 and $3,450 for Mr. Brittain, $1,508, $1,551 and $3,865 for
Mr. Gooding, $2,250, $2,250 and $4,500 for Mr. Kern, $1,424, $1,258 and
$3,099 for Mr. Plourd and $1,720, $1,942, and $4,540 for Mr. Topuzes, for
1996, 1995, and 1994, respectively) and the Bank's contributions to the
Employee Stock Ownership Plan ($4,179, $5,322 and $5,474 for Mr. Brittain,
$4,087, $5,023 and $4,630 for Mr. Gooding, $6,097, $7,074 and $7,648 for
Mr. Kern, $3,954, $4,809 and $4,922 for Mr. Plourd and $4,662, $6,106 and
6,058 for Mr. Topuzes, for 1996, 1995 and 1994, respectively).
27
<PAGE> 37
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE AT
PERCENTAGE OF ASSUMED ANNUAL RATES OF
NUMBER OF TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
OPTIONS GRANTED TO OPTION TERM
GRANTED IN EMPLOYEES(2) EXERCISE EXPIRATION ----------------------------
NAME 1996(1) During 1996 PRICE(1) DATE 5% 10%
- ---- ---- ----------- -------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Jack Brittain, Jr 0 n/a n/a n/a n/a n/a
Harry G. Gooding, III 0 n/a n/a n/a n/a n/a
Dennis L. Kern 6,364 13.1% $10.72 9/17/2001 $18,876 $41,704
Martin E. Plourd 0 n/a n/a n/a n/a n/a
Thomas Topuzes 0 n/a n/a n/a n/a n/a
</TABLE>
The following table sets forth certain information regarding stock
options exercised during 1996 by Messrs. Brittain, Gooding, Kern, Plourd and
Topuzes:
<TABLE>
<CAPTION>
VALUE(3) OF UNEXERCISED IN
NUMBER OF UNEXERCISED THE MONEY OPTIONS
NUMBER OF OPTIONS AT DECEMBER 31, 1996 AT DECEMBER 31, 1996
SHARES ---------------------------- --------------------------
ACQUIRED ON VALUE
NAME EXERCISE(1) REALIZED EXERCISABLE(1) UNEXERCISABLE(1) EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jack Brittain, Jr 10,161 $ 68,766 1,323 25,241 $ 17,041 $ 324,812
Harry G. Gooding, III 12,454 $ 77,386 1,323 20,612 $ 17,041 $ 265,230
Dennis L. Kern 47,035 $ 440,952 11,948 24,482 $1,429,382 $ 315,032
Martin E. Plourd 6,562 $ 47,444 1,323 18,343 $ 17,041 $ 236,045
Thomas Topuzes 12,909 $ 93,668 10,603 18,292 $ 136,458 $ 235,384
</TABLE>
EMPLOYMENT AGREEMENTS
The Bank has not entered into written employment agreements with any of
its executive officers.
During 1994 the Bank adopted a Deferred Compensation Plan for its
executive and other senior officers pursuant to which the participating officers
elect to defer future salary or bonus income. The compensation deferred is
maintained in a separate account for each participant, earns interest at 10%,
and is fully vested. Participants can select the mode of distribution, lump sum
or installments, payable upon termination of employment. In the event of a
change in control of the Bank, participants are entitled to a lump sum
distribution. The Bank pays the costs of administering these Deferred
Compensation Plans as well as the interest earned on the amounts deferred, but
the Bank makes no contributions to the participants' individual deferral
accounts.
DIRECTORS' COMPENSATION
In 1996, directors were paid for attendance at Board meetings at the
rate of $1,200 for each regular Board meeting (with the Chairman receiving
$1,800); $1,200 for each special meeting (except the Organizational Board
meeting); and, for all directors except Mr. Kern, $300 for each committee
meeting ($150 for any committee meeting held on the same day as a Board meeting
or any second or subsequent committee meeting held on the same day).
The Bank has entered into Deferred Compensation Agreements with each of
its directors, except Ms. Westerfield, pursuant to which between $300 and $600
of directors' fees per month are deferred until May, 2000, at which time the
director or his beneficiary will be paid the amount of between $812 and $1,624
per month for 10
- --------
(1) All share figures and dollar amounts have been adjusted for the stock
dividend and six-for-five stock split.
(2) Does not include options granted to the Bank's non-employee directors
during 1996. See "COMPENSATION AND OTHER TRANSACTIONS WITH MANAGEMENT AND
OTHERS - Directors' Compensation."
(3) Assumes a market value of $12.86 per share on December 31, 1996.
28
<PAGE> 38
years. If the director dies before the commencement date of the payments, the
director's beneficiary will receive a death benefit of between $812 and $1,624
per month for 10 years. If the director's service as a director terminates for
any other reason before May, 2000, the amount deferred, plus accrued interest at
10%, will be paid to the director.
Ms. Westerfield, as the Bank's Customer Relations Officer for Coachella
Valley, participates in the Bank's 401(k) Plan and ESOP.
PROFIT SHARING AND 401(k) PLAN
In March, 1989, the Board of Directors adopted, effective as of January
1, 1989, the Valley Independent Bank Profit Sharing and 401(k) Plan (the "401(k)
Plan"). All full-time employees are eligible to participate after 90 days of
employment. Pursuant to the 401(k) Plan, participating employees of the Bank may
voluntarily contribute a portion of their compensation to a trust. Each year the
Bank may make matching contributions to the trust for the benefit of
participating employees with at least one year of employment. Benefits from the
401(k) Plan become available to the employee upon retirement, or in the event of
disability. If employment is terminated prior to normal retirement, the employee
receives all voluntary contributions and a portion of the Bank's contributions,
based upon an established vesting schedule.
As of December 31, 1996, 224 employees were participating in the 401(k)
Plan. During 1996, the Bank contributed $65,178 to the 401(k) Plan, on a
matching basis. The 401(k) Plan has been qualified by the Internal Revenue
Service ("IRS") pursuant to the Employee Retirement Income Security Act of 1974.
EMPLOYEE STOCK OWNERSHIP PLAN
In December, 1991, the Board of Directors adopted, effective as of
January 1, 1991, the Valley Independent Bank Employee Stock Ownership Plan (the
"ESOP"). Pursuant to the ESOP, annual contributions at the discretion of the
Bank are made to a trust for the benefit of the Bank's employees who are
participants. All full-time employees are eligible to participate after one year
of employment. Contributions shall not exceed limitations imposed by the
Internal Revenue Code, and vest 20% after three years of service, 40% after four
years, 60% after five years, 80% after six years, and 100% after seven years of
service. Participants become 100% vested if termination is by reason of normal
or deferred retirement, death or disability, or termination of the ESOP.
As a stock ownership plan, it is intended that contributions to the ESOP
trust will be utilized to purchase the Bank's Common Stock, which will then be
allocated to the accounts of the participants, thereby enabling them to
participate in the Bank's growth. Distributions pursuant to the ESOP will be in
cash or in shares of the Bank's Common Stock.
Each of the Bank's executive officers participate in the ESOP. Directors
who are not also employed by the Bank are not eligible to participate. The total
amount contributed for all participants to the ESOP for 1996 was $226,314.
As of December 31, 1996, 225 employees were participating in the ESOP.
The ESOP has been qualified by the IRS pursuant to the Employee Retirement
Income Security Act of 1974.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Bank's Executive/Investment Committee, acting as the
Compensation Committee (the "Committee"), are Directors Ellison, Foss, Kern and
Pedersen, none of whom serve as an officer of the Bank except Mr. Kern, who is
the Bank's President and Chief Executive Officer. Neither of the Bank's
executive officers served on the board of directors or compensation committee,
or equivalent, of another entity, one of whose executive officers served on the
Bank's Committee or the Bank's Board of Directors. Mr. Kern does not participate
in Committee deliberations and voting regarding his compensation.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Executive/Investment Committee, acting as the Compensation
Committee, is responsible for reviewing and approving the Bank's overall
compensation and benefit programs, and for administering the compensation of the
Bank's executive and senior officers.
The objectives of the Bank's compensation programs are to attract,
motivate and retain executive and senior officers by insuring that appropriate
total compensation is paid for positions of equivalent responsibility when
compared to a sample of peer banks.
As a general rule, the Committee evaluates management and public
relations skills as well as annual corporate goals, such as profitability, asset
quality and growth in loans and deposits, in determining compensation levels.
29
<PAGE> 39
Approximately 60% of compensation is based on Bank performance and approximately
40% is based on individual criteria.
In evaluating Mr. Kern's compensation the Committee, with Mr. Kern
absent, evaluates compensation surveys for peer banks covering salary and other
compensation components for presidents and CEOs. Consistent with the Committee's
compensation philosophy, approximately 40% of Mr. Kern's compensation is based
on an evaluation of his management and public relations skills. Approximately
60% of Mr. Kern's compensation is based on Bank performance, in particular, the
following factors in the following order of priority: (1) improving shareholder
value; (ii) profitability; (iii) asset quality; and (iv) growth in loans and
deposits. The Committee also evaluates Mr. Kern's actions taken during the year
to achieve the Bank's longer term strategic goals.
The Committee believes that the Bank's compensation program and
compensation levels are effective in attracting, motivating and retaining
outstanding executive and senior officers and that they are consistent with the
Bank's immediate and long-term goals.
EXECUTIVE/INVESTMENT COMMITTEE
R. Stephen Ellison
Richard D. Foss
Dennis L. Kern, Chairman
Ronald A. (Rusty) Pedersen
STOCK PERFORMANCE GRAPH
The following graph presents the cumulative, five-year total return for
the Bank's Common Stock compared with the Nasdaq Total Return Index, a broad
market index of stocks traded in the Nasdaq National Market, and the SNL
Securities Index of Banks under $500 million in total assets. The SNL Bank Index
has been selected as the most representative of peer issuers. The graph assumes
the value of an investment in the Bank's Common Stock, the Nasdaq Index and the
SNL Bank Index each was $100 on September 30, 1992, and that all dividends were
reinvested.
VALLEY INDEPENDENT BANK
TOTAL RETURN PERFORMANCE
<TABLE>
<CAPTION>
PERIOD ENDING
----------------------------------------------------------
Index 9/30/92 9/30/93 9/30/94 9/30/95 9/30/96 9/30/97
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Valley Independent Bank 100.00 111.02 138.82 204.18 271.66 432.58
NASDAQ 100.00 130.98 132.06 182.40 216.44 297.11
Banks (under $500M) 100.00 135.41 156.35 195.51 239.40 386.56
</TABLE>
30
<PAGE> 40
CERTAIN TRANSACTIONS
There are no existing or proposed material transactions between the Bank
and any of the Bank's executive officers, directors, or beneficial owners of 5%
or more of the Bank's Common Stock, or the immediate family or associates of any
of the foregoing persons, except as indicated below.
Some of the directors and executive officers of the Bank, as well as the
companies with which such directors and executive officers are associated, are
customers of, and have had banking transactions with the Bank in the ordinary
course of the Bank's business and the Bank expects to have such ordinary banking
transactions with such persons in the future. In the opinion of Management of
the Bank, all loans and commitments to lend included in such transactions were
made in compliance with applicable laws on substantially the same terms,
including interest rates and collateral, as those prevailing for comparable
transactions with other persons of similar creditworthiness and did not involve
more than a normal risk of collectibility or present other unfavorable features.
Although the Bank does not have any limits on the aggregate amount it would be
willing to lend to directors and officers as a group, loans to individual
directors and officers must comply with the Bank's lending policies and
statutory lending limits. The aggregate extensions of credit to the Bank's
executive officers and directors, together with their associates, was
approximately $3.5 million on December 31, 1996, constituting approximately
12.9% of the Bank's equity capital accounts at that date.
PROPOSAL 2
APPROVAL OF 1997 STOCK OPTION PLAN
INTRODUCTION
As described under "COMPENSATION AND OTHER TRANSACTIONS WITH MANAGEMENT
AND OTHERS -- Stock Options" herein, the Bank has adopted a stock option plan
(the "1989 Plan"), pursuant to which stock options have been granted to various
persons associated with the Bank. In contemplation of the merger, the Board of
Directors of the Holding Company has adopted the VIB Corp 1997 Stock Option Plan
(the "Plan"), described below, pursuant to which: (i) stock options under the
Holding Company's Plan would be issued by the Holding Company to holders of
unexercised, unexpired Bank stock options ("Bank Stock Options") at the
effective date of the merger in exchange for and in substantially the same
amounts, prices and terms as the Bank Stock Options held at the effective date;
and (ii) the Holding Company would be permitted to grant additional stock
options, including non-qualified stock options, to eligible persons, as more
fully described below.
On November 18, 1997, the Board of Directors of the Holding Company
adopted, subject to approval by the Bank's shareholders as prospective
shareholders of VIB Corp, the VIB Corp 1997 Stock Option Plan. The Plan is
intended to replace the 1989 Plan effective upon consummation of the merger. The
Plan provides for the grant of "incentive stock options" as permitted under
Section 422 of the Internal Revenue Code of 1986 (the "Code"), as well as for
the grant of non-qualified stock options. The Plan is not subject to any of the
provisions of the Employee Retirement Income Security Act of 1974, as amended.
The Plan provides for the issuance of up to 2,000,000 shares of the
Holding Company's Common Stock to directors, officers and key employees of the
Holding Company or any subsidiary, including the Bank, of which not more than
1,600,000 shares may be issued to directors, subject to adjustment in the event
of certain changes in the capital structure of the Holding Company. As of
December 26, 1997, no new grants of options had been made by the Holding Company
under the Plan. It is anticipated that all outstanding Bank Stock Options will
be exchanged for Holding Company stock options at the consummation of the
merger.
The Bank's Board of Directors believes it is advisable for the
shareholders to approve the adoption of the Plan in order to continue to have
options available to encourage directors, officers and key employees to remain
with the Holding Company and the Bank and to attract new, qualified officers,
employees and directors in today's competitive market.
SUMMARY OF THE PLAN
The following description of the Plan is intended to highlight and
summarize the principal terms of the Plan, and is qualified in its entirety by
the text of the Plan, a copy of which is available for inspection at the Holding
Company's Main Office.
ADMINISTRATION. The Plan will be administered by a Stock Option
Committee (the "Committee"), consisting of three or more directors of the
Holding Company, appointed from time to time by the Board of Directors.
Nonetheless, regardless of whether the Committee is appointed, the Board of
Directors may act as the Committee, and any action taken by the Board shall be
deemed to be action taken by the Committee. Options may be granted only
31
<PAGE> 41
to directors, officers and key employees of the Holding Company and any
subsidiary, including the Bank. Subject to the express provisions of the Plan,
the Committee is authorized to construe and interpret the Plan, and make all the
determinations necessary or advisable for administration of the Plan.
ELIGIBLE PARTICIPANTS. The Plan provides that all directors, officers
and key employees of the Holding Company and any subsidiary of the Holding
Company are eligible to receive grants of stock options. As of December 26,
1997, there were approximately __ persons eligible to participate in the Plan.
The Plan provides that if options are granted to officers or key employees who
own, directly or indirectly, 10% or more of the Holding Company's outstanding
shares, and the options are intended to qualify as "incentive stock options,"
then the minimum option price must be at least 110% of the stock's fair market
value on the date of grant, and the term of the option grant may not exceed five
years. In addition, not more than 1,600,000 shares may be issued to all of the
directors of the Holding Company as a group. Subject to the foregoing
limitations, the Committee is empowered to determine which eligible
participants, if any, should receive options, the number of shares subject to
each option, and the terms and provisions of the option agreements; provided,
however, options granted to directors must vest in five equal annual
installments and terminate five years from the date of grant and all other
options must vest at the rate of at least 20% per year over five years.
SHARES SUBJECT TO THE PLAN. 2,000,000 shares are covered by the Plan,
which constitutes approximately _____% of the shares which will be outstanding
upon consummation of the merger. Options will be granted at no less than the
fair market value of the Holding Company's Common Stock as of the date of grant;
provided, however, options to 10% shareholders must at least be 110% of fair
market value.
INCENTIVE AND NON-QUALIFIED STOCK OPTIONS. The Plan provides for the
grant of both incentive stock options and non-qualified options. Incentive stock
options are available only to persons who are employees of the Holding Company
or any subsidiary, and are subject to limitations imposed by applicable sections
of the Code, including a $100,000 limit on the aggregate fair market value
(determined on the date the options are granted) of shares of the Holding
Company's Common Stock with respect to which incentive stock options are
exercisable for the first time by an optionee during any calendar year (under
the Plan and all other "incentive stock option" plans of the Holding Company and
its subsidiaries. Any options granted under the Plan which do not meet the
limitations for incentive stock options, or which are otherwise not deemed to be
incentive stock options, shall be deemed "non-qualified." Subject to the
foregoing and other limitations set forth in the Plan, the exercise price,
permissible time or times of exercise, and the remaining terms pertaining to any
option are determined by the Committee; however, the per share exercise price
under any option may not be less than 100% of the fair market value of the
Holding Company's Common Stock on the date of grant of the option.
TERMS AND CONDITIONS OF OPTIONS. Subject to the limitations set forth in
the Plan, options granted thereunder may be exercised in such increments, which
need not be equal, and upon such contingencies as the Committee may determine.
If an optionee does not exercise an increment of an option in any period during
which such increment becomes exercisable, the unexercised increment may be
exercised at any time prior to expiration of the option unless the respective
stock option agreement provides otherwise.
Subject to earlier termination as may be provided in any optionee's
stock option agreement, options granted under the Plan will expire not later
than ten years from the date of grant. Under the terms of the Plan, the date of
grant is deemed to be either: (i) the date fixed by the Committee to be the date
of grant; or (ii) if no such date is fixed, the date on which the Committee made
its final determination to grant a stock option.
Options granted under the Plan may not be transferred otherwise than by
will or by the laws of descent and distribution, and during his or her lifetime,
only the optionee or, in the event of the disability of the optionee, his or her
guardian or the conservator of his or her estate may exercise the option.
EXERCISE OF OPTIONS. Subject to the restrictions set forth in the Plan,
an option may be exercised in accordance with the terms of the individual stock
option agreement. Full payment by the optionee for all shares as to which the
option is being exercised is due and payable at the time of exercise of the
option. Payment must be in cash and/or, with the prior written approval of the
Committee, in shares of Common Stock of the Holding Company.
An option may be exercised with respect to whole shares only, although
fractional share interests may be accumulated and exercised from time to time as
whole shares during the term of the option. Options may only be exercised with
respect to a minimum of ten whole shares, unless the option agreement requires
that a larger number of shares be exercised at any one time and unless fewer
than ten shares remain subject to the option at the time of exercise. Any shares
subject to an option which expires or terminates without being exercised become
available again for issuance under the Plan.
Neither an eligible participant nor an optionee has any rights as a
shareholder with respect to the shares of Common Stock covered by any option
which may be or has been granted to such person, and which is thereafter
exercised, until date of issuance of the stock certificate by the Holding
Company to such person.
32
<PAGE> 42
STOCK OPTION AGREEMENT. Every grant of an option will be evidenced by a
written stock option agreement executed by the Holding Company and the optionee.
Subject to the terms and conditions of the Plan, the stock option agreement will
contain the terms and provisions pertaining to each option so granted, such as
exercise price, permissible date or dates of exercise, termination date, and
such other terms and conditions as the Committee deems desirable and not
inconsistent with the Plan.
TERMINATION OF EMPLOYMENT OR AFFILIATION. In the event an optionee
ceases to be affiliated with the Holding Company or a subsidiary for any reason
other than disability, death or termination for cause, the stock options granted
to such optionee shall expire at the earlier of the expiration dates specified
for the options, or ninety days after the optionee ceases to be so affiliated.
During such period after cessation of affiliation, the optionee may exercise the
option to the extent that it was exercisable as of the date of such termination,
and thereafter the option expires in its entirety.
If an optionee's stock option agreement so provides, and if an
optionee's status as an eligible participant is terminated for cause, the option
held by such person will expire thirty days after termination, although the
Committee may, in its sole discretion, within thirty days of such termination,
reinstate the option. If the option is reinstated, the optionee will be
permitted to exercise the option only to the extent, for such time, and upon
such terms and conditions as if the optionee's status as an eligible participant
had been terminated for a reason other than cause, disability or death, as
described above.
The Plan, and all stock options previously granted under the Plan, shall
terminate upon the dissolution or liquidation of the Holding Company, upon a
consolidation, reorganization, or merger as a result of which the Holding
Company is not the surviving corporation, or upon a sale of all or substantially
all of the assets of the Holding Company, unless provision is made by the
surviving corporation to assume the stock options in connection with the
transaction.
AMENDMENT AND TERMINATION OF THE PLAN. The Board of Directors of the
Holding Company may at any time suspend, amend or terminate the Plan, and may,
with the consent of the respective optionee, make such modifications to the
terms and conditions of outstanding options as it shall deem advisable. Without
shareholder approval, however, the Board of Directors may not materially
increase the maximum number of shares of Common Stock which may be issued under
the Plan (except as described under "Adjustments Upon Changes in Capitalization"
below), materially increase the number of shares of Common Stock which may be
issued at any time under the Plan to all directors who are not also officers or
key employees of the Holding Company or any subsidiary, change the minimum
exercise price, increase the maximum term of options provided for in the Plan,
permit the granting of options to anyone other than eligible participants,
materially modify the requirements as to eligibility for participation in the
Plan, or change any provision of the Plan which would affect the qualification
of options granted thereunder as "incentive stock options" within the meaning of
Section 422 of the Code. The amendment, suspension or termination of the Plan
will not, without the consent of the optionee, alter or impair any rights or
obligations under any outstanding option under the Plan.
ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The total number of shares
covered by the Plan and the price, kind and number of shares subject to
outstanding options thereunder, will be appropriately and proportionately
adjusted by the Committee if the outstanding shares of Common Stock of the
Holding Company are increased, decreased, changed into or exchanged for a
different number or kind of shares or securities of the Holding Company through
reorganization, merger, recapitalization, reclassification, stock split, stock
dividend, stock consolidation or otherwise, without consideration to the Holding
Company as provided in the Plan. Fractional share interests of such adjustments
may be accumulated, although no fractional shares of stock will be issued under
the Plan.
FEDERAL INCOME TAX CONSEQUENCES
Certain stock options granted under the Plan are intended to be
"incentive stock options" as defined in Section 422 of the Code. No income will
be recognized by the optionee, and no deduction will be allowed to the Holding
Company, by reason of the grant or exercise of an incentive stock option.
However, the excess of the fair market value of the shares at the time of
exercise over the option exercise price will be treated as a preference item for
purposes of the alternative minimum tax. If the optionee does not dispose of the
shares of the Holding Company's Common Stock received upon exercise of an
incentive stock option by payment in cash within two years from the date of the
grant of the option or within one year after the transfer of the shares to the
optionee, any gain realized by the optionee upon such disposition of the shares
will be long-term capital gain. No deduction will be available to the Holding
Company upon such disposition by the optionee. However, if the optionee disposes
of such shares within the two year period from the date of the grant of the
option or within the one year period from the transfer of the shares, gain
realized by the optionee upon such disposition will be ordinary income to the
extent that the value of the shares received at the date of exercise of the
option exceeds the price paid for such shares by the optionee. Such ordinary
income will be recognized by the optionee for the tax year in which the optionee
disposes of the shares, and the Holding Company will be entitled to a deduction
in an amount equal to the ordinary income recognized by the optionee for the tax
year of the Holding Company in which the optionee recognizes such ordinary
income, provided
33
<PAGE> 43
that applicable income tax withholding requirements are satisfied. Gain realized
in excess of such ordinary income will be capital gain. Such capital gain will
be long-term or short-term depending upon whether the shares are held for more
than 12 months prior to the date of disposition. If the optionee disposes of the
shares within either the two year period from the date of grant of the option,
or within one year after the transfer of the shares, any ordinary income
recognized by the optionee will not exceed the gain realized on such disposition
by the optionee. If the optionee disposes of shares of Common Stock received
upon exercise of an option at a loss, such loss will be a capital loss,
long-term or short-term depending upon whether the shares are held for more than
one year prior to the date of disposition.
The optionee's basis in shares of the Holding Company's Common Stock
acquired upon the exercise of an incentive stock option by the transfer to the
Holding Company of the Holding Company's Common Stock already owned by the
optionee is determined by substituting the optionee's basis in the shares of the
Holding Company's Common Stock transferred to the Holding Company to exercise
the option to an equivalent number of shares of the Holding Company's Common
Stock acquired upon the exercise of the option (the "Substituted Common Stock").
The basis of the remainder, if any, of the shares of the Holding Company's
Common Stock received upon exercise of the option (the "Non-Substituted Common
Stock") will be zero. The Substituted Common Stock will have a holding period
which, for purposes of computing whether capital gain or loss is long or short
term, includes the holding period of the shares of previously owned Common
Stock. The Non-Substituted Common Stock will have a holding period which begins
on the date such shares are received. If the optionee does not dispose of the
shares of the Holding Company's Common Stock received upon exercise of an
incentive stock option within two years from the date of the grant of the option
or within one year after the transfer of the shares to the optionee, any gain
realized by the optionee upon the disposition of the shares will be long-term
capital gain. No deduction will be available to the Holding Company upon such
disposition by the optionee. However, if the optionee disposes of such shares
within the two year period from the date of the grant of the option or within
the one year period from the transfer of the shares, the optionee will be
treated as disposing of the shares having the lowest basis. Any gain realized by
the optionee upon such disposition will be ordinary income to the extent that
the value of the shares received at the date of exercise of the option exceeds
the amount paid for such shares. The amount paid for Substituted Common Stock
will be its fair market value on the date of exercise. The amount paid for
Non-Substituted Common Stock will be its basis. Such ordinary income will be
recognized by the optionee for the tax year in which the optionee disposes of
the shares and the Holding Company will be entitled to a deduction in an amount
equal to the ordinary income recognized by the optionee for the tax year of the
Holding Company in which the optionee recognizes such ordinary income, provided
that applicable income tax withholding requirements are satisfied. Gain realized
in excess of such ordinary income will be capital gain. Such capital gain will
be long-term or short-term depending upon whether the shares disposed of were
held for more than 12 months prior to the date of disposition taking into
account the substituted holding period of any Substituted Common Stock. If the
optionee disposes of the shares within either the two year period from the date
of grant of the option, or within one year after the transfer of the shares, any
ordinary income recognized by the optionee will not exceed the gain realized on
such disposition by the optionee. If the optionee disposes of shares of the
Holding Company's Common Stock received upon exercise of an option at a loss,
such loss will be a capital loss, long-term or short-term depending upon whether
the shares are held for more than one year prior to the date of disposition,
taking into account the substituted holding period of any Substituted Common
Stock.
For incentive stock options granted after December 31, 1986, the Tax
Reform Act of 1986 has added a restriction limiting to $100,000 the aggregate
fair market value (determined at the time the options are granted) of the stock
with respect to which incentive stock options are exercisable by an individual
for the first time in any calendar year. The Plan provides that outstanding
options may become fully vested and exercisable in the event of a merger or
consolidation of the Holding Company as a result of which the Holding Company is
not the surviving corporation or upon the sale of all or substantially all of
the property of the Holding Company, unless the Plan is continued and the
outstanding options are neither assumed nor replaced with new options. If, as a
result of this provision of the Plan, the amount of options granted after 1986
which become exercisable by an optionee for the first time in any year exceeds
the new $100,000 limit, the amount of options exceeding the $100,000 limit will
no longer be treated as incentive stock options.
If options cease to be treated as incentive stock options, such options
will be treated as non-qualified stock options. If such options, or any stock
options originally intended to be non-qualified stock options, are exercised,
the excess of the fair market value of the acquired shares at the time of
exercise over the option exercise price will be treated as ordinary income to
the optionee in the year of exercise.
Upon exercise of a stock option other than an incentive stock option by
a cash payment, the optionee's basis in the shares of the Holding Company's
Common Stock received will be the sum of the option exercise price and the
amount of ordinary income recognized by the optionee from the exercise of the
stock option. The optionee's holding period in the shares of the Holding
Company's Common Stock received will begin on the date received. Upon exercise
of such a stock option by transfer of shares of the Holding Company's Common
Stock already owned by the optionee, under Internal Revenue Service Ruling
80-244, the optionee will be deemed to have received an equivalent number of
shares of the Holding Company's Common Stock in a non-taxable exchange (the
"Substituted Common Stock") and the remainder, if any, of the shares of the
Holding Company's Common Stock will be deemed to have
34
<PAGE> 44
been received in a taxable transaction (the "Non-Substituted Common Stock"). The
optionee's basis in the Substituted Common Stock will be the same as his basis
in the previously owned shares, and his holding period will include the holding
period of the previously owned shares. The optionee's basis in the
Non-Substituted Common Stock will be the same as the amount of ordinary income
recognized by the optionee. The Non-Substituted Common Stock will have a holding
period which begins on the date when it is received.
On the disposition of shares of the Holding Company's Common Stock
received upon exercise of a stock option other than an incentive stock option,
the difference between the amount realized and the optionee's basis in the
shares will be a long-term or short-term capital gain (or loss) depending on
whether the optionee's holding period for the shares is more than 12 months
prior to their disposition.
The Holding Company will be entitled to claim a deduction at the same
time and in the same amount as income is recognized by the optionee exercising a
stock option other than an incentive stock option. No income will be recognized
by the optionee, and no deduction shall be allowable to the Holding Company, by
reason of the grant of non-qualified stock options.
CERTAIN INFORMATION CONCERNING ALL OPTIONS
In addition to the foregoing, federal tax law provides for an excise tax
of 20% and the disallowance of a deduction to a corporation for compensation to
its employees, officers, shareholders and others that results in an "excess
parachute payment" within the meaning of Code Section 280G(b). If such a person
is granted an incentive stock option and there is a change of control, the
incentive stock option may be considered in the determination of whether an
excess parachute payment has been made.
Under the 1997 Tax Act, the maximum federal income tax rate on net
long-term capital gains in excess of net short-term capital losses (except in
the case of collectibles and depreciable Section 1250 property) is, henceforth,
20%. Any such net capital gain which otherwise would be taxed at the 15% rate is
taxed at a rate of 10%. Long-term capital gains and losses are derived from the
sales and exchanges of capital assets held for more than 18 months.
The specific state tax consequences to each optionee under the Plan may
vary, depending upon the laws of the various states and the individual
circumstances of each optionee. It is suggested that each optionee consult his
or her personal tax advisor regarding both the federal and state tax
consequences of the grant and exercise of options.
EXCHANGE OF OPTIONS IN REORGANIZATION
Pursuant to the Merger Agreement, upon consummation of the merger, the
Holding Company will issue Holding Company options in exchange for the then
outstanding Bank Stock Options on a share-for-share basis. Those Bank Stock
Options which qualify as incentive stock options under the Code will be
exchanged for incentive stock options under the Plan upon consummation of the
merger. The following table shows the name or group of individuals who are
anticipated will receive exchange options and the number of options, based on
the number of shares of Bank Stock Options outstanding on December 26, 1997:
<TABLE>
<CAPTION>
NAME OR IDENTIFICATION OF GROUP NUMBER OF SHARES
- ------------------------------- ----------------
<S> <C>
Jack Brittain, Jr. 18,484
Harry G. Gooding, III 22,836
Dennis L. Kern 130,082
Martin E. Plourd 18,878
Thomas Topuzes 25,248
All Executive Officers as a Group (5 in Number) 215,528
All Non-officer Directors as a Group (7 in Number) 158,653
All Directors as a Group (8 in Number) 288,735
All Other Optionees as a Group (65 in Number) 252,837
All Optionees as a Group (77 in Number) 627,218
</TABLE>
35
<PAGE> 45
VOTE REQUIRED
The Plan will become effective upon approval by a majority of the shares of
the Bank's Common Stock, as prospective shareholders of the Holding Company,
represented and voting at the Meeting and will terminate on November 18, 2007.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE OF "FOR" ON THIS PROPOSAL.
INDEPENDENT ACCOUNTANTS
The firm of Vavrinek, Trine, Day & Co., LLP, served as independent public
accountants for the Bank for 1996. In addition to audit services, that firm
performed selected non-audit services, including assisting in the preparation of
the Bank's tax returns and regulatory reports. The fees paid for non-audit
services was approximately 13.7% of the fees for audit services. All services
rendered by Vavrinek, Trine, Day & Co., LLP, were approved by the Board of
Directors of the Bank, which considered the possible effect of each such service
on the independence of the accountants. The Bank has selected this firm to be
its accountants for 1997.
It is anticipated that a representative of Vavrinek, Trine, Day & Co., LLP,
will be present at the Meeting to respond to appropriate questions from
shareholders.
OTHER MATTERS
The Board of Directors does not know of any other matters to be presented at
the Meeting. However, if other matters properly come before the Meeting, it is
the intention of the Proxyholders to vote each Proxy in accordance with the
recommendations of the Bank's Board of Directors on such matters, and
discretionary authority to do so is included in the Proxy.
Dated: January 23[?], 1998 VALLEY INDEPENDENT BANK
Charlotte Studer,
Secretary
36
<PAGE> 46
EXHIBIT A
PLAN OF REORGANIZATION
AND
MERGER AGREEMENT
This Plan of Reorganization and Merger Agreement (this "Merger
Agreement") is entered into as of November 18, 1997, by and between Valley
Independent Bank ("Bank") and VIB Merger Company ("Subsidiary"), to which VIB
Corp ("Holding Company") is a party, with reference to the following:
RECITALS
A. Bank is a California banking corporation with its principal office in
the City of El Centro, County of Imperial, State of California. Subsidiary and
Holding Company are each corporations duly organized and existing under the laws
of the State of California with their principal offices in the City of El
Centro, County of Imperial, State of California.
B. As of the date hereof, Bank has 13,500,000 shares of no par value
common stock authorized and 5,536,383 shares outstanding; provided, however,
Bank is in the processes of offering up to 95,000 units consisting of five
shares of common stock and one warrant each.
C. As of the date hereof, Subsidiary has 10,000,000 shares of no par
value common stock authorized, and at the time of the merger referred to herein
100 of such shares will be outstanding, all of which outstanding shares will be
owned by Holding Company.
D. As of the date hereof, Holding Company has 10,000,000 shares of
preferred stock authorized, none of which are outstanding, and 20,000,000 shares
of no par value common stock authorized, 100 shares of which will be outstanding
at the time of the merger referred to herein.
E. The Boards of Directors of Bank and Subsidiary have approved this
Merger Agreement and authorized its execution, and the Board of Directors of
Holding Company has approved this Merger Agreement, undertaken that Holding
Company shall join in and be bound by it, and authorized the undertakings
hereinafter made by Holding Company.
For good and valuable consideration, receipt of which is hereby
acknowledged Bank, Subsidiary and Holding Company hereby agree as follows:
AGREEMENT
Section 1. General
1.1 The Merger. On the Effective Date, Subsidiary shall be merged into
Bank, which shall be the Surviving Corporation (the "Surviving Corporation") and
a subsidiary of Holding Company, and its name shall continue to be Valley
Independent Bank.
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<PAGE> 47
1.2 Effective Date. This Merger Agreement shall become effective at the
close of business on the day (the "Effective Date") on which an executed
counterpart of this Merger Agreement shall have been filed with the Secretary of
State of the State of California in accordance with Section 1103 of the General
Corporation Law.
1.3 Articles of Incorporation, Bylaws and Charter. On the Effective
Date, the Articles of Incorporation of Bank, as in effect immediately prior to
the Effective Date, shall be and remain the Articles of Incorporation of the
Surviving Corporation; the Bylaws of Bank shall be and remain the Bylaws of the
Surviving Corporation until altered, amended or repealed; the banking charter
and certificate of authority of Bank issued by the Superintendent of Banks of
the State of California (now known as the Commissioner of Financial
Institutions) shall be and remain the charter and certificate of authority of
the Surviving Corporation; and the insurance of deposits coverage by the Federal
Deposit Insurance Corporation shall be and remain the deposit insurance of the
Surviving Corporation.
1.4 Directors and Officers of the Surviving Corporation. On the
Effective Date, the directors and officers of Bank immediately prior to the
Effective Date shall become the directors and officers of the Surviving
Corporation. The directors of the Surviving Corporation shall serve until the
next annual meeting of shareholders of the Surviving Corporation or until such
time as their successors are elected and have qualified.
1.5 Effect of the Merger.
(a) Assets and Rights. All rights, privileges, franchises and
property of Bank or Subsidiary, and all debts and liabilities due or to become
due to Bank or Subsidiary, including things in action and every interest or
asset of conceivable value or benefit, shall be deemed fully and finally and
without any right of reversion transferred to and vested in the Surviving
Corporation without further act or deed, and the Surviving Corporation shall
have and hold the same in its own right as fully as the same was possessed and
held by Bank or Subsidiary.
(b) Liabilities. All debts, liabilities, and obligations due or
to become due of, and all claims or demands for any cause existing against, Bank
or Subsidiary shall be and become the debts, liabilities, obligations or, and
the claims and demands against, the Surviving Corporation in the same manner as
if the Surviving Corporation had itself incurred or become liable for them.
(c) Creditor's Rights and Liens. All rights of creditors of Bank
or Subsidiary, and all liens upon the property of Bank or Subsidiary, shall be
preserved unimpaired, limited in lien to the property affected by the liens
immediately prior to the time of the merger.
(d) Pending Actions. Any action or proceeding pending by or
against Bank or Subsidiary shall not be deemed to have abated or been
discontinued, but may be prosecuted to judgment with the right to appeal or
review as in other cases as if the merger had not taken place or the Surviving
Corporation may be substituted for Bank or Subsidiary, as the case may be.
1.6 Further Assistance. Bank and Subsidiary each agree that at any time,
or from time to time, as and when requested by the Surviving Corporation, or by
its successors and assigns, it
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<PAGE> 48
will execute and deliver, or cause to be executed and delivered in its name by
its last acting officers, or by the corresponding officers of the Surviving
Corporation, all such conveyances, assignments, transfers, deeds or other
instruments, and will take or cause to be taken such further or other action as
the Surviving Corporation, its successors or assigns may deem necessary or
desirable in order to evidence the transfer, vesting or devolution of any
property right, privilege or franchise or to vest or perfect in or confirm to
the Surviving Corporation, its successors and assigns, title to and possession
of all the property, rights, privileges, powers, immunities, franchises and
interests referred to in this Section 1 and otherwise to carry out the intent
and purposes thereof.
Section 2. Capital Stock of the Surviving Corporation.
2.1 Stock of Subsidiary. The shares of common stock of Subsidiary issued
and outstanding immediately prior to the Effective Date shall thereupon be
converted into and exchanged by Holding Company for shares of fully paid common
stock of Bank as the Surviving Corporation.
2.2 Stock of Valley Independent Bank. All shares of common stock of Bank
issued and outstanding immediately prior to the Effective Date shall upon the
Effective Date, by virtue of the merger and without any action on the part of
the holders thereof, be exchanged for and converted into an equal number of
shares of fully paid and nonassessable common stock of Holding Company.
2.3 Exchange of Stock. Upon the merger becoming effective:
(a) The shareholders of Bank of record at the time the merger
becomes effective, for each share of common stock of Bank then held by them,
shall be allocated and entitled to receive one share of the common stock of
Holding Company;
(b) Holding Company shall issue the shares of its common stock
which the shareholders of Bank shall be entitled to receive; and
(c) Outstanding certificates representing shares of the common
stock of Bank shall thereafter represent shares of the common stock of Holding
Company, and such certificates may, but need not, be exchanged by the holders
thereof, after the merger becomes effective, for new certificates for the
appropriate number of shares bearing the name of Holding Company.
2.4 Other Rights to Stock. Upon and by reason of the merger becoming
effective:
(a) The options to purchase shares of common stock of Bank which
have been granted by Bank pursuant to its Stock Option Plan shall be deemed to
be options granted by Holding Company with the same terms and conditions and for
the same number of shares of common stock of Holding Company. Holding Company
shall issue replacement stock options for shares of its common stock so that
appropriate adjustments to reflect this merger may be made to (i) the class and
number of shares of common stock available for options under the Stock Option
-3-
<PAGE> 49
Plan and (ii) the class and number of shares and the price per share of the
common stock subject to options outstanding under Bank's Stock Option Plan.
(b) The warrants to purchase shares of common stock of Bank which
are being issued pursuant to Bank's 1997 Unit Offering shall be deemed to be
warrants granted by Holding Company with the same terms and conditions and for
the same number of shares of common stock of Holding Company. Outstanding
certificates representing Bank's warrants shall thereafter represent Holding
Company warrants and such certificates may, but need not, be exchanged by the
holders thereof, after the merger becomes effective, for new certificates for
the appropriate number of warrants bearing the name of Holding Company. Holding
Company shall issue shares of its common stock upon exercise of the warrants,
making appropriate adjustments to reflect this merger.
(c) From time to time, as and when required by the provisions of
any agreement to which Bank or Holding Company shall become a party after the
date hereof providing for the issuance of shares of common stock or other equity
securities of Bank or Holding Company in connection with a merger into Bank or
any other banking institution or other corporation, Holding Company will issue
in accordance with the terms of any such agreement shares of its common stock or
other equity securities as required by such agreement or in substitution for the
shares of common stock or other equity securities of Bank required to be issued
by such agreement, as the case may be, which the shareholders of any other such
banking institution or other corporation shall be entitled to receive by virtue
of any such agreement.
Section 3. Approvals
3.1 Shareholder Approval. This Merger Agreement shall be submitted to
the shareholders of Bank and Subsidiary for ratification and confirmation in
accordance with the applicable provisions of the law.
3.2 Dissenters' Rights. Dissenters' rights will apply to the subject
transaction to the extent required by Chapter 13, Section 1300 et seq. of the
General Corporation Law of California.
3.3 Regulatory Approvals. The parties shall proceed expeditiously and
cooperate fully in the procurement of any other consents and approvals and in
the taking of any other action, and the satisfaction of all other requirements
prescribed by law or otherwise, necessary or desirable for consummation of this
merger and plan of reorganization on the terms herein provided, including,
without being limited to, those consents and approvals referred to in Section
4.1(b).
Section 4. Conditions Precedent, Termination and Payment of Expenses
4.1 Conditions Precedent to the Merger. Consummation of the merger is
conditional upon:
(a) Ratification and confirmation of this Merger Agreement by the
shareholders of Bank and Subsidiary, as required by law;
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<PAGE> 50
(b) Obtaining all other consents and approvals, and the
satisfaction of all other requirements prescribed by law which are necessary for
consummation of the merger, including, but not limited to, approval of the
Federal Deposit Insurance Corporation and the Commissioner of Financial
Institutions;
(c) Obtaining all consents or approvals, governmental or
otherwise, which are, or in the opinion of counsel for Bank may be, necessary to
permit or enable the Surviving Corporation, upon and after the merger, to
conduct all or any part of the business and activities of Bank up to the time of
the merger, in the manner in which such activities and business are then
conducted;
(d) Bank's obtaining for Holding Company, prior to the Effective
Date, a letter, in form and substance satisfactory to Holding Company's counsel,
signed by each person who is an "affiliate" of Bank for purposes of Rule 145 of
the Securities and Exchange Commission to the effect that: (i) such person will
not dispose of any shares of Holding Company's common stock to be received
pursuant to the merger, in violation of the Securities Act or the rules and
regulations of the SEC promulgated thereunder, or in any event prior to such
time as financial results covering at least 30 days of post-merger combined
operations have been published; and (ii) such person consents to the placing of
a legend on the certificate(s) evidencing such shares referring to the issuance
of such shares in a transaction to which Rule 145 is applicable and to giving of
stop-transfer instructions to Holding Company's transfer agent with respect to
such certificate(s); and
(e) Performance by each party hereto of all of its obligations
hereunder to be performed prior to the merger becoming effective.
4.2 Termination of the Merger. If any condition in Section 4.1 has not
been fulfilled, or, in the opinion of a majority of the Board of Directors of
any of the parties:
(a) Any action, suit, proceeding or claim has been instituted,
made or threatened relating to the proposed merger which makes consummation of
the merger inadvisable; or
(b) For any other reason consummation of the merger is deemed
inadvisable; then this Merger Agreement may be terminated at any time before the
merger becomes effective. Upon termination, this Merger Agreement shall be void
and of no further effect, and there shall be no liability by reason of this
Merger Agreement or the termination thereof on the part of the parties or their
respective directors, officers, employees, agents or stockholders.
4.3 Expenses of the Merger. All of the expenses of the merger, including
filing fees, printing costs, mailing costs, accountant's fees and legal fees
shall be borne by the Surviving Corporation. In the event the merger is
abandoned for any reason, the expenses shall be paid by Bank.
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<PAGE> 51
IN WITNESS WHEREOF, the parties hereto have caused this Plan of
Reorganization and Merger Agreement to be executed by their duly organized
officers as of the day and year first above written.
VALLEY INDEPENDENT BANK
By /s/ Dennis L. Kern
--------------------------
Dennis L. Kern,
President
VIB CORP
By /s/ Charlotte Studer
--------------------------
By /s/ Dennis L. Kern Charlotte Studer,
---------------------- Secretary
Dennis L. Kern,
President
VIB MERGER COMPANY
By /s/ Charlotte Studer
----------------------
Charlotte Studer,
Secretary By /s/ Dennis L. Kern
--------------------------
Dennis L. Kern,
President
By /s/ Charlotte Studer
--------------------------
Charlotte Studer,
Secretary
-6-
<PAGE> 52
Part II -- Information Not Required in Prospectus
Item 20. Indemnification of Officers and Directors
The Registrant's Bylaws provide that the Registrant shall, to the
maximum extent and in the manner permitted by the California Corporations Code
(the "Code"), indemnify each of its directors against expenses, judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding arising by reason of the fact that such person is
or was a director of the Registrant. Furthermore, pursuant to Registrant's
Articles of Incorporation and Bylaws, the Registrant has power to, to the
maximum extent and in the manner permitted by the Code, indemnify its employees,
officers and agents (other than directors) against expenses, judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding arising by reason of the fact that such person is or was an
employee, officer or agent of Registrant.
Under Section 317 of the Code, a corporation may indemnify a director,
officer, employee or agent of the corporation against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
In the case of an action brought by or in the right of a corporation, the
corporation may indemnify a director, officer, employee or agent of the
corporation against expenses (including attorneys' fees) actually and reasonably
incurred by him or her if he or she acted in good faith and in a manner he or
she acted in good faith and in a manner he or she reasonably believed to be in
the best interests of the corporation, except that no indemnification shall be
made: (1) in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless a court finds that, in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnify for such expenses as the court shall deem proper, (2) of
amounts paid in settling or otherwise disposing of a pending action without
court approval, and (3) of expenses incurred in defending a pending action which
is settled or otherwise disposed of without court approval.
The Registrant's Articles of Incorporation provides that to the fullest
extent permitted by the Code as the same exists or may hereafter be amended, a
director of the Registrant shall not be liable to the Registrant or its
shareholders for monetary damages for breach of fiduciary duty as a director.
The Code permits California corporations to include in their articles of
incorporation a provision eliminating or limiting director liability for
monetary damages arising from breaches of their fiduciary duty. The only
imitations imposed under the statute are that the provision may not eliminate or
limit a director's liability (i) for acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (ii) for acts or
omissions that a director believes to be contrary to the best interests of the
corporation or its shareholders or that involve the absence of good faith on the
part of the director, (iii) for any transaction from which a director derived an
improper personal benefit, (iv) for acts or omissions that show a reckless
disregard for the director's duty to the corporation or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the corporation or its shareholders, (v) for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the corporation or its shareholders, (vi) under a
contract or transaction between the corporation and a director or between the
corporation and any corporation in which one more of its directors has a
material financial interest, or (vii) for approving any of the following
corporate actions: (1) the making of any distribution to its shareholders that
would cause the corporation to be unable to meet its liabilities, (2) the making
of any distribution to the corporation's shareholders on any shares of its stock
of any class or series that are junior to outstanding shares of any other class
or series with respect to distribution of assets on liquidation if, after giving
effect thereto, the excess of its assets (exclusive of goodwill, capitalized
research and development expenses and deferred charges) over its liabilities
(not including deferred taxes, deferred income and other deferred credits) would
be less than the liquidation preference of all shares having a preference on
liquidation over the class or series to which the distribution is made;
provided, however, that for the purpose of applying the aforementioned to a
distribution by a corporation of cash or property in payment by the corporation
in connection with the purchase of its shares, there shall be deducted from
liabilities all amounts that had been previously added thereto with respect to
obligations
<PAGE> 53
incurred in connection with the corporation's repurchase of its shares and
reflected on the corporation's balance sheet, but not in excess of the principal
of the obligations that will remain unpaid after the distribution; provided,
further, that no deduction from liabilities shall occur on account of any
obligation that is a distribution to the corporation's shareholders at the time
the obligation is incurred, (3)the distribution of assets to shareholders after
institution of dissolution proceeding of the corporation, without paying or
adequately providing for all known liabilities of the corporation, excluding any
claims not filed by creditors within the time limit set by the court in a notice
given to creditors under Chapters 18, 19 and 20, (4) the making of any loan to
or guarantee the obligation of any director or officer, unless the transaction
is approved by a majority of the shareholders to act thereon, or (5) the making
of any loan to or guarantee the obligation of, any person upon the security of
shares of the corporation or of its parent if the corporation's recourse in the
event of default is limited to the security for the loan or guaranty, unless the
loan or guarantee is adequately secured without considering these shares, or the
loan or guaranty is approved by a majority of the shareholders entitled to act
thereon.
Valley Independent Bank is insured against liabilities which it may
incur by reason of its indemnification of officers and directors in accordance
with its Bylaws and it is anticipated that the Registrant will assume that
policy on its and the Bank's behalf.
The foregoing summaries are necessarily subject to the complete text of
the statute, Articles of Incorporation, Bylaws and agreements referred to above
and are qualified in their entirety by reference thereto.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
1 Not Applicable
2 Plan of Reorganization and Merger Agreement, dated
November 18, 1997, by and between Valley Independent
Bank and VIB Merger Company, filed as Exhibit A to the
Proxy Statement/Prospectus included in this Registration
Statement
3.1 Articles of Incorporation of VIB Corp, as amended
3.2 Bylaws of VIB Corp
4.1 Form of Valley Independent Bank Warrant
4.2 Shareholder Agreement dated November 18, 1997
5 Opinion of Horgan, Rosen, Beckham & Coren,
L.L.P., regarding the legality of the securities being
registered and consent
8 Tax opinion of Vavrinek, Trine, Day
& Co., LLP, regarding the tax-free
nature of the proposed transaction
9 Not Applicable
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
10.1 VIB Corp 1997 Stock Option Plan
10.2 Form of VIB Corp Stock Option Agreement
10.3 Form of VIB Corp Indemnity Agreement
11 Not Applicable
12 Not Applicable
13.1 Selected Financial Information, Management's Discussion
and Analysis of Financial Condition and Results of
Operations, and Financial Statements sections from Valley
Independent Bank's Offering Circular dated September 9,
1997
13.2 Valley Independent Bank's Quarterly Report on Form F-4 for
September 30, 1997
15 Not Applicable
16 Not Applicable
21 Not Applicable
23.1 Consent of Horgan, Rosen, Beckham & Coren,
L.L.P. (included as part of Exhibit 5)
23.2 Consent of Vavrinek, Trine, Day & Co., LLP
24 Included with Signatures
25 Not Applicable
26 Not Applicable
27 Not Applicable
99 Form of proxy of Valley Independent Bank
(2) Financial Statements
No financial statement schedules are required to be filed
herewith pursuant to Item 21(b) of this Form.
</TABLE>
<PAGE> 55
Item 22. Undertakings
(a) Item 512 of Regulation S-K.
(1) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(2) The Registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is
used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the Registration Statement
and will not be used until such amendment is effective, and that, for
purposes of determining liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(b) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
<PAGE> 56
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF EL CENTRO,
STATE OF CALIFORNIA, ON DECEMBER 19, 1997.
VIB CORP
BY: /s/ DENNIS L. KERN
--------------------------------
DENNIS L. KERN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS DENNIS L. KERN AND S. ALAN ROSEN, AND EACH OR ANY
ONE OF THEM, HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN
ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE SAME, WITH ALL
EXHIBITS THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE
SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND
EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN AND ABOUT THE
PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR COULD DO IN
PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND
AGENTS OR ANY OF THEM, OR THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY
DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ CHARLES ELLIS DIRECTOR DECEMBER 19, 1997
- ------------------------------
CHARLES ELLIS
/S/ R. STEPHEN ELLISON DIRECTOR DECEMBER 19, 1997
- ------------------------------
R. STEPHEN ELLISON
/S/ RICHARD D. FOSS CHAIRMAN OF THE BOARD DECEMBER 19, 1997
- ------------------------------ OF DIRECTORS
RICHARD D. FOSS
/S/ HARRY G. GOODING, III EXECUTIVE VICE PRESIDENT DECEMBER 19, 1997
- ------------------------------ AND CHIEF FINANCIAL OFFICER
HARRY G. GOODING, III (AND PRINCIPAL ACCOUNTING
OFFICER)
/S/ DENNIS L. KERN DIRECTOR, PRESIDENT AND DECEMBER 19, 1997
- ------------------------------ CHIEF EXECUTIVE OFFICER
DENNIS L. KERN
/S/ EDWARD MCGREW DIRECTOR DECEMBER 19, 1997
- ------------------------------
EDWARD MCGREW
/S/ RONALD A. PEDERSEN VICE CHAIRMAN OF THE DECEMBER 19, 1997
- ------------------------------ BOARD OF DIRECTORS
RONALD A. PEDERSEN
/S/ JOHN L. SKINNER DIRECTOR DECEMBER 19, 1997
- ------------------------------
JOHN L. SKINNER
VICE CHAIRMAN OF THE BOARD DECEMBER __, 1997
- ------------------------------ OF DIRECTORS
ALICE HELEN LOWERY WESTERFIELD
</TABLE>
<PAGE> 57
EXHIBIT INDEX
<TABLE>
<CAPTION>
Designation Exhibit Page
- ----------- ------- ----
<S> <C> <C>
1 Not Applicable..................................................................
2 Plan of Reorganization and Merger Agreement, dated November 18, 1997, by and
between Valley Independent Bank and VIB Merger Company, filed as Exhibit A to
the Proxy Statement/Prospectus included in this Registration Statement..........
3.1 Articles of Incorporation of VIB Corp, as amended...............................
3.2 Bylaws of VIB Corp..............................................................
4.1 Form of Valley Independent Bank Warrant.........................................
4.2 Shareholder Agreement dated November 18, 1997...................................
5 Opinion of Horgan, Rosen, Beckham & Coren, L.L.P., regarding the legality of
the securities being registered and consent.....................................
8 Tax opinion of Vavrinek, Trine, Day & Co., LLP, regarding the tax-free nature of
the proposed transaction........................................................
9 Not Applicable..................................................................
10.1 VIB Corp 1997 Stock Option Plan.................................................
10.2 Form of VIB Corp Stock Option Agreement.........................................
10.3 Form of VIB Corp Indemnity Agreement............................................
13.1 Selected Financial Information, Management's Discussion and Analysis of
Financial Condition and Results of Operations, and Financial Statements sections
from Valley Independent Bank's Offering Circular dated September 9, 1997........
13.2 Valley Independent Bank's Quarterly Report on Form F-4 for September 30, 1997...
15 Not Applicable..................................................................
16 Not Applicable..................................................................
21 Not Applicable..................................................................
23.1 Consent of Horgan, Rosen, Beckham & Coren, L.L.P. (included as part of
Exhibit 5)......................................................................
23.2 Consent of Vavrinek, Trine, Day & Co., LLP......................................
24 Included with Signatures........................................................
25 Not Applicable..................................................................
26 Not Applicable..................................................................
27 Not Applicable..................................................................
99 Form of proxy of Valley Independent Bank........................................
</TABLE>
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
VIB CORP
ARTICLE I: NAME
The name of this corporation is:
VIB CORP
ARTICLE II: PURPOSE
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
ARTICLE III: AGENT
The name and complete business address in the State of California
of this corporation's initial agent for service of process is:
S. Alan Rosen, Esq.
Horgan, Rosen, Beckham & Coren, L.L.P.
21700 Oxnard Street, Suite 1400
Woodland Hills, California 91365
ARTICLE IV: CAPITAL
(a) The corporation is authorized to issue two classes of shares
designated "Preferred Stock" and "Common Stock," respectively. The number of
shares of Preferred Stock authorized to be issued is 10,000,000 and the number
of shares of Common Stock, no par value per share, authorized to be issued is
20,000,000.
(b) The Preferred Stock may be divided into such number of series
as the Board of Directors may determine. The Board of Directors is authorized to
determine and alter the rights, preferences, privileges and restrictions granted
to and imposed upon any wholly unissued series of Preferred Stock, and to fix
the number of shares of any series of Preferred Stock and the designation of any
such series of Preferred Stock. The Board of Directors, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, may increase or
decrease (but not below the number of
<PAGE> 2
shares of such series then outstanding) the number of shares of any series
subsequent to the issue of shares of that series.
ARTICLE V: RANGE OF DIRECTORS
(a) The business and affairs of the corporation shall be managed
under the direction of the Board of Directors. The authorized number of
directors of the corporation shall be not less than six (6) nor more than ten
(10). The exact number of directors shall be determined within the limits
specified above by a bylaw or by a resolution duly adopted by the Board of
Directors or by the shareholders.
(b) Notwithstanding any other provisions of these Articles of
Incorporation, the range of authorized directors of the corporation set forth in
Section (a) of Article V may only be amended by the vote of at least sixty-six
and two-thirds percent (66b%) of the outstanding shares entitled to vote
thereon; provided, however, that an amendment reducing the minimum number of
directors to a number less than five (5) cannot be adopted if the votes cast
against its adoption at a meeting, or the shares not consenting in the case of
an action by written consent, are equal to more than sixteen and two-thirds
percent (16b%) of the outstanding shares entitled to vote thereon.
ARTICLE VI: LIABILITY OF DIRECTORS
(a) The liability of directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law.
(b) The corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code) through
Bylaw provisions, agreements with agents, vote of shareholders or disinterested
directors, or otherwise, to the fullest extent permissible under California law.
(c) The corporation is authorized to purchase and maintain
insurance on behalf of its agents against any liability asserted against or
incurred by the agent in such capacity or arising out of the agent's status as
such from a company, the shares of which are owned in whole or in part by the
corporation, provided that any policy issued by such company is limited to the
extent provided by applicable law.
(d) Any amendment, repeal or modification of any provision of
this Article VI shall not adversely affect any right or protection of an agent
of this corporation existing at the time of such amendment, repeal or
modification.
ARTICLE VII: FAIR PRICE PROTECTION
(a) Definitions. For the purposes of this Article VII:
2
<PAGE> 3
1. The term "Beneficial Owner" and correlative terms shall have
the meaning as set forth in Rule 13d-3 under the Securities Exchange Act of
1934, as amended, or any similar successor Rule. Without limitation and in
addition to the foregoing, any Voting Stock of this corporation which any Major
Shareholder has the right to vote or to acquire: (i) pursuant to any agreement;
(ii) by reason of tenders of shares by shareholders of the corporation in
connection with or pursuant to a tender offer made by such Major Shareholder
(whether or not any tenders have been accepted, but excluding tenders which have
been rejected); or (iii) upon the exercise of conversion rights, warrants,
options or otherwise, shall be deemed "beneficially owned" by such Major
Shareholder.
2. The term "Business Combination" shall mean:
A. Any merger or consolidation (whether in a single
transaction or a series of related transactions, including a series of separate
transactions with a Major Shareholder, any Affiliate or Associate thereof, or
any Person acting in concert therewith) of this corporation or any Subsidiary
with or into a Major Shareholder or of a Major Shareholder with or into this
corporation or a Subsidiary;
B. Any sale, lease, exchange, transfer, distribution to
shareholders or other disposition, including without limitation, a mortgage,
pledge or any other security device, to or with a Major Shareholder by the
corporation or any of its Subsidiaries (in a single transaction or a series of
related transactions) of all, substantially all or any Substantial Part of the
assets of this corporation or a Subsidiary (including, without limitation, any
securities of a Subsidiary);
C. The purchase, exchange, lease or other acquisition by the
corporation or any of its Subsidiaries (in a single transaction or a series of
related transactions) of all, substantially all or any Substantial Part of the
assets or business of a Major Shareholder;
D. The issuance of any securities, or of any rights,
warrants or options to acquire any securities, of this corporation or a
Subsidiary, eighty percent (80%) or more of which are issued to a Major
Shareholder, or the acquisition by this corporation or a Subsidiary of any
securities, or of any rights, warrants or options to acquire any securities, of
a Major Shareholder;
E. Any reclassification of Voting Stock, recapitalization or
other transaction (other than a redemption in accordance with the terms of the
security redeemed) which has the effect, directly or indirectly, of increasing
the proportionate amount of Voting Stock of the corporation or any Subsidiary
thereof which is beneficially owned by a Major Shareholder, or any partial
liquidation, spin off, split off or split up of the corporation or any
Subsidiary thereof; provided, however, that this Section (a)2.E of Article VII
shall not relate to any transaction of the types specified herein that has been
approved by eighty percent (80%) of the Board of Directors; and
3
<PAGE> 4
F. Any Agreement, contract or other arrangement providing
for any of the transactions described herein.
3. The term "Major Shareholder" shall mean any Person which,
together with its "Affiliates" and "Associates" (as defined in Rule 12b-2 of the
Securities Exchange Act of 1934, as amended, or any similar successor Rule) and
any Person acting in concert therewith, is the beneficial owner of shares
possessing ten percent (10%) or more of the voting power of the Voting Stock of
this corporation, and any Affiliate or Associate of a Major Shareholder,
including a Person acting in concert therewith. The term "Major Shareholder"
shall not include a Subsidiary of this corporation.
4. The term "other consideration to be received" shall include,
without limitation, Voting Stock of this corporation retained by its existing
shareholders in the event of a Business Combination which is a merger or
consolidation in which this corporation is the surviving corporation.
5. The term "Person" shall mean any individual, corporation,
partnership or other person, group or entity (other than this corporation, any
Subsidiary of this corporation or a trustee holding stock for the benefit of
employees of this corporation or its Subsidiaries, or any one of them, pursuant
to one or more employee benefit plans or arrangements). When two or more Persons
act as a partnership, limited partnership, syndicate, association or other group
for the purpose of acquiring, holding or disposing of shares of stock, such
partnership, syndicate, association or group will be deemed a "Person."
6. The term "Subsidiary" shall mean any business entity fifty
percent (50%) or more of which is beneficially owned by this corporation.
7. The term "Substantial Part," as used in reference to the
assets of the corporation, of any Subsidiary or of any Major Shareholder means
assets having a value of more than five percent (5%) of the total consolidated
assets of the corporation and its Subsidiaries as of the end of the
corporation's most recent fiscal year ending prior to the time the determination
is made.
8. The term "Voting Stock" shall mean stock or other securities
entitled to vote upon any action to be taken in connection with any Business
Combination or entitled to vote generally in the election of directors, and
shall also include stock or other securities convertible into Voting Stock.
(b) Notwithstanding any other provisions of these Articles of
Incorporation and except as set forth in Section (c) of Article VII, neither the
corporation nor any Subsidiary shall be party to a Business Combination unless:
1. The Business Combination was approved by the Board of
Directors of the corporation prior to the Major Shareholder involved in the
Business Combination becoming such; or
4
<PAGE> 5
2. The Major Shareholder involved in the Business Combination
sought and obtained the unanimous prior approval of the Board of Directors to
become a Major Shareholder and the Business Combination was approved by not less
than eighty percent (80%) of the Board of Directors; or
3. The Business Combination was approved by not less than
ninety percent (90%) of the Board of Directors of the corporation.
(c) The approval requirements of Section (b) of Article VII shall not
apply if the Business Combination is approved by the vote of at least sixty-six
and two-thirds percent (66b%) of the shares of the Voting Stock of this
corporation and all of the following conditions are satisfied:
1. The aggregate of the cash and the fair market value of other
consideration to be received per share (as adjusted for stock splits, stock
dividends, reclassification of shares into a lesser number and similar events)
by holders of the Voting Stock of this corporation in the Business Combination
is not less than the higher of: (i) the highest per share price (including
brokerage commissions, soliciting dealers' fees, dealer-management compensation,
and other expenses, including, but not limited to, costs of newspaper
advertisements, printing expenses and attorneys' fees) paid by the Major
Shareholder in acquiring any of this corporation's Voting Stock; or (ii) an
amount which bears the same or a greater percentage relationship to the market
price of this corporation's Voting Stock immediately prior to the announcement
of such Business Combination as the highest per share price determined in (i)
above bears to the market price of this corporation's Voting Stock immediately
prior to the commencement of acquisition of this corporation's Voting Stock by
such Major Shareholder;
2. The consideration to be received in such Business
Combination by holders of the Voting Stock of this corporation shall be, except
to the extent that a shareholder agrees otherwise as to all or a part of his or
her shares, in the same form and of the same kind as paid by the Major
Shareholder in acquiring his Voting Stock of the corporation;
3. After becoming a Major Shareholder and prior to consummation
of such Business Combination: (i) such Major Shareholder shall not have acquired
any newly-issued shares of capital stock, directly or indirectly, from this
corporation or a Subsidiary (except upon conversion of convertible securities
acquired by it prior to becoming a Major Shareholder or upon compliance with the
provisions of this Article VII or as a result of a pro rata share dividend or
share split); and (ii) such Major Shareholder shall not have received the
benefit, directly or indirectly (except proportionately as a shareholder), of
any loans, advances, guarantees, pledges or other financial assistance or tax
credits provided by this corporation or a Subsidiary, or made any major changes
in this corporation's business or equity capital structure; and
4. A proxy statement responsive to the requirements of the
Securities Exchange Act of 1934 and Rules promulgated thereunder, whether or not
this corporation is then subject to such requirements, shall be mailed to all
shareholders of this corporation for the purpose of soliciting shareholders'
approval of such Business Combination and shall contain at the front
5
<PAGE> 6
thereof, in a prominent place: (i) any recommendations as to the advisability
(or inadvisability) of the Business Combination which any one or more members of
Board of Directors may choose to state; and (ii) the opinion of a reputable
national investment banking firm as to the fairness (or lack thereof) of the
terms of such Business Combination, from the point of view of the remaining
shareholders of this corporation (such investment banking firm to be engaged
solely on behalf of the remaining shareholders, to be paid a reasonable fee for
their services by this corporation upon receipt of such opinion, to be one of
the so-called major bracket investment banking firms which has not previously
been associated with such Major Shareholder and to be selected by the Board of
Directors).
(d) The affirmative vote required by this Article VII is in
addition to the vote of the holders of any class or series of stock of the
corporation otherwise required by law, these Articles of Incorporation, or any
resolution which has been adopted by the Board of Directors providing for the
issuance of a class or series of Preferred Stock.
(e) Nothing contained in this Article VII shall be construed
as relieving any Major Shareholder or any Affiliate or Associate thereof from
any fiduciary obligation imposed by law.
(f) The fact that any action or transaction complies with
the provisions of this Article VII shall not be construed as imposing any
fiduciary duty, obligation or responsibility on the Board of Directors or any
member thereof to approve such action or transaction or recommend its adoption
or approval to the shareholders of the corporation, nor shall such compliance
limit, prohibit or otherwise restrict in any manner the Board of Directors, or
any member thereof, with respect to evaluations of, or action and responses
taken with respect to, such action or transaction.
(g) Any amendment, change or repeal of this Article VII or
any other amendment of these Articles of Incorporation which would have the
effect of modifying or permitting circumvention of the provisions of this
Article VII shall require approval by at least a sixty-six and two-thirds
percent (66b%) vote of the Voting Stock of the corporation.
ARTICLE VIII: CLASSIFICATION OF DIRECTORS
(a) This Article VIII shall become effective only when the
corporation becomes a listed corporation within the meaning of Section 301.5 of
the Corporations Code, which provision refers to a corporation whose shares are
traded on the New York Stock Exchange, American Stock Exchange, or Nasdaq
National Market System.
(b) In the event the authorized number of directors shall be
fixed at nine (9) or more, the Board of Directors shall be classified into three
(3) classes, the members of each class to serve for a term of three (3) years.
In the event the authorized number of directors shall be fixed at six (6) or
more, but less than nine (9), the Board of Directors shall be classified into
two (2) classes, the members of each class to serve for a term of two (2) years.
6
<PAGE> 7
(c) The election of directors by the shareholders shall not
be by cumulative voting. At each election of directors, each shareholder
entitled to vote may vote all the shares held by that shareholder for each of
several nominees for director up to the number of directors to be elected. The
shareholder may not cast more votes for any single nominee than the number of
shares held by that shareholder.
(d) At the first annual meeting of shareholders held after
the corporation qualifies as a listed corporation within the meaning of Section
301.5 of the Corporations Code the nominees elected as directors will be
classified on the basis of the number of votes received; the nominees receiving
the highest number of votes will be elected to the class(es) with the longest
initial terms, as follows: (i) if there shall be three (3) classes one-third (a)
of the directors shall be elected for a term of three (3) years, one-third (a)
of the directors shall be elected for a term of two (2) years, and one-third (a)
of the directors shall be elected for a term of one (1) year. If the number of
directors is not divisible by three (3), the first extra director shall be
elected for a term of three (3) years and a second extra director, if any, shall
be elected for a term of two (2) years; and (ii) if there shall be two (2)
classes, one-half (1/2) of the directors shall be elected for a term of two (2)
years and one-half (1/2) of the directors shall be elected for a term of one (1)
year. If the number of directors is not divisible by two (2), the first extra
director shall be elected for a term of two (2) years.
(e) Subject to the provisions of Section (a) of Article V
providing for a change in the authorized number of directors, at subsequent
annual meetings of shareholders, a number of directors shall be elected equal to
the number of directors with terms expiring at that annual meeting. If there
shall be three (3) classes, at each subsequent annual meeting the directors
elected shall be elected for a term of three (3) years. If there shall be two
(2) classes, at each subsequent annual meeting the directors elected shall be
elected for a term of two (2) years. In the event the authorized number of
directors changes necessitating a change in the number of classes, the directors
of the corporation shall be reclassified in accordance with California law and
the principles of Section (d) of this Article VIII; provided, however, any
change in the number of classes shall not operate to shorten the term of any
director.
(f) If the number of directors is changed, any increase or
decrease shall be apportioned among the classes so as to maintain the number of
directors in each class as nearly equal as possible, and any additional
directors of any class elected to fill a vacancy resulting from an increase in
such class shall hold office for a term that shall coincide with the remaining
term of that class, but in no case will a decrease in the number of directors
shorten the term of any incumbent director. A director shall hold office until
the annual meeting for the year in which his term expires and until his
successor shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. Any vacancy on
the Board of Directors, howsoever resulting, may be filled by a majority of the
directors then in office, even if less than a quorum, or by a sole remaining
director. Any director elected to fill a vacancy shall hold office for a term
that shall coincide with the term of the class to which such director shall have
been elected.
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(g) Notwithstanding the foregoing provisions of this Article
VIII, whenever the holders of any one or more classes or series of Preferred
Stock issued by the corporation shall have the right, voting separately by class
or series, to elect directors at an annual or special meeting of shareholders,
the election, term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of these Articles of Incorporation
or the resolution or resolutions adopted by the Board of Directors pursuant to
Article IV applicable thereto, and such directors so elected shall not be
divided into classes pursuant to this Article VIII unless expressly provided by
such terms.
(h) Notwithstanding any other provision of these Articles of
Incorporation, any amendment, change or repeal of this Article VIII shall
require the vote of at least sixty-six and two-thirds percent (66b%) of the
outstanding shares entitled to vote thereon.
-----------------------------------
S. Alan Rosen, Incorporator
8
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
VIB CORP
<PAGE> 2
BYLAWS OF
VIB CORP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - CORPORATE OFFICES ............................................. 1
1.1 PRINCIPAL OFFICE ................................................. 1
1.2 OTHER OFFICES .................................................... 1
ARTICLE II - MEETINGS OF SHAREHOLDERS ..................................... 1
2.1 PLACE OF MEETINGS ................................................ 1
2.2 ANNUAL MEETING ................................................... 1
2.3 SPECIAL MEETINGS ................................................. 2
2.4 NOTICE OF SHAREHOLDERS' MEETINGS ................................. 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE ..................... 3
2.6 QUORUM ........................................................... 3
2.7 ADJOURNED MEETING; NOTICE ........................................ 3
2.8 VOTING ........................................................... 4
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT ................ 4
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING .......... 5
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING;
GIVING CONSENTS ................................................. 6
2.12 PROXIES .......................................................... 6
2.13 INSPECTORS OF ELECTION ........................................... 7
2.14 NOMINATION OF DIRECTORS .......................................... 7
ARTICLE III - DIRECTORS ................................................... 8
3.1 POWERS ........................................................... 8
3.2 NUMBER OF DIRECTORS .............................................. 8
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS ......................... 8
3.4 REMOVAL .......................................................... 8
3.5 RESIGNATION AND VACANCIES ........................................ 9
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE ......................... 10
3.7 REGULAR MEETINGS ................................................. 10
3.8 SPECIAL MEETINGS; NOTICE ......................................... 10
3.9 QUORUM ........................................................... 10
3.10 WAIVER OF NOTICE ................................................. 11
3.11 ADJOURNMENT ...................................................... 11
3.12 NOTICE OF ADJOURNMENT ............................................ 11
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING ................ 11
3.14 FEES AND COMPENSATION OF DIRECTORS ............................... 11
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE IV - COMMITTEES ................................................... 12
4.1 COMMITTEES OF DIRECTORS .......................................... 12
4.2 MEETINGS AND ACTION OF COMMITTEES ................................ 12
ARTICLE V - OFFICERS ...................................................... 13
5.1 OFFICERS ......................................................... 13
5.2 APPOINTMENT OF OFFICERS .......................................... 13
5.3 SUBORDINATE OFFICERS ............................................. 13
5.4 REMOVAL AND RESIGNATION OF OFFICERS .............................. 13
5.5 VACANCIES IN OFFICES ............................................. 14
5.6 CHAIRMAN OF THE BOARD ............................................ 14
5.7 VICE CHAIRMAN OF THE BOARD ....................................... 14
5.8 PRESIDENT ........................................................ 14
5.9 VICE PRESIDENTS .................................................. 14
5.10 SECRETARY ........................................................ 15
5.11 CHIEF FINANCIAL OFFICER .......................................... 15
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS ........................................... 16
6.1 INDEMNIFICATION OF DIRECTORS ..................................... 16
6.2 INDEMNIFICATION OF OTHERS ........................................ 16
6.3 PAYMENT OF EXPENSES IN ADVANCE ................................... 16
6.4 INDEMNITY NOT EXCLUSIVE .......................................... 17
6.5 INSURANCE INDEMNIFICATION ........................................ 17
6.6 CONFLICTS ........................................................ 17
6.7 RIGHT TO BRING SUIT .............................................. 17
6.8 INDEMNITY AGREEMENTS ............................................. 18
6.9 AMENDMENT, REPEAL OR MODIFICATION ................................ 18
ARTICLE VII - RECORDS AND REPORTS ......................................... 18
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER ..................... 18
7.2 MAINTENANCE AND INSPECTION OF BYLAWS ............................. 19
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS ............ 19
7.4 INSPECTION BY DIRECTORS .......................................... 19
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER ............................ 20
7.6 FINANCIAL STATEMENTS ............................................. 20
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS ................... 21
ARTICLE VIII - GENERAL MATTERS ............................................ 21
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING ............ 21
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS ........................ 21
</TABLE>
iii
<PAGE> 4
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED ............... 21
8.4 CERTIFICATES FOR SHARES .......................................... 22
8.5 LOST CERTIFICATES ................................................ 22
8.6 CONSTRUCTION; DEFINITIONS ........................................ 22
ARTICLE IX - AMENDMENTS .................................................. 23
9.1 AMENDMENT BY SHAREHOLDERS ........................................ 23
9.2 AMENDMENT BY DIRECTORS ........................................... 23
9.3 RECORD OF AMENDMENTS ............................................. 23
ARTICLE X - INTERPRETATION ................................................ 23
iv
<PAGE> 5
BYLAWS
OF
VIB CORP
ARTICLE I
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE
The Board of Directors shall fix the location of the principal executive
office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside California and
the corporation has one or more business offices in California, then the Board
of Directors shall fix and designate a principal business office in California.
1.2 OTHER OFFICES
The Board of Directors may at any time establish branch or subordinate
offices at any place or places.
ARTICLE II
2.1 PLACE OF MEETINGS
Meetings of shareholders shall be held at any place within or outside
the State of California designated by the Board of Directors. In the absence of
any such designation, shareholders' meetings shall be held at the principal
executive office of the corporation or at any place consented to in writing by
all persons entitled to vote at such meeting, given before or after the meeting
and filed with the Secretary of the corporation.
2.2 ANNUAL MEETING
An annual meeting of shareholders shall be held each year on a date and
at a time designated by the Board of Directors. At that meeting, directors shall
be elected. Any other proper business may be transacted at the annual meeting of
shareholders.
<PAGE> 6
2.3 SPECIAL MEETINGS
Special meetings of the shareholders may be called at any time, subject
to the provisions of Sections 2.4 and 2.5 of these Bylaws, by the Board of
Directors, the Chairman of the Board, the President or the holders of shares
entitled to cast not less than ten percent (10%) of the votes at that meeting.
If a special meeting is called by anyone other than the Board of
Directors or the President or the Chairman of the Board, then the request shall
be in writing, specifying the time of such meeting and the general nature of the
business proposed to be transacted, and shall be delivered personally or sent by
registered mail or by other written communication to the Chairman of the Board,
the President, any Vice President or the Secretary of the corporation. The
officer receiving the request forthwith shall cause notice to be given to the
shareholders entitled to vote, in accordance with the provisions of Sections 2.4
and 2.5 of these Bylaws, that a meeting will be held at the time requested by
the person or persons calling the meeting, so long as that time is not less than
thirty-five (35) nor more than sixty (60) days after the receipt of the request.
If the notice is not given within twenty (20) days after receipt of the request,
then the person or persons requesting the meeting may give the notice. Nothing
contained in this paragraph of this Section 2.3 shall be construed as limiting,
fixing or affecting the time when a meeting of shareholders called by action of
the Board of Directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders shall be sent or otherwise given
in accordance with Section 2.5 of these Bylaws not less than ten (10) (or, if
sent by third-class mail pursuant to Section 2.5 of these Bylaws, not less than
thirty (30)) nor more than sixty (60) days before the date of the meeting to
each shareholder entitled to vote thereat. Such notice shall state the place,
date, and hour of the meeting and (i) in the case of a special meeting, the
general nature of the business to be transacted, and no business other than that
specified in the notice may be transacted, or (ii) in the case of the annual
meeting, those matters which the Board of Directors, at the time of the mailing
of the notice, intends to present for action by the shareholders, but, subject
to the provisions of the next paragraph of this Section 2.4, any proper matter
may be presented at the meeting for such action. The notice of any meeting at
which Directors are to be elected shall include the names of nominees intended
at the time of the notice to be presented by the Board for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the California Corporations Code (the
"Code"), (ii) an amendment of the Articles of Incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of any outstanding preferred shares, pursuant to
Section 2007 of the Code, then the notice shall also state the general nature of
that proposal.
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<PAGE> 7
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Notice of a shareholders' meeting shall be given either personally or by
first-class mail, or, if the corporation has outstanding shares held of record
by five hundred (500) or more persons (determined as provided in Section 605 of
the Code) on the record date for the shareholders' meeting, notice may be sent
by third-class mail, or other means of written communication, addressed to the
shareholder at the address of the shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice; or if no such address appears or is given, at the place where the
principal executive office of the corporation is located or by publication at
least once in a newspaper of general circulation in the county in which the
principal executive office is located. The notice shall be deemed to have been
given at the time when delivered personally or deposited in the mail or sent by
other means of written communication.
If any notice (or any report referenced in Article VII of these Bylaws)
addressed to a shareholder at the address of such shareholder appearing on the
books of the corporation is returned to the corporation by the United States
Postal Service marked to indicate that the United States Postal Service is
unable to deliver the notice to the shareholder at that address, all future
notices or reports shall be deemed to have been duly given without further
mailing if the same shall be available to the shareholder upon written demand of
the shareholder at the principal executive office of the corporation for a
period of one (1) year from the date of the giving of the notice.
An affidavit of mailing of any notice or report in accordance with the
provisions of this Section 2.5, executed by the Secretary, Assistant Secretary
or any transfer agent, shall be prima facie evidence of the giving of the notice
or report.
2.6 QUORUM
Unless otherwise provided in the Articles of Incorporation of the
corporation, a majority of the shares entitled to vote, represented in person or
by proxy, shall constitute a quorum at a meeting of the shareholders. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to transact business until adjournment notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum.
In the absence of a quorum, any meeting of shareholders may be adjourned
from time to time by the vote of a majority of the shares represented either in
person or by proxy, but no other business may be transacted, except as provided
in the last sentence of the preceding paragraph.
2.7 ADJOURNED MEETING; NOTICE
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of the
shares represented at that meeting, either in person or by proxy.
3
<PAGE> 8
When any meeting of shareholders, either annual or special, is adjourned
to another time or place, notice need not be given of the adjourned meeting if
its time and place are announced at the meeting at which the adjournment is
taken. However, if the adjournment is for more than forty-five (45) days from
the date set for the original meeting or if a new record date for the adjourned
meeting is fixed, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Sections 2.4 and 2.5 of these Bylaws. At any adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting.
2.8 VOTING
The shareholders entitled to vote at any meeting of shareholders shall
be determined in accordance with the provisions of Section 2.11 of these Bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation, or in joint
ownership).
Elections for directors and voting on any other matter at a
shareholders' meeting need not be by ballot unless a shareholder demands
election by ballot at the meeting and before the voting begins.
Except as may be otherwise provided in a Certificate of Determination
pursuant to Article IV(b) of the Articles of Incorporation, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote of the shareholders. Any holder of shares entitled to vote
on any matter may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or may vote them against the proposal other
than elections to office, but, if the shareholder fails to specify the number of
shares such shareholder is voting affirmatively, it will be conclusively
presumed that the shareholder's approving vote is with respect to all shares
which the shareholder is entitled to vote.
The affirmative vote of the majority of the shares represented and
voting at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or voting by
classes is required by the Code or by the Articles of Incorporation.
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of shareholders, either annual or
special, however called and noticed, and wherever held, are as valid as though
they had been taken at a meeting duly held after regular call and notice, if a
quorum be present either in person or by proxy, and if, either before or after
the meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. Neither the business to be
transacted at nor the purpose of any annual or special meeting of shareholders
need be specified in any written waiver of notice or consent to the holding of
the meeting or approval of the minutes thereof, except that if action is taken
or proposed to be taken for approval of any of those matters specified in the
second paragraph of Section 2.4 of these Bylaws, the waiver of notice or consent
or approval shall state the general nature of the
4
<PAGE> 9
proposal. All such waivers, consents, and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of notice
of and presence at that meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters required by
the Code to be included in the notice of such meeting but not so included, if
such objection is expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.
Directors may not be elected by written consent except by unanimous
written consent of all shares entitled to vote for the election of directors.
However, a director may be elected at any time to fill any vacancy on the Board
of Directors, provided that it was not created by removal of a director and that
it has not been filled by the directors, by the written consent of the holders
of a majority of the outstanding shares entitled to vote for the election of
directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the Secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the Secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing, the Secretary shall give prompt notice of any corporate
action approved by the shareholders without a meeting by less than unanimous
written consent to those shareholders entitled to vote who have not consented in
writing. Such notice shall be given in the manner specified in Section 2.5 of
these Bylaws. In the case of approval of (i) a contract or transaction in which
a director has a direct or indirect financial interest, pursuant to Section 310
of the Code, (ii) indemnification of a corporate "agent," pursuant to Section
317 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, and (iv) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, the notice shall be given at least ten (10) days before the
consummation of any action authorized by that approval, unless the consents of
all shareholders entitled to vote have been solicited in writing.
5
<PAGE> 10
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
In order that the corporation may determine the shareholders entitled to
notice of any meeting or to vote, the Board of Directors may fix, in advance, a
record date, which shall not be more than sixty (60) days nor less than ten (10)
days prior to the date of such meeting nor more than sixty (60) days before any
other action. Shareholders at the close of business on the record date are
entitled to notice and to vote, as the case may be, notwithstanding any transfer
of any shares on the books of the corporation after the record date, except as
otherwise provided in the Articles of Incorporation or the Code.
A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
but the Board of Directors shall fix a new record date if the meeting is
adjourned for more than forty-five (45) days from the date set for the original
meeting.
If the Board of Directors does not so fix a record date:
(a) The record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
(b) The record date for determining shareholders entitled to
give consent to corporate action in writing without a meeting, (i) when no prior
action by the Board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the Board has been taken, shall
be at the close of business on the day on which the Board adopts the resolution
relating thereto, or the sixtieth (60th) day prior to the date of such other
action, whichever is later.
The record date for any other purpose shall be as provided in Section
8.1 of these Bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the Secretary
of the corporation. A proxy shall be deemed signed if the shareholder's name or
other authorization is placed on the proxy (whether by manual signature,
typewriting, telegraphic or electronic transmission or otherwise) by the
shareholder or the shareholder's attorney-in-fact. A validly executed proxy
which does not state that it is irrevocable shall continue in full force and
effect unless (i) the person who executed the proxy revokes it prior to the time
of voting by delivering a writing to the corporation stating that the proxy is
revoked or by executing a subsequent proxy and presenting it to the meeting or
by attendance at such meeting and voting in person, or (ii) written notice of
the death or incapacity of the maker of that proxy is received by the
corporation before the vote pursuant to that proxy is counted; provided,
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<PAGE> 11
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date thereof, unless otherwise provided in the proxy. The dates
contained on the forms of proxy presumptively determine the order of execution,
regardless of the postmark dates on the envelopes in which they are mailed. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Sections 705(e) and 705(f) of the Code.
2.13 INSPECTORS OF ELECTION
In advance of any meeting of shareholders, the Board of Directors may
appoint inspectors of election to act at the meeting and any adjournment
thereof. If inspectors of election are not so appointed or designated or if any
persons so appointed fail to appear or refuse to act, then the Chairman of the
meeting may, and on the request of any shareholder or a shareholder's proxy
shall, appoint inspectors of election (or persons to replace those who so fail
to appear) at the meeting. The number of inspectors shall be either one (1) or
three (3). If appointed at a meeting on the request of one (1) or more
shareholders or proxies, the majority of shares represented in person or by
proxy shall determine whether one (1) or three (3) inspectors are to be
appointed.
The inspectors of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, and the authenticity, validity, and effect of
proxies, receive votes, ballots or consents, hear and determine all challenges
and questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close, determine
the result and do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
2.14 NOMINATION OF DIRECTORS
Nominations for election of members of the board of directors may be
made by the board of directors or by any shareholder of any outstanding class of
capital stock of the corporation entitled to vote for the election of directors.
Notice of intention to make any nominations (other than for persons named in the
notice of the meeting at which such nomination is to be made) shall be made in
writing and shall be delivered or mailed to the President of the corporation no
more than sixty (60) days prior to any meeting of shareholders called for the
election of directors and no more than ten (10) days after the date the notice
of such meeting is sent to shareholders pursuant to Section 2.4 of these Bylaws;
provided, however, that if ten (10) days' notice of such meeting is sent to
shareholders, such notice of intention to nominate must be received by the
President of the corporation not later than time fixed in the notice of the
meeting for the opening of the meeting. Such notification shall contain the
following information to the extent known to the notifying shareholder: (a) the
name and address of each proposed nominee; (b) the principal occupation of each
proposed nominee; (c) the number of shares of capital stock of the corporation
owned by each proposed nominee; (d) the name and residence address of the
notifying shareholder; (e) the number of shares of capital stock of the
corporation owned by the notifying shareholder; (f) with the written consent of
the proposed nominee, a copy of which shall be furnished with the notification,
whether the proposed nominee has ever been convicted of or pleaded nolo
contendere to any criminal offense involving dishonesty or breach of trust,
filed a petition in bankruptcy, or been adjudged a bankrupt. The notice shall be
signed by the nominating shareholder and by the nominee. Nominations not made in
accordance herewith shall be
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<PAGE> 12
disregarded by the Chairman of the meeting and, upon his instructions, the
inspectors of election shall disregard all votes cast for each such nominee. The
restrictions set forth in this paragraph shall not apply to nomination of a
person to replace a proposed nominee who has died or otherwise become
incapacitated to serve as a director between the last day for giving notice
hereunder and the date of election of directors if the procedure called for in
this paragraph was followed with respect to the nomination of the proposed
nominee.
A copy of the preceding paragraph shall be set forth in the notice to
shareholders of any meeting at which directors are to be elected.
ARTICLE III
3.1 POWERS
Subject to the provisions of the Code and any limitations in the
Articles of Incorporation and these Bylaws relating to action required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the Board of Directors. The Board may
delegate the management of the day-to-day operation of the business of the
corporation to a management company or other person provided that the business
and affairs of the corporation shall be managed and all corporate powers shall
be exercised under the ultimate direction of the Board.
3.2 NUMBER OF DIRECTORS
The exact number of directors shall be eight (8) until changed, within
the limits specified in the Articles of Incorporation, by a bylaw or resolution
amending such exact number, duly adopted by the Board of Directors or by the
shareholders. No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
At each annual meeting of shareholders, directors shall be elected to
hold office for the term specified in the Articles of Incorporation. Each
director, including a director elected to fill a vacancy, shall hold office
until the expiration of the term for which elected and until a successor has
been elected and qualified, except in the case of the death, resignation, or
removal of such a director.
3.4 REMOVAL
If the Board of Directors is not classified, the entire Board of
Directors or any individual director may be removed from office without cause by
the affirmative vote of a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire
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Board is removed, no individual director may be removed when the votes cast
against such director's removal, or not consenting in writing to such removal,
would be sufficient to elect that director if voted cumulatively at an election
at which the same total number of votes cast were cast (or, if such action is
taken by written consent, all shares entitled to vote were voted) and the entire
number of directors authorized at the time of such director's most recent
election were then being elected.
If the Board of Directors is classified, a director may not be removed
if the votes cast against removal of the director, or not consenting in writing
to the removal, would be sufficient to elect the director if voted cumulatively
(without regard to whether shares may otherwise be voted cumulatively) at an
election at which the same total number of votes were cast (or, if the action is
taken by written consent, all shares entitled to vote were voted) and either the
number of directors elected at the most recent annual meeting of shareholders,
or if greater, the number of directors for whom removal is being sought, were
then being elected.
3.5 RESIGNATION AND VACANCIES
Any director may resign effective upon giving oral or written notice to
the Chairman of the Board, the President, the Secretary or the Board of
Directors, unless the notice specifies a later time for the effectiveness of
such resignation. If the resignation of a director is effective at a future
time, the Board of Directors may elect a successor to take office when the
resignation becomes effective.
Vacancies on the Board of Directors may be filled by a majority of the
remaining directors, or if the number of directors then in office is less than a
quorum by (i) unanimous written consent of the directors then in office, (ii)
the affirmative vote of a majority of the directors then in office at a meeting
held pursuant to notice or waivers of notice, or (iii) a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute at least a majority of the required quorum), or by the unanimous
written consent of all shares entitled to vote thereon. Each director so elected
shall hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified, or until his or her death, resignation
or removal.
A vacancy or vacancies in the Board of Directors shall be deemed to
exist (i) in the event of the death, resignation or removal of any director,
(ii) if the Board of Directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or convicted
of a felony, (iii) if the authorized number of directors is increased, or (iv)
if the shareholders fail, at any meeting of shareholders at which any director
or directors are elected, to elect the full authorized number of directors to be
elected at that meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election by
written consent, other than to fill a vacancy created by removal, shall require
the consent of the holders of a majority of the outstanding shares entitled to
vote thereon. A director may not be elected by written consent to
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fill a vacancy created by removal except by unanimous consent of all shares
entitled to vote for the election of directors.
3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the Board of Directors may be held at any place
within or outside the State of California that has been designated from time to
time by resolution of the Board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the Board may be held at any place within or outside the
State of California that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Members of the Board may participate in a meeting through the use of
conference telephone or similar communications equipment, so long as all
directors participating in such meeting can hear one another. Participation in a
meeting pursuant to this paragraph constitutes presence in person at such
meeting.
3.7 REGULAR MEETINGS
Regular meetings of the Board of Directors may be held without notice if
the time and place of such meetings are fixed by the Board of Directors.
3.8 SPECIAL MEETINGS; NOTICE
Subject to the provisions of the following paragraph, special meetings
of the Board of Directors for any purpose or purposes may be called at any time
by the Chairman of the Board, the President, any Vice President, the Secretary
or any two (2) directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail,
telegram, charges prepaid, or by telecopier, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone or by telecopier or telegram, it shall be
delivered personally or by telephone or by telecopier or to the telegraph
company at least forty-eight (48) hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose of the meeting.
3.9 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.11 of these Bylaws. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present is the act
of the Board of Directors, subject to the provisions of Section 310
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of the Code (as to approval of contracts or transactions in which a director has
a direct or indirect material financial interest), Section 311 of the Code (as
to appointment of committees), Section 317(e) of the Code (as to indemnification
of directors), the Articles of Incorporation, and other applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting.
3.10 WAIVER OF NOTICE
Notice of a meeting need not be given to any director who signs a waiver
of notice or a consent to holding the meeting or an approval of the minutes
thereof, whether before or after the meeting, or who attends the meeting without
protesting, prior thereto or at its commencement, the lack of notice to such
director. All such waivers, consents, and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. A waiver of
notice need not specify the purpose of any regular or special meeting of the
Board of Directors.
3.11 ADJOURNMENT
A majority of the directors present, whether or not a quorum is present,
may adjourn any meeting to another time and place.
3.12 NOTICE OF ADJOURNMENT
If the meeting is adjourned for more than twenty-four (24) hours, notice
of any adjournment to another time and place shall be given prior to the time of
the adjourned meeting to the directors who were not present at the time of the
adjournment.
3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting, if all members of the Board individually or
collectively consent in writing to such action. Such written consent or consents
shall be filed with the minutes of the proceedings of the Board. Such action by
written consent shall have the same force and effect as a unanimous vote of the
Board of Directors.
3.14 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the Board of Directors. This Section 3.14 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
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ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The Board of Directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two (2) or more directors, to serve at the pleasure of the Board.
The Board may designate one or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any such committee shall
have authority to act in the manner and to the extent provided in the resolution
of the Board and may have all the authority of the Board, except with respect
to:
(a) The approval of any action which, under the Code, also
requires shareholders' approval or approval of the outstanding shares.
(b) The filling of vacancies on the Board of Directors or in any
committee.
(c) The fixing of compensation of the directors for serving on
the Board or on any committee.
(d) The amendment or repeal of these Bylaws or the adoption of
new Bylaws.
(e) The amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable.
(f) A distribution to the shareholders of the corporation,
except at a rate, in a periodic amount or within a price range set forth in the
Articles of Incorporation or determined by the Board of Directors.
(g) The appointment of any other committees of the Board of
Directors or the members thereof.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these Bylaws, Section
3.6 (place of meetings), Section 3.7 (regular meetings), Section 3.8 (special
meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of notice),
Section 3.11 (adjournment), Section 3.12 (notice of adjournment), and Section
3.13 (action without meeting), with such changes in the context of those Bylaws
as are necessary to substitute the committee and its members for the Board of
Directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the Board of Directors
or by resolution of the committee, that special meetings of committees may also
be called by resolution of the Board of
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Directors, and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS
The officers of the corporation shall be a President, a Secretary, and a
Chief Financial Officer. The corporation may also have, at the discretion of the
Board of Directors, a Chairman of the Board, one or more Vice Chairmen of the
Board, one or more Vice Presidents, one or more Assistant Secretaries, one or
more Assistant Treasurers, and such other officers as may be appointed in
accordance with the provisions of Section 5.3 of these Bylaws. Any number of
offices may be held by the same person.
5.2 APPOINTMENT OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these Bylaws, shall be chosen by the Board and serve at the pleasure of the
Board, subject to the rights, if any, of an officer under any contract of
employment.
5.3 SUBORDINATE OFFICERS
The Board of Directors may appoint, or may empower the Chairman of the
Board or the President to appoint, such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these Bylaws or as
the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, all officers serve at the pleasure of the Board of Directors and any
officer may be removed, either with or without cause, by the Board of Directors
at any regular or special meeting of the Board or, except in case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
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5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The Chairman of the Board, if such an officer be elected, shall, if
present, preside at meetings of the Board of Directors and shareholders and
exercise and perform such other powers and duties as may from time to time be
assigned by the Board of Directors or as may be prescribed by these Bylaws. If
there is no President, then the Chairman of the Board shall also be the chief
executive officer of the corporation and shall have the powers and duties
prescribed in Section 5.8 of these Bylaws.
5.7 VICE CHAIRMAN OF THE BOARD
In the absence of the Chairman of the Board, the Vice Chairmen of the
Board (in order of senority), if such an officer or officers be elected, shall,
if present, preside at meetings of the Board of Directors and shareholders and
exercise and perform such other powers and duties as may from time to time be
assigned by the Board of Directors or as may be prescribed by these Bylaws to
the Chairman of the Board.
5.8 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the Board
of Directors to the Chairman of the Board or a Vice Chairman of the Board, if
there be such officers, the President shall be the chief executive officer of
the corporation and shall, subject to the control of the Board of Directors,
have general supervision, direction, and control of the business and the
officers of the corporation. The President, in the absence or nonexistence of a
Chairman of the Board and a Vice Chairman of the Board, shall preside at all
meetings of the Board of Directors. The President shall have the general powers
and duties of management usually vested in the office of President of a
corporation, and shall have such other powers and duties as may be prescribed by
the Board of Directors or these Bylaws.
5.9 VICE PRESIDENTS
In the absence or disability of the President, the Vice Presidents, if
any, in order of their rank as fixed by the Board of Directors or, if not
ranked, a Vice President designated by the Board of Directors, shall perform all
the duties of the President and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the President. The Vice Presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board of Directors, these Bylaws,
the President, the Chairman of the Board, or a Vice Chairman of the Board.
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5.10 SECRETARY
The Secretary shall keep or cause to be kept, at the principal executive
office of the corporation or such other place as the Board of Directors may
direct, a book of minutes of all meetings and actions of Directors, committees
of directors and shareholders. The minutes shall show the time and place of each
meeting, whether regular or special (and, if special, how authorized and the
notice given), the names of those present at directors' meetings or committee
meetings, the number of shares present or represented at shareholders' meetings,
and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors required to be given by law or
by these Bylaws. The Secretary shall keep the seal of the corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.
5.11 CHIEF FINANCIAL OFFICER
The Chief Financial Officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The Chief Financial Officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the Board of Directors. The Chief Financial Officer shall
disburse the funds of the corporation as may be ordered by the Board of
Directors, shall render to the President and directors, whenever they request
it, an account of all of his or her transactions as Chief Financial Officer and
of the financial condition of the corporation, and shall have such other powers
and perform such other duties as may be prescribed by the Board of Directors or
these Bylaws.
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ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS
The corporation shall, to the maximum extent and in the manner permitted
by the Code, indemnify each of its directors against expenses (as defined in
Section 317(a) of the Code), judgments, fines, settlements, and other amounts
actually and reasonably incurred in connection with any proceeding (as defined
in Section 317(a) of the Code), arising by reason of the fact that such person
is or was a director of the corporation. For purposes of this Article VI, a
"director" of the corporation includes any person (i) who is or was a director
of the corporation, (ii) who is or was serving at the request of the corporation
as a director of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was a director of a corporation
which was a predecessor corporation of the corporation or of another enterprise
at the request of such predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees, officers, and agents
(other than directors) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an employee,
officer, or agent of the corporation. For purposes of this Article VI, an
"employee" or "officer" or "agent" of the corporation (other than a director)
includes any person (i) who is or was an employee, officer, or agent of the
corporation, (ii) who is or was serving at the request of the corporation as an
employee, officer, or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee, officer, or agent of a corporation which was a predecessor corporation
of the corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
Expenses and attorneys' fees incurred in defending any civil or criminal
action or proceeding for which indemnification is required pursuant to Section
6.1, or if otherwise authorized by the Board of Directors, shall be paid by the
corporation in advance of the final disposition of such action or proceeding
upon receipt of an undertaking by or on behalf of the indemnified party to repay
such amount if it shall ultimately be determined that the indemnified party is
not entitled to be indemnified as authorized in this Article VI.
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6.4 INDEMNITY NOT EXCLUSIVE
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any Bylaw, agreement, vote of shareholders or directors or
otherwise, both as to action in an official capacity and as to action in another
capacity while holding such office. The rights to indemnity hereunder shall
continue as to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of the person.
6.5 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation against any liability asserted against or incurred by such
person in such capacity or arising out of that person's status as such, whether
or not the corporation would have the power to indemnify that person against
such liability under the provisions of this Article VI.
6.6 CONFLICTS
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(1) That it would be inconsistent with a provision of the
Articles of Incorporation, these Bylaws, a resolution of the shareholders or an
agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
6.7 RIGHT TO BRING SUIT
If a claim under this Article is not paid in full by the corporation
within 90 days after a written claim has been received by the corporation
(either because the claim is denied or because no determination is made), the
claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall also be entitled to be paid the expenses of prosecuting such
claim. The corporation shall be entitled to raise as a defense to any such
action that the claimant has not met the standards of conduct that make it
permissible under the Code for the corporation to indemnify the claimant for the
claim. Neither the failure of the corporation (including its Board of Directors,
independent legal counsel, or its shareholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
permissible in the circumstances because he or she has met the applicable
standard of conduct, if any, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel, or its
shareholders) that
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the claimant has not met the applicable standard of conduct, shall be a defense
to such action or create a presumption for the purposes of such action that the
claimant has not met the applicable standard of conduct.
6.8 INDEMNITY AGREEMENTS
The Board of Directors is authorized to enter into a contract with any
director, officer, employee or agent of the corporation, or any person who is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, or any person who was a director,
officer, employee or agent of a corporation which was a predecessor corporation
of the corporation or of another enterprise at the request of such predecessor
corporation, providing for indemnification rights equivalent to or, if the Board
of Directors so determines and to the extent permitted by applicable law,
greater than, those provided for in this Article VI.
6.9 AMENDMENT, REPEAL OR MODIFICATION
Any amendment, repeal or modification of any provision of this Article
VI shall not adversely affect any right or protection of a director or agent of
the corporation existing at the time of such amendment, repeal or modification.
ARTICLE VII
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
The corporation shall keep either at its principal executive office or
at the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the Board of Directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who hold at least one percent (1%) of such voting shares and have
filed a Schedule 14B with the United States Securities and Exchange Commission
relating to the election of directors, shall have an absolute right to do either
or both of the following (i) inspect and copy the record of shareholders' names,
addresses, and shareholdings during usual business hours upon five (5) days'
prior written demand upon the corporation, or (ii) obtain from the transfer
agent for the corporation, upon written demand and upon the tender of such
transfer agent's usual charges for such list (the amount of which charges shall
be stated to the shareholder by the transfer agent upon request), a list of the
shareholders' names and addresses who are entitled to vote for the election of
directors, and their shareholdings, as of the most recent record date for which
it has been compiled or as of a date specified by the shareholder subsequent to
the date of demand. The list shall be made available on or before the
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later of five (5) business days after the demand is received or the date
specified therein as the date as of which the list is to be compiled.
The record of shareholders shall also be open to inspection and copying
by any shareholder or holder of a voting trust certificate at any time during
usual business hours upon written demand on the corporation, for a purpose
reasonably related to the holder's interests as a shareholder or holder of a
voting trust certificate.
Any inspection and copying under this Section 7.1 may be made in person
or by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California, the original or a copy of these Bylaws as amended
to date, which shall be open to inspection by the shareholders at all reasonable
times during office hours. If the principal executive office of the corporation
is outside the State of California and the corporation has no principal business
office in such state, then it shall, upon the written request of any
shareholder, furnish to such shareholder a copy of these Bylaws as amended to
date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
The accounting books and records and the minutes of proceedings of the
shareholders and the Board of Directors, and committees of the Board of
Directors shall be kept at such place or places as are designated by the Board
of Directors or, in absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written form, and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form.
The minutes and accounting books and records shall be open to inspection
upon the written demand on the corporation of any shareholder or holder of a
voting trust certificate at any reasonable time during usual business hours, for
a purpose reasonably related to such holder's interests as a shareholder or as
the holder of a voting trust certificate. Such inspection by a shareholder or
holder of a voting trust certificate may be made in person or by an agent or
attorney and the right of inspection includes the right to copy and make
extracts. Such rights of inspection shall extend to the records of each
subsidiary corporation of the corporation.
7.4 INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records, and documents of every kind and to inspect
the physical properties of the corporation and each of its subsidiary
corporations, domestic or foreign. Such inspection by a director may be made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts.
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7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
The Board of Directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent to the
shareholders at least fifteen (15) (or, if sent by third-class mail, thirty-five
(35)) days prior to the annual meeting of shareholders to be held during the
next fiscal year and in the manner specified in Section 2.5 of these Bylaws for
giving notice to shareholders of the corporation.
The annual report shall contain a balance sheet as of the end of the
fiscal year and an income statement and statement of changes in financial
position for the fiscal year, accompanied by any report thereon of independent
accountants or, if there is no such report, the certificate of an authorized
officer of the corporation that the statements were prepared without audit from
the books and records of the corporation.
The foregoing requirement of an annual report shall be waived so long as
the shares of the corporation are held by fewer than one hundred (100) holders
of record.
7.6 FINANCIAL STATEMENTS
If no annual report for the fiscal year has been sent to shareholders,
then the corporation shall, upon the written request of any shareholder made
more than one hundred twenty (120) days after the close of such fiscal year,
deliver or mail to the person making the request, within thirty (30) days
thereafter, a copy of a balance sheet as of the end of such fiscal year and an
income statement and statement of changes in financial position for such fiscal
year.
A shareholder or shareholders holding at least five percent (5%) of the
outstanding shares of any class of the corporation may make a written request to
the corporation for an income statement of the corporation for the three-month,
six-month or nine-month period of the current fiscal year ended more than thirty
(30) days prior to the date of the request and a balance sheet of the
corporation as of the end of that period. The statements shall be delivered or
mailed to the person making the request within thirty (30) days thereafter. A
copy of the statements shall be kept on file in the principal office of the
corporation for twelve (12) months and it shall be exhibited at all reasonable
times to any shareholder demanding an examination of the statements or a copy
shall be mailed to the shareholder. If the corporation has not sent to the
shareholders its annual report for the last fiscal year, the statements referred
to in the first paragraph of this Section 7.6 shall likewise be delivered or
mailed to the shareholder or shareholders within thirty (30) days after the
request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report thereon, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
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7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The Chairman of the Board, the Vice Chairman of the Board, the
President, any Vice President, the Chief Financial Officer, the Secretary or
Assistant Secretary of this corporation, or any other person authorized by the
Board of Directors or the President or a Vice President, is authorized to vote,
represent, and exercise on behalf of this corporation all rights incident to any
and all shares of any other corporation or corporations standing in the name of
this corporation. The authority herein granted may be exercised either by such
person directly or by any other person authorized to do so by proxy or power of
attorney duly executed by such person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the shareholders entitled to receive payment
of any dividend or other distribution or allotment of any rights or entitled to
exercise any rights in respect of any other lawful action (other than with
respect to notice or voting at a shareholders meeting or action by shareholders
by written consent without a meeting), the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) days prior to
any such action. Only shareholders of record at the close of business on the
record date are entitled to receive the dividend, distribution or allotment of
rights, or to exercise the rights, as the case may be, notwithstanding any
transfer of any shares on the books of the corporation after the record date,
except as otherwise provided in the Articles of Incorporation or the Code.
If the Board of Directors does not so fix a record date, then the record
date for determining shareholders for any such purpose shall be at the close of
business on the day on which the Board adopts the resolution relating thereto or
the sixtieth (60th) day prior to the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the Board of Directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the
21
<PAGE> 26
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
A certificate or certificates for shares of the corporation shall be
issued to each shareholder when any of such shares are fully paid. The Board of
Directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All certificates
shall be signed in the name of the corporation by the Chairman of the Board or
the Vice Chairman of the Board or the President or a Vice President and by the
Chief Financial Officer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, certifying the number of shares and the class or series of
shares owned by the shareholder. Any or all of the signatures on the certificate
may be by facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed on a certificate has ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation or its transfer agent or registrar and canceled
at the same time. The Board of Directors may, in case any share certificate or
certificate for any other security is lost, stolen or destroyed (as evidenced by
a written affidavit or affirmation of such fact), authorize the issuance of
replacement certificates on such terms and conditions as the Board may require;
the Board may require indemnification of the corporation secured by a bond or
other adequate security sufficient to protect the corporation against any claim
that may be made against it, including any expense or liability, on account of
the alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
Bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
22
<PAGE> 27
ARTICLE IX
AMENDMENTS
9.1 AMENDMENT BY SHAREHOLDERS
New Bylaws may be adopted or these Bylaws may be amended or repealed by
the vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that the range of authorized directors of
the corporation may be changed only by an amendment of the Articles of
Incorporation.
9.2 AMENDMENT BY DIRECTORS
Subject to the rights of the shareholders as provided in Section 9.1 of
these Bylaws, Bylaws, other than a Bylaw or an amendment of a Bylaw changing the
authorized range of directors, may be adopted, amended or repealed by the Board
of Directors.
9.3 RECORD OF AMENDMENTS
Whenever an amendment or new Bylaw is adopted, it shall be copied in the
book of minutes with the original Bylaws. If any Bylaw is repealed, the fact of
repeal, with the date of the meeting at which the repeal was enacted or written
consent was filed, shall be stated in said book.
ARTICLE X
INTERPRETATION
Reference in these Bylaws to any provision of the California
Corporations Code shall be deemed to include all amendments thereof.
23
<PAGE> 28
SECRETARY'S CERTIFICATE OF
ADOPTION OF BYLAWS
OF
VIB CORP
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of VIB Corp, a
California corporation.
2. That the foregoing Bylaws constitute the Bylaws of said corporation
as adopted by the Directors of said corporation at a duly called and held
meeting of the Board of Directors on November 18, 1997.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 18th day of
November, 1997.
/s/ CHARLOTTE STUDER
---------------------------------
Charlotte Studer, Secretary
24
<PAGE> 1
<TABLE>
<S><C>
EXHIBIT 4.1
- -----------------------------------------------------------------------------------------------------------------------------------
NO. VIB-W- S P E C I M E N ___________ WARRANTS
CUSIP 919716 11 8 TO PURCHASE ONE SHARE
OF COMMON STOCK EACH
VIB
VALLEY INDEPENDENT BANK (SM)
Incorporated Under the Laws of the State of California
THIS CERTIFIES THAT, for value received,
the registered holder hereof or registered assigns (the "Holder"), is entitled to purchase from Valley Independent Bank, a
California corporation (the "Bank"), at the purchase price of $19.50 per share through October 31, 1998 and at the purchase
price of $22.50 per share thereafter (the "Warrant Price"), one share of the Bank's Common Stock, no par value (the "Common
Stock"), for each Warrant comprising the aggregate number of Warrants set forth above. The number of shares purchasable upon
exercise of this Warrant and the Warrant Price per share shall be subject to adjustment from time to time as set forth herein.
This Warrant shall expire on October 29, ????, ???? extended, subject to regulatory approval.
This Warrant is one of a duly authorized issue of 101,082 Warrants evidencing ???? right ???? purchase an aggregate of up to
101,082 shares of Common Stock and is issued in connection ???? Bank's public offering of up to 101,082 Units, each Unit
consisting of five ???? of Common Stock and one Warrant to purchase one share of Common Stock each. The shares of Common
Stock to be issued upon the exercise of Warrants are referred to herein as "Warrant Shares". The offer and sale of the Warrants
and of the Warrant Shares has been made pursuant to a permit ???? by the California Commissioner of Financial
Institutions.
1. EXERCISE PERIOD AND EXPIRATION DATE. The Warrant ???? exercisable from issuance through October 29, 1999. This
Warrant shall expire ???? entirety ???? no longer be exercisable at 5:00 p.m., Pacific Time, on October 29, 1999, unless
extended. The Bank shall use its best efforts to qualify or register the Warrant Shares under the laws ???? in which
the Holders reside when no exemption from such requirements is available.
2. EXERCISE OF WARRANTS. A Warrant ???? exercised at the Bank's Main Office at 1498 Main Street, El Centro, California
92243, upon presentation and surrender hereof, with the Warrant Purchase Form on the reverse hereof duly completed and signed,
and upon payment to the Bank of the Warrant Price (as adjusted in accordance with the provisions of Section 9 hereof), for the
number of Warrant Shares in respect of which such Warrants are then exercised. Payment of the aggregate Warrant Price shall be
made in cash, by check or any combination thereof.
The Bank shall not be required to issue fractional Warrant Shares on the exercise of Warrants. When Warrants shall be
presented for exercise in full at the same time by the same Holder, the number of full Warrant Shares which shall be issuable
upon the exercise thereof shall be computed on the basis of the aggregate number of Warrant Shares purchasable by such Holder
on exercise of the Warrants so presented. If any fraction of a Warrant Share would be issuable on the exercise of any Warrants
in full, the Bank shall pay an amount in cash equal to the then current market price per Warrant Share multiplied by such
fraction. When Warrants shall be presented for exercise as to a specified portion, only full Warrant Shares shall be issuable
and a new Warrant shall be issuable evidencing the remaining Warrant or Warrants.
Upon such surrender of Warrants and payment of the Warrant Price as aforesaid, the Bank shall issue and cause to be
delivered with all reasonable dispatch to or upon the written order of the Holder and is such name or names as the Holder may
designate, a certificate or certificates for the number of full Warrant Shares so purchased upon the exercise of such Warrants,
together with cash, as provided above in this Section 2, in respect of any fractional Warrant Share otherwise issuable upon
such surrender. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named
therein shall be deemed to become a holder of record of such Warrant Shares as of the date of the surrender of such Warrants
and payment of the Warrant Price, as aforesaid; provided, however, that if, at the date of surrender of such Warrants and
payment of the Warrant Price, the transfer books for the Warrant Shares or other ???? of stock purchasable upon the exercise
of such Warrants shall be closed, the certificates ???? Warrant Shares in respect of which such Warrants are then exercised
shall be issuable as of the ???? such books shall next be opened (whether before or after the Expiration ???? and
until such date the Bank shall be under no duty to deliver any certificate for such Warrant Shares. The purchase rights
represented by the Warrants shall be exercisable, at the election ???? Holders thereof, either in full or from time to time
in part and, in the event that a Warrant is exercised in respect of less than all of the Warrant Shares purchasable on such
exercise at any time prior to the date of expiration of the Warrants, a new Warrant evidencing the remaining Warrant or
Warrants will be issued. All Warrants surrendered in the exercise of the rights thereby ???? shall be cancelled by the
Bank.
3. ???? OF WARRANTS. Subject to the restriction on separate transferability (set forth in Section 4 ????, each
Warrant may be exchanged without charge for another Warrant(s) entitling the Holder thereof to purchase a like aggregate number
of Warrant Shares as the Warrant(s) surrendered then entitle each Holder to purchase. Any Holder desiring to exchange a
Warrant(s) shall make such request in writing delivered to the Bank or its Warrant Agent, U.S. Stock Transfer Corporation, 1745
Gardena Avenue, Glendale, California 91204, and shall surrender, properly endorsed, the Warrant(s) to be so exchanged.
Thereupon, the Bank or its Warrant Agent shall deliver to the person(s) entitled thereto new Warrant(s) as so requested.
Reference is hereby made to the further provisions of this Warrant set forth on the reverse hereof, which further provisions
shall for all purposes have the same effect as if set forth at this place.
WITNESS, the facsimile seal of the Bank and the facsimile signature of its duly authorized officers. This Warrant Certificate
is not valid until countersigned by the Warrant Agent.
VALLEY INDEPENDENT BANK
a California Corporation
By: [SIG]
---------------------------------
President
[ SEAL OF THE ]
[ VALLEY INDEPENDENT BANK ] By: [SIG]
---------------------------------
Secretary
Dated:
-------------------------------
Countersigned:
U.S. STOCK TRANSFER CORPORATION
As Warrant Agent
By:
---------------------------------
Authorized Officer
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
4. TRANSFER OF WARRANTS. The shares of Common Stock and Warrants
comprising the Units will not be separately transferable prior to the close of
business (5:00 p.m., Pacific Time) on December 15, 1997, or such earlier date
as may be determined by the Bank, at which time the Warrants shall become
separately transferable. Prior to the time when the Warrants are separately
transferable, a Warrant may be transferred only by a transfer of the Units. The
Warrants shall be transferable only on the books of the Bank maintained by the
Warrant Agent upon delivery thereof duly endorsed with signatures properly
guaranteed by a commercial bank or securities brokerage firm, or accompanied by
proper evidence of succession, assignment or authority to transfer. Upon any
registration of transfer, the Bank or its Warrant Agent shall deliver a new
Warrant or Warrants to the person(s) entitled thereto.
5. PAYMENT OF TAXES. The Bank will pay all documentary stamp taxes, if
any, attributable to the initial issuance of Warrant Shares upon the exercise
of Warrants; provided, however, that the Bank shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issuance or delivery of any Warrants or certificates for Warrant Shares in a
name other than that of the registered Holder of the Warrants, and in such case
the Bank shall not be required to issue or deliver any certificates for shares
of Common Stock or any Warrant until the person requesting the same has paid to
the Bank the amount of such tax or has established to the Bank's satisfaction
that such tax has been paid.
6. MUTILATED OR MISSING WARRANTS. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Bank or its Warrant Agent may at its
discretion issue, upon cancellation of the mutilated Warrant, or in lieu of and
in substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and representing an equivalent right or interest; but only upon
receipt of evidence satisfactory to the Bank or its Warrant Agent of such loss,
theft or destruction of such Warrant and Indemnity, if requested, also
satisfactory to the Bank or its Warrant Agent. An applicant for such a
substitute Warrant shall also comply with such other reasonable regulations as
the Bank or its Warrant Agent may prescribe.
7. RESERVATION OF WARRANT SHARES. The Bank shall at all times, while
the Warrants are exercisable, keep reserved, out of its authorized Common
Stock, a number of shares of Common Stock sufficient to provide for the
exercise of the rights of purchase represented by the outstanding Warrants.
Promptly after the date of expiration of the Warrants, no shares shall be
subject to reservation in respect of such Warrants.
8. CANCELLATION OF WARRANTS. The Bank or its Warrant Agent shall cancel
any Warrants surrendered for exchange, substitution, transfer or exercise in
whole or in part.
9. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF WARRANT SHARES. The number
and kind of securities purchasable upon the exercise of each Warrant and the
Warrant Price shall be subject to adjustments from time to time upon the
happening of certain events, as hereinafter defined:
9.1 ADJUSTMENTS. The number of Warrant Shares purchasable upon the
exercise of each Warrant and the Warrant Price shall be subject to adjustment
as follows:
(a) In case the Bank shall (i) pay a dividend in shares of Common
Stock or make a distribution in shares of Common Stock, (ii) subdivide its
outstanding shares of Common Stock into a greater number of shares, (iii)
combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock, or (iv) issue by reclassification of its shares of
Common Stock or capital reorganization other securities of the Bank, the
number of Warrant Shares purchasable upon exercise of each Warrant
immediately prior thereto shall be adjusted so that the Holder of each
Warrant shall be entitled to receive the kind and number of Warrant Shares
or other securities of the Bank which the Holder would have owned or would
have been entitled to receive after the happening of any of the events
described above, had such Warrant been exercised immediately prior to the
happening of such event or any record date with respect thereto. An
adjustment made pursuant to this Paragraph (a) shall become effective
immediately after the effective date of such event retroactive to the
record date, if any, for such event.
(b) No adjustment in the number of Warrant Shares purchasable
hereunder shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the number of Warrant
Shares purchasable upon the exercise of each Warrant; provided, however,
that any adjustments which by reason of this Paragraph (b) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment(s). All calculations shall be made to the nearest one
hundredth (1/100) of a share.
(c) Whenever the number of Warrant Shares purchasable upon the
exercise of each Warrant is adjusted, as herein provided, each Warrant
Price payable upon exercise of each Warrant shall be adjusted by
multiplying the Warrant Price immediately prior to the adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of each Warrant immediately prior to the
adjustment, and of which the denominator shall be the number of Warrant
Shares so purchasable immediately thereafter. All calculations shall be
made to the nearest whole penny.
(d) For the purpose of this Subsection 9.1, the term "shares of
Common Stock" shall mean (i) the class of stock designated as the Common
Stock of the Bank at the date of this Warrant, or (ii) any other class of
stock resulting from successive changes or reclassifications of such shares
consisting solely of changes in par value, or from par value to no par
value, or from no par value to par value. In the event that at any time, as
a result of an adjustment made pursuant to Paragraph (a) above, the Holder
shall become entitled to purchase any shares of the Bank other than shares
of Common Stock, thereafter the number of such other shares so purchasable
upon exercise of each Warrant and the Warrant Price of such shares shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Warrant
Shares contained in Paragraphs (a) through (c), inclusive, above, and the
provisions of Sections 1 and 2 and Subsections 9.2 through 9.4, inclusive,
with respect to the Warrant Shares, shall apply on like terms to any such
other shares.
9.2 VOLUNTARY ADJUSTMENT BY THE BANK. The Bank may at its option, at any
time during the term of the Warrants, reduce the then current Warrant Price to
any amount deemed appropriate by the Board of Directors of the Bank, subject to
regulatory approval.
9.3 NOTICES OF ADJUSTMENT. Whenever the number of Warrant Shares
purchasable upon the exercise of each Warrant and the Warrant Price of such
Warrant Shares are adjusted, as herein provided, the Bank shall cause to be
mailed by first class mail, postage prepaid, to each Holder, notice of such
adjustment or adjustments setting forth the number of Warrant Shares
purchasable upon the exercise of each Warrant and the Warrant Price of such
Warrant Shares after such adjustment, setting forth a brief statement of the
facts requiring such adjustment and setting forth the computation by which such
adjustment was made. Any failure by the Bank to give notice to any Holder or
any defect therein shall not affect the validity of such adjustment or of the
event resulting in the adjustment, nor of the Holder's rights to such
adjustment.
9.4 NO ADJUSTMENT FOR DIVIDENDS OR DISTRIBUTIONS. Except as provided in
Subsections 9.1 and 9.6, no adjustment in respect of any dividends or
distributions shall be made during the term of a Warrant or upon the exercise
of a Warrant.
9.5 RIGHTS UPON CONSOLIDATION, MERGER, ETC.
(a) In the case of any consolidation of the Bank with or merger of
the Bank into another corporation or in the case of any sale or conveyance to
another corporation of the property of the Bank as an entirety or substantially
as an entirety, such successor or purchasing corporation may assume the
obligations hereunder, and may execute with the Bank an agreement that each
Holder shall have the right thereafter upon payment of the Warrant Price in
effect immediately prior to such transaction to purchase upon exercise of each
Warrant the kind and amount of shares and other securities and property
(including cash) which each Holder would have owned or would have been entitled
to receive after the happening of such consolidation, merger, sale or
conveyance had such Warrant been exercised immediately prior to such action.
The Bank shall mail by first class mail, postage prepaid to each Holder, notice
of the execution of any such agreement. Such agreement shall provide for
adjustments, which shall be as nearly equivalent as may be predictable to the
adjustments provided for in this Section 9. The provisions of this Subsection
9.5 shall similarly apply to successive consolidations, mergers, sales or
conveyance.
(b) In the event that such successor corporation does not execute
such an agreement with the Bank as provided in Paragraph (a), then each Holder
shall be entitled to exercise outstanding Warrants, during a period of at least
30 days, which period shall terminate at least 5 days prior to consummation of
the consolidation, merger, sale or conveyance, and thereby receive
consideration in the transaction on the same basis as other previously
outstanding shares of the same class as the Warrant Shares acquired upon
exercise. Warrants not yet exercised in accordance with this Paragraph (b)
before consummation of the transaction will be canceled and become null and
void. The Bank shall mail by first class mail, postage prepaid, to each Holder,
at least 10 days prior to the first date on which the Warrants shall become
exercisable, notice of the proposed transaction setting forth the first and
last date on which the Holder may exercise outstanding Warrants and a
description of the terms of this Warrant providing for cancellation of the
Warrants in the event that Warrants are not exercised by the prescribed date.
(c) The Bank's failure to give any notice required by this
Subsection 9.5 or any defect therein shall not affect the validity of any such
agreement, consolidation, merger, sale or conveyance of property.
9.6 RIGHTS UPON LIQUIDATION. In case (i) the Bank shall make any
distribution of its assets to holders of its shares of Common Stock as a
liquidation or partial liquidation dividend or by way of return of capital, or
other than a dividend payable out of capital and unimpaired surplus legally
available for dividends under the California Financial Code, or (ii) the Bank
shall liquidate, dissolve or wind up its affairs (other than in connection with
a consolidation, merger or sale of all or substantially all of its property,
assets, and business as an entirety), then the Bank shall cause to be mailed to
each Holder, by first class mail, postage prepaid, at least 20 days prior to the
applicable record date, a notice stating the date on which such distribution,
liquidation, dissolution or winding up is expected to become effective, and the
date on which it is expected that holders of shares of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities or
other property or assets (including cash) deliverable upon such distribution,
liquidation, dissolution or winding up. The Bank's failure to give the notice
required by this Subsection 9.6 or any defect therein shall not affect the
validity of such distribution, liquidation, dissolution or winding up.
9.7 STATEMENT OF WARRANT. Irrespective of any adjustments in the Warrant
Price of the number or kind of shares purchasable upon the exercise of the
Warrants, Warrants therefore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the Warrants initially
issued.
10. NO RIGHTS AS STOCKHOLDERS. Nothing contained in this Warrant shall
be construed as conferring upon the Holder hereof or the Holder's transferres
the right to vote or to receive dividends or to consent to or to receive notice
as stockholders in respect of any meeting of stockholders for the election of
directors of the Bank or any other matter, or any rights whatsoever as
stockholders of the Bank.
11. NOTICES. Any notice pursuant to this Warrant by any Holder to the
Bank or by the Bank to the Holder, shall be in writing and shall be mailed
first class, postage prepaid, or delivered: (a) to the Bank at its Main Office
at 1498 Main Street, El Centro, California 92243; or (b) to the Holder, at the
Holder's respective address on the books of the Bank.
12. APPLICABLE LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
principles of conflict of laws.
13. CAPTIONS. The captions of the Sections and Subsections of this
Warrant have been inserted for convenience only and shall have no substantive
effect.
- -----------------------------------------------------------------------------
ASSIGNMENT OF WARRANT
(TO BE SIGNED ONLY UPON ASSIGNMENT OF WARRANT)
To: VALLEY INDEPENDENT BANK To: U.S. STOCK TRANSFER
1498 Main Street CORPORATION
El Centro, California 92243 or 1745 Gardena Avenue
Glendale, California 91204
FOR VALUE RECEIVED the undersigned hereby sell(s) and transfer(s) unto
- -----------------------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE:
--------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
the within Warrant, hereby Irrevocably constituting and applying__________
Attorney to transfer said Warrant on the books of the Bank, with full power of
substitution in the premises.
Dated:
-------------------------------
- -----------------------------------------------------------------------------
Signature of Record Holder
- -----------------------------------------------------------------------------
Signature of Record Holder
NOTE: The above signature(s) must correspond with the name(s) as written upon
the face of this Warrant in every particular, without alteration or enlargement
or any change whatsoever.
SIGNATURE(S) GUARANTEED BY:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
WARRANT PURCHASE FORM
(TO BE SIGNED ONLY UPON ASSIGNMENT OF WARRANT)
To: VALLEY INDEPENDENT BANK
1498 Main Street
El Centro, California 92243
The undersigned hereby irrevocably elect(s) to exercise the right of
purchase represented by the within Warrant for, and to purchase thereunder,
____________ shares of the Bank's Common Stock, and request(s) that
certificates for such shares be issued in the name of:
Please print name and address:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Please provide Social Security of Federal Tax I.S. No.:
- -----------------------------------------------------------------------------
and, if said number of shares shall not be all the shares purchasable
thereunder, that a new Warrant for the balance remaining of the whole number of
shares purchasable under the within Warrant be registered in the name of the
undersigned Holder or assignee as indicted below and delivered to the address
stated below.
DATED:
---------------------------
Address:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Signature of Record Holder or Assignee
- -----------------------------------------------------------------------------
Signature of Record Holder or Assignee
NOTE: The above signature(s) must correspond with the name(s) as written upon
the face of this Warrant in every particular, without alteration or enlargement
or any change whatsoever, unless this Warrant has been assigned.
SIGNATURE(S) GUARANTEED BY:
--------------------------------
<PAGE> 1
EXHIBIT 4.2
SHAREHOLDER AGREEMENT
THIS AGREEMENT is entered into this 18th day of November, 1997,
by and between Dennis L. Kern ("Shareholder") and VIB Corp ("Corporation"), a
California corporation with its principal executive office at 1498 Main Street,
El Centro, California 92243.
RECITALS
A. WHEREAS, the Articles of Incorporation of Corporation
authorize the issuance of up to 20,000,000 shares of its no par value common
stock ("Common Stock");
B. WHEREAS, the Board of Directors of Corporation has authorized
the sale and issuance of 100 shares of Corporation's Common Stock at the
purchase price of $10.00 per share to Shareholder; and
C. WHEREAS, Shareholder desires to purchase 100 shares of
Corporation's Common Stock for the purchase price of $10.00 per share pursuant
to the terms and conditions herein set forth;
NOW, THEREFORE, IT IS HEREBY MUTUALLY AGREED by and between
Corporation and Shareholder as follows:
AGREEMENT
1. Purchase. Corporation agrees to sell and Shareholder agrees to
purchase 100 shares of Corporation's Common Stock at the purchase price of
$10.00 per share for an aggregate purchase price of $1,000.00.
2. Transfer of Shares. Shareholder agrees not to sell, assign,
transfer, encumber, hypothecate, or make any other disposition of any of the
shares of the Common Stock to be
1
<PAGE> 2
purchased except with the prior written consent of Corporation and except in
accordance with the terms of this Shareholder Agreement. This Shareholder
Agreement shall be binding upon and shall operate for the benefit of Corporation
and Shareholder and the respective executors or administrators and any
transferees or assignees of Shareholder, whether such transfers or assignments
are in accordance with or in violation of the provisions of this Shareholder
Agreement.
3. Repurchase by Corporation. Upon consummation of the merger
between Corporation's wholly-owned subsidiary, VIB Merger Company, and Valley
Independent Bank, pursuant to which Corporation will issue shares of its Common
Stock to the shareholders of Valley Independent Bank (the "Merger"), Corporation
shall be obligated to repurchase and Shareholder shall be obligated to resell to
Corporation the 100 shares of Corporation's Common Stock at the repurchase price
of $10.00 per share, for a total repurchase price of $1,000.00. The repurchase
and repayment therefor shall occur simultaneously with the consummation of the
Merger, at which time Shareholder's share certificate shall be returned and
cancelled.
4. Termination. This Shareholder Agreement shall terminate upon
the occurrence of any of the following events:
(a) The bankruptcy, receivership, or dissolution of
Corporation;
(b) Mutual agreement of Corporation and Shareholder; or
(c) The failure of the consummation of the Merger for
any reason whatsoever.
2
<PAGE> 3
5. Legend. Upon execution of this Shareholder Agreement, the
certificate representing the number of shares of Corporation's Common Stock to
be issued shall be endorsed as follows:
"This certificate is transferable only upon compliance with
the provisions of a Shareholder Agreement dated November 18,
1997."
6. Governing Law. This Shareholder Agreement shall be construed
and governed by the laws of the State of California.
7. Entire Agreement. This Shareholder Agreement constitutes the
sole and only agreement of the parties hereto respecting the sale and purchase
of the shares of Corporation's Common Stock and the resale or repurchase of the
shares of Corporation's Common Stock and correctly sets forth the rights,
duties, and obligations of each party to the other in relation thereto as of
this date. Any prior agreements, promises, negotiations or representations
concerning the subject matter of this Shareholder Agreement not expressly set
forth in this Shareholder Agreement are of no force or effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Shareholder Agreement in El Centro, California, on the date first above written.
"SHAREHOLDER" VIB CORP
/s/ DENNIS L. KERN By: /s/ HARRY G. GOODING, III
- --------------------------- --------------------------------
Dennis L. Kern Harry G. Gooding, III,
Executive Vice President & Chief
Financial Officer
By: /s/
-------------------------------
Charlotte Studer,
Secretary
3
<PAGE> 1
EXHIBIT 5
[HORGAN, ROSEN, BECKHAM & COREN LETTERHEAD]
December 22, 1997
Board of Directors
VIB Corp
1498 Main Street
El Centro, California 92243
Re: VIB Corp
Lady and Gentlemen:
We have acted as counsel to VIB Corp, a California corporation (the
"Holding Company"), in connection with the preparation of the Registration
Statement on Form S-4 of the Holding Company (the "Registration Statement")
filed with the Securities and Exchange Commission (the "Commission"), relating
to the registration under the Securities Act of 1933, as amended (the
"Securities Act"), of shares of the Holding Company's common stock, no par value
(the "Shares"), issuable pursuant to the Plan of Reorganization and Merger
Agreement, dated as of November 18, 1997 (the "Agreement"), by and between the
Holding Company, Valley Independent Bank (the "Bank") and VIB Merger Company,
whereby each share of common stock, no par value of the Bank ("Bank Common
Stock") will be exchanged for one share of the Holding Company's common stock
pursuant to the terms set forth in the Agreement.
In connection with this opinion, we have considered such questions of
law as we have deemed necessary as a basis for the opinions set forth below, and
we have examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of the following: (i) the Registration
Statement; (ii) the Articles of Incorporation and Bylaws of the Holding Company,
as currently in effect; (iii) certain resolutions of the Board of Directors of
the Holding Company relating to the issuance of the Shares and the other
transactions contemplated by the Registration Statement; (iv) the Agreement; and
(v) such other documents as we have deemed necessary or appropriate as a basis
for the opinion set forth below. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as certified or photostatic copies and the authenticity of the originals of
such copies. As to any facts material to this opinion that we did not
independently establish or verify, we have relied upon statements and
representations of officers and other representatives of the Holding Company and
others.
<PAGE> 2
Board of Directors
VIB Corp
December 22, 1997
Page 2
Based upon the foregoing, we are of the opinion that if and when issued
in exchange for shares of Bank Common Stock pursuant to the terms of the
Agreement and under the circumstances contemplated by the Registration
Statement, the Shares will be validly issued, fully paid and non-assessable.
The law covered by the opinion set forth above is limited to the laws
of the state of California and the federal law of the United States of America.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5 to the Registration Statement and to the reference to our name under
the caption "Legal Matters" in the Proxy Statement/Prospectus constituting a
part of the Registration Statement.
Very truly yours,
/s/ HORGAN, ROSEN, BECKHAM & COREN LLP
--------------------------------------
Horgan, Rosen, Beckham & Coren, L.L.P.
SAR:st
<PAGE> 1
EXHIBIT 8
[VAVRINEK, TRINE, DAY & CO., LLP LETTERHEAD]
December 19, 1997
VIB Corp
2415 La Brucherie Road
Imperial, California 92251
RE: REGISTRATION STATEMENT ON FORM S-4
VIB CORP
FEDERAL INCOME TAX CONSEQUENCES
To whom it may concern:
We have acted as accountants to VIB Corp (the "Holding Company") in connection
with the Holding Company's preparation of the Prospectus included within the
Holding Company's Registration Statement on Form S-4, filed with the United
States Securities and Exchange Commission. In that capacity, we hereby confirm
to you our opinion as set forth under the caption "Bank Holding Company
Reorganization - Federal Income Tax Consequences".
We hereby consent to the use of our name in the Prospectus under the heading
"Bank Holding Company Reorganization - Federal Income Tax Consequences".
Sincerely,
/s/ DAVID L. DAYTON
- ----------------------------------
David L. Dayton
for Vavrinek, Trine, Day & Co., LLP
DLD:cw
<PAGE> 1
EXHIBIT 10.1
VIB CORP
1997 STOCK OPTION PLAN
ADOPTED NOVEMBER 18, 1997
1. Purpose
The purpose of the VIB Corp 1997 Stock Option Plan (the "Plan")
is to strengthen VIB Corp (the "Company") and those banks and corporations which
are or hereafter become subsidiary corporations (the "Subsidiary" or
"Subsidiaries") by providing additional means of attracting and retaining
competent managerial personnel and by providing to participating directors,
officers and key employees added incentive for high levels of performance and
for unusual efforts to increase the earnings of the Company and any
Subsidiaries. The Plan seeks to accomplish these purposes and achieve these
results by providing a means whereby such directors, officers and key employees
may purchase shares of the Common Stock of the Company pursuant to Stock Options
granted in accordance with this Plan.
Stock Options granted pursuant to this Plan are intended to be
Incentive Stock Options or Non-Qualified Stock Options, as shall be determined
and designated by the Stock Option Committee upon the grant of each Stock Option
hereunder.
2. Definitions
For purposes of this Plan, the following terms shall have the
following meanings:
a. "Affiliation" or "affiliated." For purposes of Sections 10,
11, 12, 13 and 14 hereof, these terms shall mean service as a director of the
Company or any Subsidiary.
b. "Common Stock." This term shall mean shares of the Company's
common stock, no par value, subject to adjustment pursuant to Section 15
(Adjustment Upon Changes in Capitalization) hereunder.
c. "Company." This term shall mean VIB Corp, a California
corporation.
d. "Eligible Participants." This term shall mean: (i) all
directors of the Company or any Subsidiary; (ii) all officers (whether or not
they are also directors) of the Company or any Subsidiary; and (iii) all key
employees (as such persons may be determined by the Stock Option Committee from
time to time) of the Company or any Subsidiary, provided that such officers and
key employees have a customary work week of at least forty hours in the employ
of the Company or a Subsidiary.
e. "Fair Market Value." This term shall mean the fair market
value of the Common Stock as determined in accordance with any reasonable
valuation method selected by the Stock Option Committee, including the valuation
methods described in Treasury Regulations Section 20.2031-2.
<PAGE> 2
f. "Incentive Stock Option." This term shall mean a Stock Option
which is an "incentive stock option" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.
g. "Non-Qualified Stock Option." This term shall mean a Stock
Option which is not an Incentive Stock Option.
h. "Option Shares." This term shall mean Common Stock covered by
and subject to any outstanding unexercised Stock Option granted pursuant to this
Plan.
i. "Optionee." This term shall mean any Eligible Participant to
whom a Stock Option has been granted pursuant to this Plan, provided that at
least part of the Stock Option is outstanding and unexercised.
j. "Plan." This term shall mean the VIB Corp 1997 Stock Option
Plan as embodied herein and as may be amended from time to time in accordance
with the terms hereof and applicable law.
k. "Stock Option." This term shall mean the right to purchase a
specified number of shares of Common Stock under this Plan, at a price and upon
the terms and conditions determined by the Stock Option Committee.
l. "Stock Option Committee." The Board of Directors of the
Company may select and designate a Stock Option Committee consisting of three or
more directors of the Company, having full authority to act in the matter.
Regardless of whether a Stock Option Committee is selected, the Board of
Directors of the Company may act as the Stock Option Committee and any action
taken by said Board as such shall be deemed to be action taken by the Stock
Option Committee. All references in the Plan to the "Stock Option Committee"
shall be deemed to refer to the Board of Directors of the Company acting as the
Stock Option Committee and to a duly appointed Stock Option Committee, if there
be one. In the event of any conflict between action taken by the Board acting as
a Stock Option Committee and action taken by a duly appointed Stock Option
Committee, the action taken by the Board shall be controlling and the action
taken by the duly appointed Stock Option Committee shall be disregarded.
m. "Subsidiary." This term shall mean each "subsidiary
corporation" (treating the Company as the employer corporation) as defined in
Section 424(f) of the Internal Revenue Code of 1986, as amended.
3. Administration
a. Stock Option Committee. This Plan shall be administered by the
Stock Option Committee. The Board of Directors of the Company shall have the
right, in its sole and absolute discretion, to remove or replace any person from
or on the Stock Option Committee at any time for any reason whatsoever.
b. Administration of the Plan. Any action of the Stock Option
Committee with respect to the administration of the Plan shall be taken pursuant
to a majority vote, or
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<PAGE> 3
pursuant to the unanimous written consent, of its members. Any such action taken
by the Stock Option Committee in the administration of this Plan shall be valid
and binding, so long as the same is not inconsistent with the terms and
conditions of this Plan. Subject to compliance with the terms, conditions and
restrictions set forth in this Plan, the Stock Option Committee shall have the
exclusive right, in its sole and absolute discretion, to establish the terms and
conditions of all Stock Options granted under the Plan, including, without
meaning any limitation, the power to: (i) establish the number of Stock Options,
if any, to be granted hereunder, in the aggregate and with regard to each
Eligible Participant; (ii) determine the time or times when such Stock Options,
or parts thereof, may be exercised; (iii) determine and designate which Stock
Options granted under the Plan shall be Incentive Stock Options and which shall
be Non-Qualified Stock Options; (iv) determine the Eligible Participants, if
any, to whom Stock Options are granted; (v) determine the duration and purposes,
if any, of leaves of absence which may be permitted to holders of unexercised,
unexpired Stock Options without such constituting a termination of employment
under the Plan; and (vi) prescribe and amend the terms, provisions and form of
each instrument and agreement setting forth the terms and conditions of every
Stock Option granted hereunder.
c. Decisions and Determinations. Subject to the express
provisions of the Plan, the Stock Option Committee shall have the authority to
construe and interpret this Plan, to define the terms used herein, to prescribe,
amend, and rescind rules and regulations relating to the administration of the
Plan, and to make all other determinations necessary or advisable for
administration of the Plan. Determinations of the Stock Option Committee on
matters referred to in this Section 3(c) shall be final and conclusive so long
as the same are not inconsistent with the terms of this Plan.
4. Shares Subject to the Plan
Subject to adjustments as provided in Section 15 hereof, the
maximum number of shares of Common Stock which may be issued upon exercise of
all Stock Options granted under this Plan is limited to two million (2,000,000)
in the aggregate. If any Stock Option shall be canceled, surrendered, or expire
for any reason without having been exercised in full, the unpurchased Option
Shares represented thereby shall again be available for grants of Stock Options
under this Plan.
5. Eligibility
Only Eligible Participants shall be eligible to receive grants of
Stock Options under this Plan.
6. Grants of Stock Options
a. Grant. Subject to the express provisions of the Plan, the
Stock Option Committee, in its sole and absolute discretion, may grant Stock
Options:
(i) In the case of grants to Eligible Participants
who are not directors of the Company, for a number of Option
Shares, at the price(s) and time(s), and on the terms and
conditions as it deems advisable and specifies in the
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<PAGE> 4
respective grants; provided, however, that such grants shall vest
at least at the rate of twenty percent (20%) annually over five
(5) years from the date of grant; and
(ii) In the case of grants to Eligible Participants
who are directors of the Company, for a number of Option Shares,
at the price(s) and time(s), and on the terms and conditions as
it deems advisable and specifies in the respective grants;
provided, however, that such grants may not exceed a maximum of
one million, six hundred thousand (1,600,000) Option Shares to
all directors at any time; and provided further, however, that
such grants shall vest at least at the rate of twenty percent
(20%) annually over five (5) years from the date of grant. The
foregoing maximum number of Option Shares which may be granted to
all directors of the Company at any time shall be adjusted in
accordance with the provisions of Section 15 hereof.
The terms upon which and the times at which, or the periods
within which, the Option Shares subject to such Stock Options may become
acquired or such Stock Options may be acquired and exercised shall be as set
forth in the Plan and the related Stock Option Agreements.
Subject to the limitations and restrictions set forth in the
Plan, an Eligible Participant who has been granted a Stock Option may, if
otherwise eligible, be granted additional Stock Options if the Stock Option
Committee shall so determine. The Stock Option Committee shall designate in each
grant of a Stock Option whether the Stock Option is an Incentive Stock Option or
a Non-Qualified Stock Option.
b. Date of Grant and Rights of Optionee. The determination of
the Stock Option Committee to grant a Stock Option shall not in any way
constitute or be deemed to constitute an obligation of the Company, or a right
of the Eligible Participant who is the proposed subject of the grant, and shall
not constitute or be deemed to constitute the grant of a Stock Option hereunder
unless and until both the Company and the Eligible Participant have executed and
delivered to the other a Stock Option Agreement in the form then required by the
Stock Option Committee as evidencing the grant of the Stock Option, together
with such other instrument or instruments as may be required by the Stock Option
Committee pursuant to this Plan; provided, however, that the Stock Option
Committee may fix the date of grant as any date on or after the date of its
final determination to grant the Stock Option (or if no such date is fixed, then
the date of grant shall be the date on which the determination was finally made
by the Stock Option Committee to grant the Stock Option), and such date shall be
set forth in the Stock Option Agreement. The date of grant as so determined
shall be deemed the date of grant of the Stock Option for purposes of this Plan.
c. Shareholder-Employees. A Stock Option granted hereunder to
an Eligible Participant who is also an officer or key employee of the Company or
any Subsidiary, who owns, directly or indirectly, at the date of the grant of
the Stock Option, more than ten percent (10%) of the total combined voting power
of all classes of capital stock of the Company or a Subsidiary (if permitted in
accordance with the provisions of Section 5 herein) shall not qualify as an
Incentive Stock Option unless: (i) the purchase price of the Option Shares
subject to said Stock Option is at least one hundred ten percent (110%) of the
Fair Market Value of the Option Shares,
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<PAGE> 5
determined as of the date said Stock Option is granted; and (ii) the Stock
Option by its terms is not exercisable after five (5) years from the date that
it is granted. The attribution rules of Section 424(d) of the Internal Revenue
Code of 1986, as amended, shall apply in the determination of indirect ownership
of stock.
d. Maximum Value of Stock Options. No grant of Incentive Stock
Options hereunder may be made when the aggregate Fair Market Value of Option
Shares with respect to which Incentive Stock Options (pursuant to this Plan or
any other Incentive Stock Option Plan of the Bank or any Subsidiary) are
exercisable for the first time by the Eligible Participant during any calendar
year exceeds One Hundred Thousand Dollars ($100,000).
e. Substituted Stock Options. If all of the outstanding shares of
common stock of another corporation are changed into or exchanged solely for the
Common Stock in a transaction to which Section 424(a) of the Internal Revenue
Code of 1986, as amended, applies, then, subject to the approval of the Board of
Directors of the Company, Stock Options under the Plan may be substituted
("Substituted Options") in exchange for valid, unexercised and unexpired stock
options of such other corporation. Substituted Options shall qualify as
Incentive Stock Options under the Plan, provided that (and to the extent) the
stock options exchanged for the Substituted Options were Incentive Stock Options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended.
f. Non-Qualified Stock Options. Stock Options and Substituted
Options granted by the Stock Option Committee shall be deemed Non-Qualified
Stock Options under this Plan if they: (i) are designated at the time of grant
as Incentive Stock Options but do not so qualify under the provisions of Section
422 of the Code or any regulations or rulings issued by the Internal Revenue
Service for any reason; (ii) are not granted in accordance with the provisions
of Section 6(c); (iii) are in excess of the fair market value limitations set
forth in Section 6(d); (iv) are granted to an Eligible Participant who is not an
officer or key employee of the Company or any Subsidiary; or (v) are designated
at the time of grant as Non-Qualified Stock Options. Non-Qualified Stock Options
granted or substituted hereunder shall be so designated in the Stock Option
Agreement entered into between the Company and the Optionee.
7. Stock Option Exercise Price
a. Minimum Price. The exercise price of any Option Shares shall
be determined by the Stock Option Committee, in its sole and absolute
discretion, upon the grant of a Stock Option. Except as provided elsewhere
herein, said exercise price shall not be less than one hundred percent (100%) of
the Fair Market Value of the Common Stock represented by the Option Shares on
the date of grant of the related Stock Option.
b. Substituted Options. The exercise price of the Option Shares
subject to each Substituted Option may be fixed at a price less than one hundred
percent (100%) of the Fair Market Value of the Common Stock at the time such
Substituted Option is granted if said exercise price has been computed to be not
less than the exercise price set forth in the stock option of the other
corporation for which it was exchanged immediately before substitution, with
appropriate adjustment to reflect the exchange ratio of the shares of stock of
the other corporation into the shares of Common Stock.
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<PAGE> 6
c. Ten Percent Shareholders. Notwithstanding the provisions of
Section 7(a) or Section 7(b), the exercise price of the Option Shares shall be
not less than one hundred ten percent (110%) of the Fair Market Value in the
case of any Optionee who owns more than ten percent (10%) of the Common Stock.
8. Exercise of Stock Options
a. Exercise. Except as otherwise provided elsewhere herein, each
Stock Option shall be exercisable in such increments, which need not be equal,
and upon such contingencies as the Stock Option Committee shall determine at the
time of grant of the Stock Option; provided, however, that if an Optionee shall
not in any given period exercise any part of a Stock Option which has become
exercisable during that period, the Optionee's right to exercise such part of
the Stock Option shall continue until expiration of the Stock Option or any part
thereof as may be provided in the related Stock Option Agreement. No Stock
Option or part thereof shall be exercisable except with respect to whole shares
of Common Stock, and fractional share interests shall be disregarded except that
they may be accumulated.
b. Prior Outstanding Incentive Stock Options. Incentive Stock
Options granted (or substituted) to an Optionee under the Plan may be
exercisable while such Optionee has outstanding and unexercised any Incentive
Stock Option previously granted (or substituted) to him or her pursuant to this
Plan or any other Incentive Stock Option Plan of the Company or any Subsidiary.
An Incentive Stock Option shall be treated as outstanding until it is exercised
in full or expires by reason of lapse of time.
c. Notice and Payment. Stock Options granted hereunder shall be
exercised by written notice delivered to the Company specifying the number of
Option Shares with respect to which the Stock Option is being exercised,
together with concurrent payment in full of the exercise price as hereinafter
provided. If the Stock Option is being exercised by any person or persons other
than the Optionee, said notice shall be accompanied by proof, satisfactory to
the counsel for the Company, of the right of such person or persons to exercise
the Stock Option. The Company's receipt of a notice of exercise without
concurrent receipt of the full amount of the exercise price shall not be deemed
an exercise of a Stock Option by an Optionee, and the Company shall have no
obligation to an Optionee for any Option Shares unless and until full payment of
the exercise price is received by the Company and all of the terms and
provisions of the Plan and the related Stock Option agreement have been fully
complied with.
d. Payment of Exercise Price. The exercise price of any Option
Shares purchased upon the proper exercise of a Stock Option shall be paid in
full at the time of each exercise of a Stock Option in cash (or bank, cashier's
or certified check) and/or, with the prior written approval of the Stock Option
Committee at or before the time of exercise, in Common Stock of the Company
which, when added to the cash payment, if any, which has an aggregate Fair
Market Value equal to the full amount of the exercise price of the Stock Option,
or part thereof, then being exercised. Payment by an Optionee as provided herein
shall be made in full concurrently with the Optionee's notification to the
Company of his intention to exercise all or part of a Stock Option. If all or
any part of a payment is made in shares of Common Stock as heretofore provided,
such payment shall be deemed to have been made only upon receipt by the
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<PAGE> 7
Company of all required share certificates, and all stock powers and all other
required transfer documents necessary to transfer the shares of Common Stock to
the Company.
e. Minimum Exercise. Not less than ten (10) Option Shares may be
purchased at any one time upon exercise of a Stock Option unless the number of
shares purchased is the total number which remains to be purchased under the
Stock Option.
f. Compliance With Law. No shares of Common Stock shall be issued
upon exercise of any Stock Option, and an Optionee shall have no right or claim
to such shares, unless and until: (i) payment in full as provided hereinabove
has been received by the Company; (ii) in the opinion of the counsel for the
Company, all applicable requirements of law and of regulatory bodies having
jurisdiction over such issuance and delivery have been fully complied with; and
(iii) if required by federal or state law or regulation, the Optionee shall have
paid to the Company the amount, if any, required to be withheld on the amount
deemed to be compensation to the Optionee as a result of the exercise of his or
her Stock Option, or made other arrangements satisfactory to the Company, in its
sole discretion, to satisfy applicable income tax withholding requirements.
g. Acceleration Upon Reorganization. Notwithstanding any
provision in any Stock Option Agreement pertaining to the time of exercise of a
Stock Option, or part thereof, upon adoption by the requisite holders of the
outstanding shares of Common Stock of any plan of dissolution, liquidation,
reorganization, merger, consolidation or sale of all or substantially all of the
assets of the Company to another corporation which would, upon consummation,
result in termination of a Stock Option in accordance with Section 16 hereof,
all Stock Options previously granted shall become immediately exercisable,
whether or not vested under the Plan or the Stock Option Agreement, as to all
unexercised Option Shares for such period of time as may be determined by the
Stock Option Committee, but in any event not less than thirty (30) days, on the
condition that the terminating event described in Section 16 hereof is
consummated. If such terminating event is not consummated, Stock Options granted
pursuant to the Plan shall be exercisable in accordance with the terms of their
respective Stock Option Agreements.
9. Nontransferability of Stock Options
Each Stock Option shall, by its terms, be non- transferable by
the Optionee other than by will or the laws of descent and distribution, and
shall be exercisable during the Optionee's lifetime only by the Optionee.
10. Continuation of Affiliation
Nothing contained in this Plan (or in any Stock Option Agreement)
shall obligate the Company or any Subsidiary to employ or continue to employ or
remain affiliated with any Optionee or any Eligible Participant for any period
of time or interfere in any way with the right of the Company or a Subsidiary to
reduce or increase the Optionee's or Eligible Participant's compensation.
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<PAGE> 8
11. Cessation of Affiliation
Except as provided in Section 12 hereof, if, for any reason other
than disability or death, an Optionee ceases to be employed by or affiliated
with the Company or a Subsidiary, the Stock Options granted to such Optionee
shall expire on the expiration dates specified for said Stock Options at the
time of their grant, or ninety (90) days after the Optionee ceases to be so
affiliated, whichever is earlier. During such period after cessation of
affiliation, such Stock Options shall be exercisable only as to those
increments, if any, which had become exercisable as of the date on which such
Optionee ceased to be affiliated with the Company or the Subsidiary, and any
Stock Options or increments which had not become exercisable as of such date
shall expire automatically on such date.
12. Termination for Cause
If the Stock Option Agreement so provides and if an Optionee's
employment by or affiliation with the Company or a Subsidiary is terminated for
cause, the Stock Options granted to such Optionee shall expire on the expiration
dates specified for said Stock Options at the time of their grant, or thirty
(30) days after termination for cause, whichever is earlier; provided, however,
that the Stock Option Committee may, in its sole discretion, within thirty (30)
days of such termination, reinstate such Stock Options by giving written notice
of such reinstatement to the Optionee. In the event of such reinstatement, the
Optionee may exercise the Stock Options only to such extent, for such time, and
upon such terms and conditions as if the Optionee had ceased to be employed by
or affiliated with the Company or a Subsidiary upon the date of such termination
for a reason other than cause, disability or death. Termination for cause shall
include, but shall not be limited to, termination for malfeasance or gross
misfeasance in the performance of duties or conviction of illegal activity in
connection therewith and, in any event, the determination of the Stock Option
Committee with respect thereto shall be final and conclusive.
13. Death of Optionee
If an Optionee dies while employed by or affiliated with the
Company or a Subsidiary, or during the ninety (90)-day period referred to in
Section 11 hereof, the Stock Options granted to such Optionee shall expire on
the expiration dates specified for said Stock Options at the time of their
grant, or one (1) year after the date of such death, whichever is earlier. After
such death, but before such expiration, subject to the terms and provisions of
the Plan and the related Stock Option Agreements, the person or persons to whom
such Optionee's rights under the Stock Options shall have passed by will or by
the applicable laws of descent and distribution, or the executor or
administrator of the Optionee's estate, shall have the right to exercise such
Stock Options to the extent that increments, if any, had become exercisable as
of the date on which the Optionee died.
14. Disability of Optionee
If an Optionee is disabled while employed by or affiliated with
the Company or a Subsidiary or during the ninety (90)-day period referred to in
Section 11 hereof, the Stock Options granted to such Optionee shall expire on
the expiration dates specified for said Stock Options at the time of their
grant, or one (1) year after the date such disability occurred,
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<PAGE> 9
whichever is earlier. After such disability occurs, but before such expiration,
the Optionee or the guardian or conservator of the Optionee's estate, as duly
appointed by a court of competent jurisdiction, shall have the right to exercise
such Stock Options to the extent that increments, if any, had become exercisable
as of the date on which the Optionee became disabled or ceased to be employed by
or affiliated with the Company or a Subsidiary as a result of the disability. An
Optionee shall be deemed to be "disabled" if it shall appear to the Stock Option
Committee, upon written certification delivered to the Company of a qualified
licensed physician, that the Optionee has become permanently and totally unable
to engage in any substantial gainful activity by reason of a medically
determinable physical or mental impairment which can be expected to result in
the Optionee's death, or which has lasted or can be expected to last for a
continuous period of not less than one (1) year.
15. Adjustment Upon Changes in Capitalization
If the outstanding shares of Common Stock of the Company are
increased, decreased, or changed into or exchanged for a different number or
kind of shares or securities of the Company, through a reorganization, merger,
recapitalization, reclassification, stock split, stock dividend, stock
consolidation, or otherwise, without consideration to the Company, an
appropriate and proportionate adjustment shall be made in the number and kind of
shares as to which Stock Options may be granted. A corresponding adjustment
changing the number or kind of Option Shares and the exercise prices per share
allocated to unexercised Stock Options, or portions thereof, which shall have
been granted prior to any such change, shall likewise be made. Such adjustments
shall be made without change in the total price applicable to the unexercised
portion of the Stock Option, but with a corresponding adjustment in the price
for each Option Share subject to the Stock Option. Adjustments under this
Section shall be made by the Stock Option Committee, whose determination as to
what adjustments shall be made, and the extent thereof, shall be final and
conclusive. No fractional shares of stock shall be issued or made available
under the Plan on account of such adjustments, and fractional share interests
shall be disregarded, except that they may be accumulated.
16. Terminating Events
Upon consummation of a plan of dissolution or liquidation of the
Company, or upon consummation of a plan of reorganization, merger or
consolidation of the Company with one or more corporations, as a result of which
the Company is not the surviving entity, or upon the sale of all or
substantially all the assets of the Company to another corporation, the Plan
shall automatically terminate and all Stock Options theretofore granted shall be
terminated, unless provision is made in connection with such transaction for
assumption of Stock Options theretofore granted (in which case such Stock
Options shall be converted into stock options for a like number and kind of
shares of the surviving entity), or substitution for such Stock Options with new
stock options covering stock of a successor employer corporation, or a parent or
subsidiary corporation thereof, solely at the discretion of such successor
corporation, or parent or subsidiary corporation, with appropriate adjustments
as to number and kind of shares and prices.
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<PAGE> 10
17. Amendment and Termination
The Board of Directors of the Company may at any time and from
time to time suspend, amend, or terminate the Plan and may, with the consent of
an Optionee, make such modifications of the terms and conditions of that
Optionee's Stock Option as it shall deem advisable; provided that, except as
permitted under the provisions of Section 15 hereof, no amendment or
modification may be adopted without the Company having first obtained the
approval of the holders of a majority of the Bank's outstanding shares of Common
Stock present, or represented, and entitled to vote at a duly held meeting of
shareholders of the Company, or by written consent, if the amendment or
modification would:
(a) materially increase the number of securities which may be
issued under the Plan;
(b) materially increase the number of securities which may be
issued at any time under the Plan to all directors who are not also officers or
key employees of the Company or any Subsidiary;
(c) materially modify the requirements as to eligibility for
participation in the Plan;
(d) increase or decrease the exercise price of any Stock Option
granted under the Plan;
(e) increase the maximum term of Stock Options provided for
herein;
(f) permit Stock Options to be granted to any person who is not
an Eligible Participant; or
(g) change any provision of the Plan which would affect the
qualification as an Incentive Stock Option under the internal revenue laws then
applicable of any Stock Option granted as an Incentive Stock Option under the
Plan.
No Stock Option may be granted during any suspension of the Plan
or after termination of the Plan. Amendment, suspension, or termination of the
Plan shall not (except as otherwise provided in Section 15 hereof), without the
consent of the Optionee, alter or impair any rights or obligations under any
Stock Option theretofore granted.
18. Rights of Eligible Participants and Optionees
No Eligible Participant, Optionee or other person shall have any
claim or right to be granted a Stock Option under this Plan, and neither this
Plan nor any action taken hereunder shall be deemed to give or be construed as
giving any Eligible Participant, Optionee or other person any right to be
retained in the employ of the Company or any Subsidiary. Without limiting the
generality of the foregoing, no person shall have any rights as a result of his
or her classification as an Eligible Participant or Optionee, such
classifications being made solely to
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<PAGE> 11
describe, define and limit those persons who are eligible for consideration for
privileges under the Plan.
19. Privileges of Stock Ownership; Regulatory Law Compliance; Notice
of Sale
No Optionee shall be entitled to the privileges of stock
ownership as to any Option Shares not actually issued and delivered. No Option
Shares may be purchased upon the exercise of a Stock Option unless and until all
then applicable requirements of all regulatory agencies having jurisdiction and
all applicable requirements of the securities exchanges upon which securities of
the Company are listed (if any) shall have been fully complied with. The
Optionee shall, not more than five (5) days after each sale or other disposition
of shares of Common Stock acquired pursuant to the exercise of Stock Options,
give the Company notice in writing of such sale or other disposition.
20. Effective Date of the Plan
The Plan shall be deemed adopted as of November 18, 1997, and
shall be effective immediately, subject to approval of the Plan by the holders
of at least a majority of the Company's outstanding shares of Common Stock
represented and voting at a meeting of shareholders.
21. Termination
Unless previously terminated as aforesaid, the Plan shall
terminate ten (10) years from the earliest date of: (i) adoption of the Plan by
the Board of Directors of the Company; or (ii) approval of the Plan by holders
of at least a majority of the outstanding shares of Common Stock. No Stock
Options shall be granted under the Plan thereafter, but such termination shall
not affect any Stock Option theretofore granted.
22. Option Agreement
Each Stock Option granted under the Plan shall be evidenced by a
written Stock Option Agreement executed by the Company and the Optionee, and
shall contain each of the provisions and agreements herein specifically required
to be contained therein, and such other terms and conditions as are deemed
desirable by the Stock Option Committee and are not inconsistent with this Plan.
23. Stock Option Period
Each Stock Option and all rights and obligations thereunder shall
expire on such date as the Stock Option Committee may determine, but not later
than ten (10) years from the date such Stock Option is granted, and shall be
subject to earlier termination as provided elsewhere in this Plan.
24. Exculpation and Indemnification of Stock Option Committee
In addition to such other rights of indemnification which they
may have as directors of the Company or as members of the Stock Option
Committee, the members of the
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<PAGE> 12
Stock Option Committee, and each of them, shall be indemnified by the Company
for and against all costs, judgments, penalties and reasonable expenses,
including reasonable attorneys' fees, actually and appropriately incurred by
them in connection with all actions, suits and proceedings, and in connection
with appeals thereof, to which they or any of them may be a party by reason of
any act or omission of any member of the Stock Option Committee under or in
connection with the Plan or any Stock Option granted thereunder; provided,
however, that a member of the Stock Option Committee shall not be entitled to
any indemnification whatsoever pursuant to this Section for or as a result of
any act or omission of such member which was not taken in good faith and which
constituted willful misconduct or gross negligence by such member; provided
further, that any amounts paid by any member of the Stock Option Committee in
settlement of an action, suit or proceeding for which indemnification may be
sought pursuant to this Section shall be first approved in writing by
independent legal counsel selected by the Company; and, provided further, that
within thirty (30) days after institution of an action, suit or proceeding
against any member with respect to which such member is entitled to
indemnification hereunder, such member shall, in writing, offer the Company the
opportunity, at its own expense, to handle (including settle) and conduct the
defense thereof. The provisions of this Section shall apply to the estate,
executor and administrator of each member of the Stock Option Committee.
25. Agreement and Representations of Optionee
Unless the shares of Common Stock covered by this Plan have been
registered with the Securities and Exchange Commission pursuant to the
registration requirements under the Securities Act of 1933, each Optionee shall:
(i) by and upon accepting a Stock Option, represent and agree in writing, in the
form of the letter attached hereto as Exhibit "A," for himself or herself and
his or her transferees by will or the laws of descent and distribution, that the
Option Shares will be acquired for investment purposes and not for resale or
distribution; and (ii) by and upon the exercise of a Stock Option, or a part
thereof, furnish evidence satisfactory to counsel for the Company, including
written and signed representations in the form of the letter attached hereto as
Exhibit "B," to the effect that the Option Shares are being acquired for
investment purposes and not for resale or distribution, and that the Option
Shares being acquired shall not be sold or otherwise transferred by the Optionee
except in compliance with the registration provisions under the Securities Act
of 1933, as amended, or an applicable exemption therefrom. Furthermore, the
Company, at its sole discretion, to assure itself that any sale or distribution
by the Optionee complies with this Plan and any applicable federal or state
securities laws, may take all reasonable steps, including placing stop transfer
instructions with the Company's transfer agent prohibiting transfers in
violation of the Plan and affixing the following legend (and/or such other
legend or legends ad the Stock Option Committee shall require) on certificates
evidencing the shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT WITH RESPECT TO THEM UNDER THE ACT OR A WRITTEN OPINION
OF COUNSEL FOR THE HOLDER THEREOF,
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<PAGE> 13
WHICH OPINION SHALL BE ACCEPTABLE TO VIB CORP, THAT REGISTRATION
IS NOT REQUIRED."
At any time that an Optionee contemplates the disposition of any of the Option
Shares (whether by sale, exchange, gift or other form of transfer), he or she
shall first notify the Company of such proposed disposition and shall thereafter
cooperate with the Company in complying with all applicable requirements of law
which, in the opinion of counsel for the Company, must be satisfied prior to the
making of such disposition. Before consummating such disposition, the Optionee
shall provide to the Company an opinion of Optionee's counsel, at the Company's
expense, of which both such opinion and such counsel shall be satisfactory to
the Company, that such disposition will not result in a violation of any state
or federal securities laws or regulations. The Company shall remove any legend
affixed to certificates for Option Shares pursuant to this Section if and when
all of the restrictions on the transfer of the Option Shares, whether imposed by
this Plan or federal or state law, have terminated.
26. Notices
All notices and demands of any kind which the Stock Option
Committee, any Optionee, Eligible Participant, or other person may be required
or desires to give under the terms of this Plan shall be in writing and shall be
delivered in hand to the person or persons to whom addressed (in the case of the
Stock Option Committee, with the Chief Executive Officer of the Company), by
leaving a copy of such notice or demand at the address of such person or persons
as may be reflected in the records of the Company, or by mailing a copy thereof,
properly addressed as above, by certified or registered mail, postage prepaid,
with return receipt requested. Delivery by mail shall be deemed made upon
receipt by the notifying party of the return receipt request acknowledging
receipt of the notice or demand.
27. Limitation on Obligations of the Company
All obligations of the Company arising under or as a result of
this Plan or Stock Options granted hereunder shall constitute the general
unsecured obligations of the Company, and not of the Board of Directors of the
Company, any member thereof, the Stock Option Committee, any member thereof, any
officer of the Company, or any other person or any Subsidiary, and none of the
foregoing, except the Company, shall be liable for any debt, obligation, cost or
expense hereunder.
28. Limitation of Rights
The Stock Option Committee, in its sole and absolute discretion,
is entitled to determine who, if anyone, is an Eligible Participant under this
Plan, and which, if any, Eligible Participant shall receive any grant of a Stock
Option. No oral or written agreement by any person on behalf of the Company
relating to this Plan or any Stock Option granted hereunder is authorized, and
such may not bind the Company or the Stock Option Committee to grant any Stock
Option to any person.
-13-
<PAGE> 14
29. Severability
If any provision of this Plan as applied to any person or to any
circumstance shall be adjudged by a court of competent jurisdiction to be void,
invalid, or unenforceable, the same shall in no way affect any other provision
hereof, the application of any such provision in any other circumstances, or the
validity or enforceability hereof.
30. Construction
Where the context or construction requires, all words applied in
the plural herein shall be deemed to have been used in the singular and vice
versa, and the masculine gender shall include the feminine and the neuter and
vice versa.
31. Headings
The headings of the several sections herein are inserted solely
for convenience of reference and are not intended to form a part of and are not
intended to govern, limit or aid in the construction of any term or provision
hereof.
32. Successors
This Plan shall be binding upon the respective successors,
assigns, heirs, executors, administrators, guardians and personal
representatives of the Company and Optionees.
33. Governing Law
This Plan shall be governed by and construed in accordance with
the laws of the State of California.
34. Conflict
In the event of any conflict between the terms and provisions of
this Plan, and any other document, agreement or instrument, including, without
meaning any limitation, any Stock Option Agreement, the terms and provisions of
this Plan shall control.
* * * * * * * *
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<PAGE> 15
SECRETARY'S CERTIFICATE OF ADOPTION
I, the undersigned, do hereby certify:
1. That I am the duly elected or appointed and acting Secretary of VIB
Corp; and
2. That the foregoing VIB Corp 1997 Stock Option Plan was duly adopted
by the Board of Directors of VIB Corp at a meeting duly called as required by
law and convened on the 18th day of November, 1997.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of the Company this 18th day of November, 1997.
/s/ CHARLOTTE STUDER
----------------------------------
Charlotte Studer, Secretary
[SEAL]
<PAGE> 16
SECRETARY'S CERTIFICATE OF
SHAREHOLDER APPROVAL
I, the undersigned, do hereby certify:
1. That I am the duly elected or appointed and acting Secretary of
VIB Corp; and
2. That the VIB Corp 1997 Stock Option Plan adopted by the Company's
Board of Directors on November 18, 1997 was duly adopted by the affirmative vote
of the holders of at least a majority of the shares of Valley Independent Bank's
Common Stock represented and voting at a meeting of the shareholders duly called
and noticed as required by law and convened on ________ , 1998, acting as
prospective shareholders of VIB Corp.
IN WITNESS WHEREOF, I have hereunto subscribed my name and
affixed the seal of the Company this ____ day of ________, 1998.
-----------------------------------
Charlotte Studer, Secretary
[SEAL]
<PAGE> 1
EXHIBIT 10.2
NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, NO SHARES OF THE
COMPANY'S COMMON STOCK SHALL BE ISSUED PURSUANT HERETO UNLESS THE COMPANY'S 1997
STOCK OPTION PLAN SHALL HAVE FIRST BEEN APPROVED BY THE SHAREHOLDERS OF THE
COMPANY IN ACCORDANCE WITH THE TERMS OF THE PLAN.
OPTIONEES TO WHOM INCENTIVE STOCK OPTIONS ARE GRANTED MUST MEET CERTAIN HOLDING
PERIOD AND EMPLOYMENT REQUIREMENTS FOR FAVORABLE TAX TREATMENT.
UNLESS OTHERWISE STATED, ALL TERMS DEFINED IN THE PLAN SHALL HAVE THE SAME
MEANING HEREIN AS SET FORTH IN THE PLAN.
VIB CORP
STOCK OPTION AGREEMENT
1997 STOCK OPTION PLAN
[ ] Incentive Stock Option
[ ] Non-Qualified Stock Option
THIS AGREEMENT, dated the _____ day of ________, ____,
by and between VIB Corp, a California corporation (the "Company"),
and_______________________________("Optionee");
WHEREAS, pursuant to the Company's 1997 Stock Option Plan (the "Plan"),
the Stock Option Committee has authorized the grant to Optionee of a Stock
Option to purchase all or any part of____________________________(__________)
authorized but unissued shares of the Company's Common Stock at the price of
______________________ Dollars ($_________________) per share, such Stock Option
to be for the term and upon the terms and conditions hereinafter stated;
NOW, THEREFORE, it is hereby agreed:
1. Grant of Stock Option. Pursuant to said action of the
Stock Option Committee and pursuant to authorizations granted by all
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<PAGE> 2
appropriate regulatory and governmental agencies, the Company hereby grants to
Optionee the option to purchase, upon and subject to the terms and conditions of
the Plan, which is incorporated in full herein by this reference, all or any
part of __________________________(________________) Option Shares of the
Company's Common Stock at the price of ___________________________Dollars
($___________________) per share. For purposes of this Agreement and the Plan,
the date of grant shall be ________________________. At the date of grant,
Optionee does not own/owns stock possessing more than 10% of the total combined
voting power of all classes of capital stock of the Company or any Subsidiary.
The Stock Option granted hereunder is/is not intended to qualify as an
Incentive Stock Option within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended.
2. Exercisability. This Stock Option shall be exercisable as to
________________ Option Shares on __________________; as to
__________________Option Shares on __________________; as to __________________
Option Shares on __________________; as to __________________Option Shares on
__________________; and as to __________________Option Shares on
__________________. This Stock Option shall remain exercisable as to all of such
Option Shares until __________________, ______(but not later than ten (10) years
from the date hereof), at which time it shall expire in its entirety, unless
this Stock Option has expired or terminated earlier in accordance with the
provisions hereof or of the Plan. Option Shares as to which this Stock Option
become exercisable may be purchased at any time prior to expiration of this
Stock Option.
-2-
<PAGE> 3
3. Exercise of Stock Option. This Stock Option may be exercised by: (i)
delivering written notice substantially in the form of Exhibit 1 hereto to the
Company stating the number of Option Shares with respect to which this Stock
Option is being exercised; (ii) delivering cash (or bank, cashier's or certified
check) and/or, if permitted at or before the time of exercise by the Stock
Option Committee, shares of Common Stock of the Company which when added to the
cash payment, if any, have an aggregate Fair Market Value equal to the full
amount of the purchase price of such Option Shares; and (iii) unless the shares
of Common Stock covered by the Plan have been registered with the Securities and
Exchange Commission pursuant to the registration requirements under the
Securities Act of 1933, delivering a written representation letter substantially
in the form of Exhibit "B" to the Plan. Not less than ten (10) Option Shares may
be purchased at any one time unless the number purchased is the total number
which remains to be purchased under this Stock Option and in no event may the
Stock Option be exercised with respect to fractional shares. Upon exercise,
Optionee shall make appropriate arrangements and shall be responsible for the
withholding of all federal and state income taxes then due, if any.
4. Prior Outstanding Stock Options. Pursuant to Section 8(b) of the
Plan, an Incentive Stock Option held by Optionee may be exercisable while the
Optionee has outstanding and unexercised any Incentive Stock Option previously
granted to him or her by the Company, or a bank or corporation which (at the
time of grant) is a parent or Subsidiary of the Company, or a predecessor
corporation of any such entity.
-3-
<PAGE> 4
5. Cessation of Affiliation. Except as provided in Paragraph 6 hereof,
if, for any reason other than Optionee's disability or death, Optionee ceases to
be employed by or affiliated with the Company or a Subsidiary, this Stock Option
shall expire ninety (90) days thereafter or on the date specified in Paragraph 2
hereof, whichever is earlier. During such period after cessation of employment
or affiliation, this Stock Option shall be exercisable only as to those
increments, if any, which had become exercisable as of the date on which the
Optionee ceased to be employed by or affiliated with the Company or Subsidiary,
and any Stock Options or increments which had not become exercisable as of such
date shall expire and terminate automatically on such date.
6. Termination for Cause. If Optionee's employment by or affiliation
with the Company or a Subsidiary is terminated for cause, this Stock Option
shall expire thirty (30) days thereafter unless reinstated by the Stock Option
Committee within thirty (30) days of such termination by giving written notice
of such reinstatement to Optionee. In the event of such reinstatement, Optionee
may exercise this Stock Option only to such extent, for such time, and upon such
terms and conditions as if Optionee had ceased to be employed by or affiliated
with the Company or a Subsidiary upon the date of such termination for a reason
other than cause, disability or death. Termination for cause shall include, but
shall not be limited to, termination for malfeasance or gross misfeasance in the
performance of duties or conviction of illegal activity in connection therewith,
or any conduct detrimental to the interests of the Company or a Subsidiary, and,
in any event, the determination of the Stock Option Committee with respect
thereto shall be final and conclusive.
-4-
<PAGE> 5
7. Disability or Death of Optionee. If Optionee becomes disabled or dies
while employed by or affiliated with the Company or a Subsidiary, or during the
ninety-day period referred to in Paragraph 5 hereof, this Stock Option shall
automatically expire and terminate one (1) year after the date of Optionee's
disability or death or on the day specified in Paragraph 2 hereof, whichever is
earlier. After Optionee's disability or death but before such expiration, the
person or persons to whom Optionee's rights under this Stock Option shall have
passed by order of a court of competent jurisdiction or by will or the
applicable laws of descent and distribution, or the executor, administrator or
conservator of Optionee's estate, subject to the provisions of Paragraph 13
hereof, shall have the right to exercise this Stock Option to the extent that
increments, if any, had become exercisable as of the date on which Optionee
ceased to be employed by or affiliated with the Company or a Subsidiary. For
purposes hereof, "disability" shall have the same meaning as set forth in
Section 14 of the Plan.
8. Nontransferability. This Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during Optionee's lifetime only by Optionee.
9. Employment. This Agreement shall not obligate the Company or a
Subsidiary to employ Optionee for any period, nor shall it interfere in any way
with the right of the Company or a Subsidiary to increase or reduce Optionee's
compensation.
10. Privileges of Stock Ownership. Optionee shall have no rights as a
stockholder with respect to the Option Shares unless and until said Option
Shares are issued to Optionee as provided in the
-5-
<PAGE> 6
Plan. Except as provided in Section 15 of the Plan, no adjustment will be made
for dividends or other rights in respect of which the record date is prior to
the date such stock certificates are issued.
11. Modification and Termination by Board of Directors. The rights of
Optionee are subject to modification and termination upon the occurrence of
certain events as provided in Sections 16 and 17 of the Plan. Upon adoption by
the requisite holders of the Company's outstanding shares of Common Stock of any
plan of dissolution, liquidation, reorganization, merger, consolidation or sale
of all or substantially all of the assets of the Company to another corporation
which would, upon consummation, result in termination of this Stock Option in
accordance with Section 16 of the Plan, this Stock Option shall become
immediately exercisable as to all unexercised Option Shares notwithstanding the
incremental exercise provisions of Paragraph 2 of this Agreement, for a period
then specified by the Stock Option Committee, but in any event not less than
thirty (30) days, in accordance with Section 8(g) of the Plan, on the condition
that the terminating event described in Section 16 of the Plan is consummated.
If such terminating event is not consummated, this Stock Option shall be
exercisable in accordance with the terms of the Agreement, excepting this
Paragraph 11.
12. Notification of Sale. Optionee agrees that Optionee, or any person
acquiring Option Shares upon exercise of this Stock Option, will notify the
Company in writing not more than five (5) days after any sale or other
disposition of such Shares.
13. Approvals. This Agreement and the issuance of Option Shares
hereunder are expressly subject to the approval of the Plan and the form of this
Agreement by the holders of not less than a
-6-
<PAGE> 7
majority of the voting stock of the Company. This Stock Option may not be
exercised unless and until all applicable requirements of all regulatory
agencies having jurisdiction with respect thereto, and of the securities
exchanges upon which securities of the Company are listed, if any, have been
complied with.
14. Notices. All notices to the Company provided for in this Agreement
shall be addressed to it in care of its Chief Executive Officer at its main
office and all notices to Optionee shall be addressed to Optionee's address on
file with the Company or a Subsidiary, or to such other address as either may
designate to the other in writing, all in compliance with the notice provisions
set forth in Section 26 of the Plan.
15. Incorporation of Plan. All of the provisions of the Plan are
incorporated herein by reference as if set forth in full in this Agreement. In
the event of any conflict between the terms of the Plan and any provision
contained herein, the terms of the Plan shall be controlling and the conflicting
provisions contained herein shall be disregarded.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
VIB CORP
By
-------------------------------------
By
-------------------------------------
OPTIONEE
---------------------------------------
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<PAGE> 8
ACKNOWLEDGMENT:
I hereby acknowledge receipt of a copy of this Agreement as well as a
copy of the Stock Option Plan.
OPTIONEE
----------------------------------------
-8-
<PAGE> 9
EXHIBIT 1
NOTICE OF EXERCISE OF STOCK OPTION
VIB Corp
1498 Main Street
El Centro, California 92243
Attention: President
Gentlemen:
Pursuant to a Stock Option Agreement dated ________________, _____, VIB
Corp granted to me an option covering _________________ shares of its Common
Stock at a price of $_____________ per share. Taking into account all
appropriate adjustments for stock splits and dividends and the like, as well as
for option shares already exercised, if any, that Stock Option Agreement
presently covers ________________ shares at approximately $_______________ per
share.
By executing this Notice, the undersigned hereby exercises the option as
to ____________ shares (the "Shares"), for an aggregate purchase price of
$_______________, which Shares are currently vested and exercisable pursuant to
the terms of the Stock Option Agreement. The exercise of the stock options
effected hereby is subject to and pursuant to the terms of the Company's 1997
Stock Option Plan and the Stock Option Agreement by and between the undersigned
and the Company.
In accordance with the terms of the 1997 Stock Option Plan and my Stock
Option Agreement, I hereby tender payment for, and the amount to be held
withheld for taxes upon, the purchase of the Shares as follows:
1. Purchase Price Paid: $___________________
Form of Payment: [ ] cash
[ ] cashier's or certified check
[ ] funds transfer from account ________; or
[ ] _______ shares of the Company's Common
Stock (requires special approvals)
2. Withholding taxes:
[ ] Submitted herewith is $___________;
or
<PAGE> 10
[ ] I have instructed my employer not to
deposit with the Internal Revenue
Service and the California Franchise Tax
Board any amount required to be
withheld, as I will personally assume
responsibility for the amounts and
timing of my estimated tax withholding.
As reported by [ ] Nasdaq or by [ ] _______________________, an
officer of VIB Corp, the fair market value per share of VIB Corp's common stock
as of this date is $________________.
Please register the Shares in the following manner:
______________________________________________________
Print or Type Name
Please mail certificate to the following address:
_______________________________________________________
_______________________________________________________
_______________________________________________________
_________________________________
(Signature)
Dated: __________________________ _________________________________
(Type or Print Your Name)
<PAGE> 11
EXHIBIT "A"
_______________,________
VIB Corp
1498 Main Street
El Centro, California 92243
Gentlemen:
On this _____ day of ___________________, ______, the undersigned has
received, pursuant to the VIB Corp 1997 Stock Option Plan (the "Plan") and the
Stock Option Agreement (the "Agreement") by and between VIB Corp (the "Company")
and the undersigned dated ______________________, ______ an option to purchase
________ shares of the common stock, no par value, of VIB Corp (the "Stock").
In consideration of the grant of such option by VIB Corp:
1. I hereby represent and warrant to you that the Stock to be acquired
pursuant to the option will be acquired by me in good faith and for my own
personal account, and not with a view to distributing the Stock to others or
otherwise reselling the stock in violation of the Securities Act of 1933, as
amended, or the rules and regulations promulgated thereunder.
2. I hereby acknowledge and agree that: (a) the Stock to be acquired by
me pursuant to the Plan has not been registered and that there is no obligation
on the part of VIB Corp to register such Stock under the Securities Act of 1933,
as amended, and the rules and regulations thereunder; and (b) the Stock to be
acquired by me will not be freely tradeable unless the Stock is either
registered under the Securities Act of 1933, as amended, or the holder presents
a legal opinion acceptable to VIB Corp that the transfer will not violate the
federal securities laws.
3. I understand that the Company is relying upon the truth and accuracy
of the representations and agreements contained herein in determining to grant
such option to me and upon subsequently issuing any Stock pursuant to the Plan
without VIB
<PAGE> 12
VIB Corp
- --------------, -----
Page 2
Corp first registering the same under the Securities Act of 1933, as amended.
4. I understand that the certificate evidencing the Stock to be issued
pursuant to the Plan will contain a legend upon the face thereof to the effect
that the Stock is not registered under the Securities Act of 1933 and that stop
transfer orders will be placed against the shares with the Company's transfer
agent.
5. In further consideration for the grant of an option to purchase Stock
of VIB Corp the undersigned hereby agrees to indemnify you and hold you harmless
against all liability, cost, or expenses (including reasonable attorney's fees)
arising out of or as a result of any distribution or resale of shares of the
Stock by the undersigned in violation of the securities laws. The agreements
contained herein shall inure to the benefit of and be binding upon the
respective legal representatives, successors and assigns of the undersigned and
VIB Corp.
Very truly yours,
------------------------------
(Signature)
------------------------------
(Type or Print Your Name)
<PAGE> 13
EXHIBIT "B"
_______________,________
VIB Corp
1498 Main Street
El Centro, California 92243
Gentlemen:
On this _____ day of ___________________, ______, the undersigned has
acquired, pursuant to the VIB Corp 1997 Stock Option Plan (the "Plan") and the
Stock Option Agreement (the "Agreement") by and between VIB Corp (the "Company")
and the undersigned dated ______________________, ______ an option to purchase
_____________________ (_________) shares of the common stock, no par value, of
VIB Corp (the "Stock"). In consideration of the issuance by VIB Corp to the
undersigned of said shares of its Common Stock:
1. I hereby represent and warrant to you that the Stock is being
acquired by me in good faith for my own personal account, and not with a view to
distributing the Stock to others or otherwise reselling the Stock in violation
of the Securities Act of 1933, as amended, or the rules and regulations
promulgated thereunder.
2. I hereby acknowledge and agree that: (a) the Stock being acquired by
me pursuant to the Plan has not been registered and that there is no obligation
on the part of VIB Corp to register such Stock under the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder; and (b) the
Stock being acquired by me is not freely tradeable and must be held by me for
investment purposes unless the Stock is either registered under the Securities
Act of 1933 or transferred pursuant to an exemption from such registration, as
accorded by the Securities Act of 1933 and under the rules and regulations
promulgated thereunder. I further represent and acknowledge that I have been
informed by legal counsel in connection with said Plan of the restrictions on my
ability to transfer the Stock and that I understand the scope and effect of
those restrictions.
3. I understand that the effects of the above representations are the
following: (i) that the undersigned does not presently intend to sell or
otherwise dispose of all or any part of the shares of the Stock to any person or
entity except in compliance with the terms described above, in the Plan and in
the Agreement; and (ii) that the Company is relying upon the truth
<PAGE> 14
VIB Corp
- --------------, -----
Page 2
and accuracy of the representations and agreements contained herein in issuing
said shares of the Stock to me without first registering the same under the
Securities Act of 1933, as amended.
4. I hereby agree that the certificate evidencing the Stock may contain
the following legend stamped upon the face thereof to the effect that the Stock
is not registered under the Securities Act of 1933, as amended, and that the
Stock has been acquired pursuant to the representations and restrictions in this
letter, the Plan and in the Agreement:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR
OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT WITH RESPECT TO THEM UNDER THE ACT OR A WRITTEN OPINION
OF COUNSEL FOR THE HOLDER HEREOF, WHICH OPINION SHALL BE
ACCEPTABLE TO VIB CORP, THAT REGISTRATION IS NOT REQUIRED."
5. I hereby agree and understand that the Company will place a stop
transfer notice with its stock transfer agent to ensure that the restrictions on
transfer described herein will be observed.
6. In further consideration of the issuance of the Stock, the
undersigned does hereby agree to indemnify you and hold you harmless against all
liability, costs, or expenses (including reasonable attorney's fees) arising out
of or as a result of any distribution or resale by the undersigned or any of the
Stock. The Agreements contained herein shall inure to the benefit of and be
binding upon the respective legal representatives, successors and assigns of the
undersigned and VIB Corp.
Very truly yours,
------------------------------
(Signature)
------------------------------
(Type or Print Your Name)
<PAGE> 1
EXHIBIT 10.3
VIB CORP
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made as of the ___
day of ________, ____ by and between VIB Corp, a California corporation (the
"Company"), and ____________________ ("Indemnitee"), a director or officer of
the Company with reference to the following facts:
RECITALS
A. The Company and the Indemnitee recognize that interpretations of
ambiguous statutes, regulations, court opinions, and the Company's Articles of
Incorporation and Bylaws are too uncertain to provide the Company's officers and
directors with adequate or reliable advance knowledge or guidance with respect
to the legal risks and potential liabilities to which they may become personally
exposed as a result of preforming their duties in good faith for the Company;
B. The Company and the Indemnitee are aware of the substantial growth in
the number of lawsuits filed against corporate officers and directors in
connection with their activities in such capacities and by reason of their
status as such;
C. The Company and the Indemnitee recognize that the cost of defending
against such lawsuits, whether or not meritorious, is typically beyond the
financial resources of most officers and directors of the Company;
D. The Company and the Indemnitee recognize that legal risks and
potential officer or director liabilities, or the threat thereof, and the
resultant substantial time and expense endured in defending against such
lawsuits, bear no reasonable logical relationship to the amount of compensation
received by the Company's officers or directors. These factors pose a
significant deterrent to, and induce increased reluctance on the part of,
experienced and capable individuals to serve as officers or directors of the
Company;
E. The Company has investigated the availability and deficiency of
liability insurance to provide its officers and directors with adequate
protection against the foregoing legal risks and potential liabilities. The
Company has concluded that such insurance provides only limited protection to
its officers and directors, and that it is in the best interests of the Company
and its shareholders to contract with its officers and directors, including the
Indemnitee, to indemnify them to the fullest extent permitted by law against
personal liability for actions taken in the good faith performance of their
duties to the Company;
F. Section 317 of the General Corporation Law of the State of
California, which sets forth certain provisions relating to mandatory and
permissive indemnification of officers and directors of a California corporation
by such corporation, requires indemnification in certain circumstances, permits
it in other circumstances, and prohibits it in some circumstances;
G. The Board of Directors of the Company has determined, after due
consideration and investigation of this Agreement and various other options
available in lieu hereof, that the following Agreement is reasonable, prudent
and necessary to promote and ensure the best interests of the
<PAGE> 2
Company and its shareholders in that this Agreement is intended to: (i) induce
and encourage highly experienced and capable persons such as the Indemnitee to
serve as officers and/or directors of the Company; (ii) encourage such persons
to resist what they consider unjustifiable suits and claims made against them in
connection with the good faith performance of their duties to the Company,
secure in knowledge that certain expenses, costs and liabilities incurred by
them in their defense of such litigation will be borne by the Company and that
they will receive the maximum protection against such risks and liabilities as
legally may be made available to them; and (iii) encourage officers and
directors to exercise their best business judgment regarding matters which come
before the Board of Directors without undue concern for the risk that claims may
be made against them on account thereof;
H. Article VI of the Company's Articles of Incorporation, Article VI of
the Company's Bylaws, and California Corporations Code Section 317 authorize
indemnification of persons who serve or served as officers or directors of the
Company; and
I. The Company desires to have the Indemnitee continue to serve as an
officer or director of the Company free from concern for unpredictable,
inappropriate or unreasonable legal risk and personal liabilities by reason of
Indemnitee acting in good faith in the performance of Indemnitee's duty to the
Company. The Indemnitee desires to continue to serve as an officer or director
of the Company, provided, and on the express condition, that he is furnished
with the indemnity set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below and based on the premises set forth above, the Company and
Indemnitee do hereby agree as follows:
AGREEMENT
1. Definitions. For the purposes of this Agreement, the following
definitions shall apply:
(a) The term "Agent" shall mean any person who is or was acting in
his capacity as a director or officer of the Company, or is or was serving as a
director, officer, employee or agent of any other enterprise at the request of
the Company, and whether or not he is serving in any such capacity at the time
any liability or expense is incurred for which indemnification or reimbursement
can be provided under this Agreement.
(b) The term "Applicable Standard" means that a person acted in good
faith and in a manner such person reasonably believed to be in the best
interests of the Company; except that in a criminal proceeding, such person must
also have had no reasonable cause to believe that such person's conduct was
unlawful. The termination of any Proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create any presumption, or establish, that the person did not meet the
"Applicable Standard."
(c) The term "Expenses" includes, without limitation, expenses of
investigations, judicial or administrative proceedings or appeals, court costs,
attorneys' fees and disbursements and any expenses of establishing a right to
indemnification under law or Paragraph 7 of this Agreement.
2
<PAGE> 3
"Expenses" shall not include the amount of any judgment, fines or penalties
actually levied against Indemnitee or amounts paid in settlement of a Proceeding
by or on behalf of Indemnitee without court approval.
(d) "Independent Legal Counsel" shall include any firm of attorneys
selected by lot by the regular outside counsel for the Company from a list of
firms which meet minimum size criteria and other reasonable criteria established
by the Board of Directors of the Company, so long as such firm has not
represented the Company, Indemnitee or any entity controlled by Indemnitee
within the preceding twenty-four (24) calendar months.
(e) References to "other enterprise" shall include employee benefit
plans; references to "fines" shall include any excise tax assessed with respect
to any employee benefit plan; references to "serving at the request of the
Company" shall include any service as a director or officer of the Company which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants, or beneficiaries; and a
person who acts in good faith and in a manner he reasonably believes to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the Company" as referred to in this Agreement.
(f) The term "Proceeding" shall include any threatened, pending or
completed action, suit or proceeding, whether brought in the name of the Company
or otherwise and whether of a civil, criminal, administrative or investigative
nature, in which Indemnitee may be or may have been involved as a party or
otherwise (other than as plaintiff against the Company), by reason of the fact
that Indemnitee is or was an Agent of the Company or by reason of any action
taken by him or of any inaction on his part while acting as such Agent.
2. Agreement to Serve. Indemnitee agrees to serve or continue to serve
as a director and/or officer of the Company at the will of the Company or in
accordance with the terms of any agreement with the Company, as the case may be,
for so long as he is duly elected or appointed, or until such time as he tenders
his resignation in writing or his service is terminated.
3. Indemnity in Third Party Proceedings. The Company shall indemnify
Indemnitee if Indemnitee is made a party to or threatened to be made a party to,
or otherwise involved in, any Proceeding (other than a Proceeding which is an
action by or in the right of the Company to procure a judgment in its favor), by
reason of the fact that Indemnitee is or was an Agent of the Company. This
indemnity shall apply, and be limited, to and against all Expenses, judgments,
fines, penalties, settlements, and other amounts, actually and reasonably
incurred by Indemnitee in connection with the defense or settlement of the
Proceeding, so long as it is determined pursuant to Paragraph 7 of this
Agreement or by the court before which such action was brought, that Indemnitee
met the Applicable Standard.
4. Indemnity in Proceeding By or In the Name of the Company. The Company
shall indemnify Indemnitee if Indemnitee is made a party to, or threatened to be
made a party to, or otherwise involved in, any Proceeding which is an action by
or in the right of the Company to procure a judgment in its favor by reason of
the fact that Indemnitee is or was an Agent of the Company. This indemnity shall
apply, and be limited, to and against all expenses actually and reasonably
incurred by Indemnitee in connection with the defense or settlement of such
Proceeding, but only if: (a)
3
<PAGE> 4
Indemnitee met the Applicable Standard (except that the Indemnitee's belief
regarding the best interests of the Company need not have been reasonable); (b)
Indemnitee also acted in a manner he believed to be in the best interests of the
Company's shareholders; and (c) the action is not settled or otherwise disposed
of without court approval. No indemnification shall be made under this Paragraph
4 in respect of any claim, issue or matter as to which Indemnitee shall have
been adjudged to be liable to the Company in the performance of such person's
duty or the Company, unless, and only to the extent that, the court in which
such proceeding is or was pending shall determine upon application that, in view
of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnification for the expenses which such court shall determine.
5. Expenses of Successful Indemnitee. Notwithstanding any other
provision of this Agreement, to the extent the Indemnitee has been successful on
the merits in defense of any Proceeding referred to in Paragraphs 3 or 4 hereof,
or in defense of any claim, issue or matter therein, including the dismissal of
an action or portion thereof without prejudice, Indemnitee shall be indemnified
against all Expenses actually and reasonably incurred in connection therewith.
6. Advances of Expenses. The Expenses incurred by Indemnitee in any
Proceeding shall be advanced by the Company prior to the final disposition of
such proceeding at the written request of Indemnitee, but only if Indemnitee
shall undertake to repay such advances if it is ultimately determined that the
Indemnitee is not entitled to indemnification as provided for in this Agreement.
Any advance required hereunder shall be deemed to have been approved by the
Board of Directors of the Company to the extent this Agreement was so approved.
In determining whether or not to make an advance hereunder, the ability of
Indemnitee to repay shall not be a factor. However, in a Proceeding brought by
the Company directly, in its own right (as distinguished from an action brought
derivatively or by any receiver or trustee), the Company shall have discretion
whether or not to make the advances called for hereby if Independent Legal
Counsel advises in writing that the Company has probable cause to believe, and
the Company does believe, that Indemnitee did not act in good faith with regard
to the subject matter of the Proceeding or a material portion thereof.
The Company shall be entitled to participate in the Proceeding and to
assume the defense thereof, with counsel chosen by the Company reasonably
satisfactory to Indemnitee, and after notice from the Company to Indemnitee of
its election to assume the defense thereof, the Company shall not be liable to
Indemnitee under this Paragraph 6 for any Expenses of other counsel or any other
Expenses, in each case, subsequently incurred by such Indemnitee, in connection
with the defense thereof, other than reasonable costs of investigation actually
incurred by Indemnitee. In the event that after notice of such an action the
Company does not assume the complete defense thereof, then Indemnitee may, but
shall not be obligated, to conduct a defense of the action with counsel of
Indemnitee's choosing reasonably satisfactory to the Company, with reasonable
attorneys' fees and other reasonable Expenses to be paid by the Company within
thirty (30) days of the delivery of each invoice therefor to the Company. In all
cases, no settlement shall be entered into without the express prior written
consent of the Company. The Company and Indemnitee shall cooperate fully in the
defense of any Proceeding regardless of which party assumes the defense;
provided, further, Indemnitee's cooperation shall be without compensation.
7. Right of Indemnitee to Indemnification Upon Application; Procedure
Upon Application. Any advance under Paragraphs 5 and/or 6 hereof or
indemnification shall be made no later than forty-five (45) days after receipt
of a written request of Indemnitee in accordance with
4
<PAGE> 5
Paragraph 11 hereof. In all other cases, indemnification shall be made by the
Company only if authorized in the specific case, upon a determination that
indemnification of the Agent is proper under the circumstances and the terms of
this Agreement by: (a) a majority vote of a quorum of the Board of Directors (or
a duly constituted committee thereof), consisting of directors who are not
parties to such Proceeding; (b) approval of the shareholders (as defined in
Section 153 of the California Corporations Code, as that Section reads at
present), with the Indemnitee's shares not being entitled to vote thereon; (c)
the court in which such Proceeding is or was pending upon application made by
the Company, the Indemnitee or any person rendering services in connection with
Indemnitee's defense, whether or not the Company opposes such application; or
(d) to the extent permitted by law, and only if the court refuses or is unable
to rule, by Independent Legal Counsel in a written opinion.
The right to indemnification or advances as provided by this Agreement
shall be enforceable by Indemnitee in any court of competent jurisdiction. The
burden of proving that indemnification or advances are not appropriate shall be
on the Company. Neither the failure of the Company (including its Board of
Directors, Independent Legal Counsel, or its shareholders) to have made a
determination prior to the commencement of such action that indemnification or
advances are proper in the circumstances because Indemnitee has met the
Applicable Standard of Conduct, nor an actual determination by the Company
(including its Board of Directors or Independent Legal Counsel) that Indemnitee
has not met such Applicable Standard of Conduct, shall be a defense to the
action or create a presumption that Indemnitee has not met the Applicable
Standard of Conduct. Indemnitee's Expenses incurred in connection with
successfully establishing his right to indemnification or advances in any such
Proceeding shall also be indemnified by the Company; provided, however, that if
Indemnitee is only partially successful in establishing his right to
indemnification or advances, only an equitably allocated portion of such
Expenses, as determined by the court, shall be indemnified.
If Indemnitee is entitled under any provision of this Agreement or
indemnification by the Company, for some or a portion of the Expenses,
judgments, fines or penalties actually and reasonably incurred by Indemnitee in
the investigation, defense, appeal or settlement of any Proceeding but not,
however, for the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion (determined on an equitable basis) of such Expenses,
judgments, fines or penalties to which Indemnitee is entitled.
The Company's obligations to advance or indemnify hereunder shall be
deemed satisfied to the extent of any payments made by an insurer on behalf of
the Company or Indemnitee.
8. Indemnification Hereunder Not Exclusive. The indemnification provided
by this Agreement shall not be deemed exclusive of any other rights to which
Indemnitee may be entitled under the Articles of Incorporation, the Bylaws, any
agreement, any vote of shareholders or disinterested directors, the General
Corporation Law of the State of California, or otherwise, both as to action in
Indemnitee's official capacity and as to action in another capacity while
holding such office. The indemnification under this Agreement shall continue as
to Indemnitee even though Indemnitee may have ceased to be a director or officer
and shall inure to the benefit of the heirs and personal representatives of
Indemnitee.
9. Limitations. The Company shall not be liable under this Agreement to
make any payment in connection with any claim made against the Indemnitee:
5
<PAGE> 6
(a) for which payment is actually made to or for the benefit of the
Indemnitee under a valid and collectible insurance policy, provided, however,
that the Company shall remain liable for any payments required by this Agreement
in excess of the amount of payment under such insurance;
(b) for which the Indemnitee is indemnified by the Company otherwise
than pursuant to this Agreement;
(c) for an accounting of profits made from the purchase or sale by
the Agent of securities of the Company within the meaning of Section 16(b) of
the Securities Exchange Act of 1994 and amendments thereto or similar provisions
of any state statutory law or common law;
(d) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law;
(e) for acts or omissions that the Indemnitee believes to be contrary
to the best interests of the Company or its shareholders or that involve the
absence of good faith on the part of the Indemnitee;
(f) for any transaction from which the Indemnitee derived an improper
personal benefit;
(g) for acts or omissions that show a reckless disregard for the
Indemnitee's duty to the Company or its shareholders in circumstances in which
the Indemnitee was aware, or should have been aware, in the ordinary course of
performing his duties, of a risk of serious injury to the Company or its
shareholders;
(h) for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the Indemnitee's duty to the
Company or its shareholders;
(i) under Section 310 of the General Corporation Law of the State of
California, as that Section reads at present; or
(j) under Section 316 of the General Corporation Law of the State of
California, as that Section reads at present.
10. Savings Clause. If this Agreement or any portion hereof is
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify Indemnitee as to Expenses, judgments, fines
and penalties with respect to any Proceeding to the full extent permitted by any
applicable portion of this Agreement or by any other applicable law.
11. Notices. Indemnitee shall, as a condition precedent to Indemnitee's
right to be indemnified under this Agreement, give to the Company notice in
writing within thirty (30) days after he becomes aware of any claim made against
him for which he believes, or should reasonably believe, indemnification will or
could be sought under this Agreement. Notice to the Company shall be directed to
the Company's main office, Attention: President (or such other address as the
Company
6
<PAGE> 7
shall designate in writing to Indemnitee). Failure to so notify the Company
shall not relieve the Company of any liability which it may have to Indemnitee
otherwise than under this Agreement.
All notices, requests, demands and other communications (collectively
"notices") provided for under this Agreement shall be in writing (including
communications by telephone, telex or telecommunication facilities providing
facsimile transmission) and mailed (postage prepaid and return receipt
requested), telegraphed, telexed, transmitted or personally served to each party
at the address set forth at the end of this Agreement or at such other address
as any party affected may designate in a written notice to the other parties in
compliance with this section. All such notices shall be effective when received;
provided, however, receipt shall be deemed to be effective within three (3)
business days of any properly addressed notice having been deposited in the
mail, within twenty-four (24) hours from the time electronic transmission was
made, or upon actual receipt of electronic delivery, whichever occurs first.
No costs, charges or expenses for which indemnity shall be sought
hereunder shall be incurred without the Company's consent, which consent shall
not be unreasonably withheld.
12. Choice of Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of California, including applicable
statutes of limitations and other procedural statutes.
13. Attorneys' Fees. If any legal action is necessary to enforce the
terms of this Agreement, the prevailing party shall be entitled to recover, in
addition to the amounts to which the prevailing party may be entitled, actual
attorneys' fees and court costs as may be awarded by the court.
14. Amendments. Provisions of this Agreement may be waived, altered,
amended or repealed in whole or in part only by the written consent of all
parties.
15. Parties in Interest. Nothing in this Agreement, whether express or
implied, is intended to confer any rights or remedies under or by reason of this
Agreement to any persons other than the parties to it and their respective
successors and assigns (including an estate of Indemnitee), nor is anything in
this Agreement intended to relieve or discharge the obligation or liability of
any third persons to any party hereto. Furthermore, no provision of this
Agreement shall give any third persons any right of subrogation or action
against any party hereto.
16. Severability. If any portion of this Agreement shall be deemed by a
court of competent jurisdiction to be unenforceable, the remaining portions
shall be valid and enforceable only if, after excluding the portion deemed to be
unenforceable, the remaining terms shall provide for the consummation of the
transaction contemplated herein in substantially the same manner as originally
set forth at the date this Agreement was executed.
17. Successors and Assigns. All terms and conditions of this Agreement
shall be binding upon and shall inure to the benefit of the parties and their
respective transferees, successors and assigns; provided, however, that this
Agreement and all rights, privileges, duties and obligations of the parties, may
not be assigned or delegated by any party without the prior written consent of
the other parties.
7
<PAGE> 8
18. Counterparts. This Agreement may be executed simultaneously in one
(1) or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one (1) and the same instrument.
19. Entire Agreement. Except as provided in Paragraph 8 hereof, this
Agreement represents and contains the entire agreement and understanding between
and among the parties, and all previous statements or understandings, whether
express or implied, oral or written, relating to the subject matter hereof are
fully and completely extinguished and superseded by this Agreement. This
Agreement shall not be altered or varied except by a writing duly signed by all
of the parties.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
VIB Corp
1498 Main Street
El Centro, California 92243
By: _______________________________
Its: ______________________________
"Indemnitee"
_________________________________________
Address: _______________________________
_______________________________
8
<PAGE> 1
SELECTED FINANCIAL INFORMATION
The following table presents a summary of selected financial information
for the five years ended December 31, 1996 and for the six month periods ended
June 30, 1997 and 1996. This financial information should be read in conjunction
with the Financial Statements and Notes thereto, included elsewhere herein. The
financial information at and for the six months ended June 30, 1997 and 1996 has
not been audited but, in the opinion of management, contain all adjustments
necessary to present fairly the financial position and results of operations of
the Bank at and for such periods. The results of operations for the six months
ended June 30, 1997, are not necessarily indicative of the results of operations
that may be expected for the year ending December 31, 1997, or for any future
periods. See also "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" herein.
<TABLE>
<CAPTION>
AT OR FOR THE
AT OR FOR THE SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------------------- -----------------------
1996 1995 1994 1993 1992 1997 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
(000's)
Total interest income............... $ 24,261 $ 21,776 $ 18,545 $ 14,857 $ 13,923 $ 15,130 $ 11,392
Total interest expense.............. 7,128 5,973 4,299 3,545 4,486 4,941 3,251
--------- --------- --------- --------- --------- --------- ---------
Net interest income................. 17,133 15,803 14,246 11,312 9,437 10,189 8,141
Provision for credit losses......... 635 1,008 1,210 968 579 625 350
--------- --------- --------- --------- --------- --------- ---------
Net interest income after provision
for credit losses................. 16,498 14,795 13,036 10,344 8,858 9,564 7,791
Non-interest income................. 3,075 2,519 2,493 2,540 1,703 1,928 1,378
Non-interest expense and income
taxes............................. 16,998 14,889 13,249 11,327 9,492 10,304 8,049
--------- --------- --------- --------- --------- --------- ---------
Net income.......................... $ 2,575 $ 2,425 $ 2,280 $ 1,557 $ 1,069 $ 1,188 $ 1,120
========= ========= ========= ========= ========= ========= =========
PER SHARE DATA(1)
Net income(2)....................... $ 0.46 $ 0.44 $ 0.43 $ 0.31 $ 0.23 $ 0.20 $ 0.20
Cash dividends...................... N/A N/A N/A N/A $ 0.02 N/A N/A
Book Value Per Share(1)(3).......... $ 4.95 $ 4.48 $ 3.85 $ 3.60 $ 3.22 $ 5.21 $ 4.63
Number of shares used in income
calculations...................... 5,646,136 5,503,150 5,301,938 5,110,576 4,698,469 5,824,357 5,625,833
STATEMENTS OF FINANCIAL CONDITION
(at end of period) (000's)
Total assets........................ $ 333,565 $ 257,465 $ 226,031 207,564 $ 176,127 $ 399,307 $ 262,931
Total deposits...................... 303,944 230,534 204,491 175,999 159,436 368,452 236,732
Total net loans(4).................. 242,787 188,878 166,475 158,690 128,983 269,788 196,851
Allowance for credit losses......... 2,634 2,024 2,494 1,827 1,325 2,743 2,313
Total investments................... 36,522 39,393 19,194 27,301 17,343 71,386 21,261
Total equity........................ 27,040 23,678 19,853 18,100 15,766 28,690 24,807
OPERATING RATIOS
Total net loans to total deposits... 79.88% 81.93% 81.41% 90.17% 80.90% 73.20% 83.15%
Total equity to total assets........ 8.11 9.20 8.78 8.72 8.95 7.18 9.43
Tier I capital to risk-weighted
assets(5)......................... 8.76 11.64 10.61 10.52 11.23 7.55 10.48
Total capital to risk-weighted
assets(5)......................... 9.69 12.65 11.93 11.60 12.18 8.40 11.46
Tier I capital to average assets
(leverage ratio)(5)............... 7.91 9.66 9.52 9.94 8.57 6.15 9.81
Income on average equity............ 10.24 11.13 12.07 9.45 7.60 8.56(6) 9.21(6)
Income on average total assets...... .95 1.04 1.09 .85 0.65 0.64(6) .90(6)
Total interest expense to total
interest income................... 29.38 27.43 23.18 23.86 32.22 32.66 28.54
Non-performing loans(7) to total
net loans......................... 2.12 2.74 1.41 1.56 .76 1.77 2.57
Allowance for credit losses to
total loans....................... 1.07 1.06 1.48 1.14 1.02 1.01 1.16
Dividend payment ratio.............. N/A N/A N/A N/A 6.94 N/A N/A
</TABLE>
- ---------------
(1) These figures have been adjusted retroactively to reflect previous stock
splits and stock dividends.
(2) Net income per share is based upon the weighted average number of shares of
Common Stock and common stock equivalents outstanding during each period.
(3) As used throughout this Offering Circular, the term "Book Value Per Share"
is defined as total equity divided by the number of shares outstanding at
the end of the period.
(4) As used throughout this Offering Circular, the term "total net loans" is
defined as total loans net of unearned discount, net deferred loan fees, and
the allowance for credit losses.
(5) As calculated pursuant to regulatory guidelines. (See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Capital Resources" herein.)
(6) These ratios have been annualized.
(7) Non-performing loans consist of loans on non-accrual and loans past due 90
days or more.
N/A Not applicable.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Management's discussion, which incorporates an analysis of financial
condition and results of operations, is designed to provide a more comprehensive
understanding of the significant changes and trends related to the Bank's
financial condition, results of operations, liquidity and capital resources. The
discussion should be read in conjunction with the Financial Statements and Notes
thereto and the section entitled "SELECTED FINANCIAL INFORMATION" included
elsewhere herein.
The following table sets forth, for the periods indicated, the increase or
decrease of certain items in the Statements of Income as compared to the prior
comparable period:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------- -------------------------
1996 VERSUS 1995 1995 VERSUS 1994 1997 VERSUS 1996
------------------------- ------------------------- -------------------------
AMOUNT OF AMOUNT OF AMOUNT OF
INCREASE PERCENT OF INCREASE PERCENT OF INCREASE PERCENT OF
(DECREASE) INCREASE (DECREASE) INCREASE (DECREASE) INCREASE
(000'S) (DECREASE) (000'S) (DECREASE) (000'S) (DECREASE)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total interest income......... $2,485 11.41% $3,231 17.42% $3,738 32.81%
Total interest expense........ 1,155 19.34 1,674 38.93 1,690 51.98
Net interest income........... 1,330 8.42 1,557 10.93 2,048 25.16
Provision for credit losses... (373) (37.00) (202) (16.69) 275 78.57
Net interest income after
provision for credit
losses...................... 1,703 11.51 1,759 13.49 1,773 22.76
Non-interest income........... 556 22.07 26 1.04 550 39.91
Non-interest expense.......... 2,300 17.10 1,228 10.05 2,290 30.46
Income before taxes........... (41) (1.06) 557 16.84 33 2.00
Income taxes.................. (191) (13.26) 412 40.08 (35) 6.58
Net income.................... 150 6.19 145 6.36 68 6.07
</TABLE>
GENERAL
In 1996 Valley Independent Bank experienced record earnings while
continuing to expand market share. This market share expansion was highlighted
by the merger with Bank of the Desert, N.A., headquartered in La Quinta,
California. The merger was closed on September 12, 1996 and accounted for as a
purchase transaction. Accordingly, the results of operations of Bank of the
Desert, N.A. were included with that of the Bank subsequent to the consummation
of the merger. Bank of the Desert, N.A. had total assets of $31.9 million. The
purchase price was approximately $3.3 million. The four branches acquired as a
result of this merger significantly increased the Bank's market share within
Riverside County, California. In addition, the Bank purchased the Calexico,
California branch office and related assets for $1.1 million and assumed $4.9
million in deposits from California Commerce Bank, a state banking corporation
headquartered in Los Angeles, California. The Bank relocated its existing
Calexico, California branch office to the acquired branch location. The facility
acquired provided the Bank with a significantly improved physical location and
increased the Bank's market share in the Calexico, California market area.
During 1996, the Bank also remained focused on maintaining a quality loan
portfolio as well as developing a capital base which will support future growth.
The Bank's financial performance during the six months ended June 30, 1997
was highlighted by continued earnings growth, the acquisition of two branch
locations from Wells Fargo Bank, N.A., in Blythe and Tecate, California, the
establishment of a loan production office in Yuma, Arizona, and the construction
of the new corporate facility in El Centro, California.
The loan production office in Yuma, Arizona, commenced operations on
January 13, 1997. This office represents a natural extension of the Bank's
presence in Yuma and La Paz counties. The Yuma area marketplace presents a
tremendous opportunity for the Bank especially in light of the area's major
banks reducing their presence and consolidating decision-making to major
metropolitan areas. This office was
<PAGE> 3
established with minimum overhead expense and as an operation is expected to
reach break-even profitability prior to year-end.
Effective February 14, 1997, the Bank acquired certain of the assets and
assumed the deposit liabilities of the Blythe and Tecate, California, branch
offices of Wells Fargo Bank, N.A., a national banking association headquartered
in San Francisco, California. As a result of the acquisition, the Bank assumed
the deposit liabilities of the two branches, in the aggregate amount of
approximately $42.8 million, purchased the fixed assets of the two branches, and
assumed the leases for the two branch locations. The aggregate purchase price
paid by the Bank was $3,791,000, which included a premium for the deposits
assumed in the amount of $1,975,000.
The new corporate facility, approximately 25,000 square feet, was occupied
in July, 1997, and consolidated the El Centro loan production office as well as
the Bank's executive management, loan administration, Human Resources Department
and Marketing Department. The Bank leases the facility and plans to temporarily
sublet approximately 7,500 square feet.
Total assets at December 31, 1996 were $333.6 million, an increase of $76.1
million, or 29.6%, compared to December 31, 1995. Total deposits increased $73.4
million, or 31.8%, to $303.9 million at December 31, 1996. During 1995 total
assets increased $31.4 million, or 13.9%, from $226.0 million at year end 1994.
Total deposits increased $26.0 million, or 12.7%, from year-end 1994 to $230.5
million at December 31, 1995.
At June 30, 1997, total assets were $399.3 million, an increase of $136.4
million, or 51.9%, compared to June 30, 1996. Total deposits increased $131.7
million, or 55.6%, from June 30, 1996, to $368.5 million at June 30, 1997.
Net income for the year ended December 31, 1996 was $2.6 million, an
increase of $150,000, or 6.2%, when compared to $2.4 million for the prior year.
On a per share basis, earnings were $.46 for the year, compared with $.44
reported in 1995. Increases in net interest income and non-interest income, a
reduction in the provision for credit losses and income taxes, partially offset
by increases in non-interest expenses were the primary factors concerned with
enhancing the financial performance in 1996. Net income of $2.4 million in 1995
represented an increase of $145,000, or 6.4%, from the $2.3 million net income
earned in 1994.
Net income for the six months ended June 30, 1997 was $1.2 million, an
increase of $68,000, or 6.1%, when compared to $1.1 million for the six months
ended June 30, 1996. On a per share basis, earnings were $.20 for the period
ending June 30, 1997 compared with $.20 reported for the six months ended June
30, 1996. The factors concerning the net income increase in the comparative
periods ending June 30, 1997 and 1996, respectively, were the same as previously
discussed in the comparative analysis of 1996 and 1995 net earnings growth.
The return on average assets ratio was .95% for the year ended December 31,
1996, a decrease of 9 basis points, or 8.7%, compared with the 1.04% ratio
reported in 1995. In 1995 the return on average assets ratio decreased 5 basis
points, or 4.6%, from the 1994 ratio of 1.09%.
The return on average equity ratio was 10.24% for the year ended December
31, 1996, a decrease of 89 basis points, or 8.0%, compared with the 11.13% ratio
recorded in 1995. For the year ending December 31, 1995, the return on average
equity ratio decreased 94 basis points, or 7.8%, from the 12.07% ratio generated
in 1994.
The return on average assets ratio was .64% for the six months ended June
30, 1997, a decrease of 26 basis points , or 28.9%, compared with the .90% ratio
for the six months ended June 30, 1996. The return on average equity ratio was
8.56% for the six months ending June 30, 1997, a decrease of 65 basis points, or
7.1%, compared with the 9.21% ratio reported for the six months ended June 30,
1996.
At December 31, 1996, the Bank's Tier I and total capital to risk-weighted
assets ratios and the Bank's leverage ratio decreased to 8.76%, 9.69% and 7.91%,
respectively, when compared to 11.64%, 12.65% and 9.66%, respectively, at
December 31, 1995. At December 31, 1994 the Tier I capital ratio was 10.61%, the
total capital ratio was 11.93%, and the leverage ratio was 9.52%. These ratios
exceed regulatory requirements.
At June 30, 1997, the Bank's Tier I and total capital to risk-weighted
assets ratios and the Bank's leverage ratio decreased to 7.55%, 8.40% and 6.15%,
respectively, when compared to 10.48%, 11.46% and 9.81%,
<PAGE> 4
respectively, at June 30, 1996. The ratios as of these respective six month
interim periods exceeded regulatory requirements.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY
The following tables present the average amounts outstanding for the major
categories of the Bank's assets, liabilities and equity accounts, the amount and
average rate of interest income earned or interest expense paid for each
category of interest-earning asset and interest-bearing liability, and net
interest margin for the periods indicated. Tax-exempt interest income from
investment securities has not been adjusted to a tax-equivalent basis.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
1996 1995
---------------------------- ------------------------------
AVERAGE AMOUNT OF AVERAGE AMOUNT OF
BALANCE INTEREST AVERAGE BALANCE INTEREST AVERAGE
(000'S) (000'S) RATE (000'S) (000'S) RATE
-------- --------- ----- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Interest-bearing deposits................ $ 301 $ 15 4.98%
Investment securities.................... 28,979 1,980 6.83 $ 31,386 $ 1,887 6.00%
Federal funds sold....................... 5,513 287 5.21 12,123 692 5.71
Loans(1)................................. 208,178 21,979 10.56 168,743 19,197 11.38
-------- -------- ------ -------- -------- ------
Total Interest-Earning Assets.............. 242,971 24,261 9.99 212,252 21,776 10.26
-------- -------- ------ -------- -------- ------
NON INTEREST-EARNING ASSETS:
Cash and due from banks.................. 16,633 14,658
Allowance for credit losses.............. (2,351) (2,237)
Premises and equipment................... 5,296 3,589
Other assets............................. 8,556 6,011
-------- --------
Total Non Interest-Earning Assets.......... 28,134 22,021
-------- --------
Total Assets............................... $271,105 $234,273
======== ========
LIABILITIES AND EQUITY
INTEREST-BEARING LIABILITIES:
Money Market and Now accounts............ $ 59,292 $ 1,538 2.59% $ 50,929 $ 1,202 2.36%
Time and savings deposits................ 75,309 3,151 4.18 67,931 2,851 4.20
Time deposits over $100,000.............. 42,229 2,296 5.44 34,574 1,897 5.49
-------- -------- ------ -------- -------- ------
Total Interest-Bearing Deposits............ 176,830 6,985 3.95 153,434 5,950 3.88
Borrowed funds........................... 2,532 143 5.65 372 23 6.18
-------- -------- ------ -------- -------- ------
Total Interest-Bearing Liabilities......... 179,362 7,128 3.97 153,806 5,973 3.88
-------- -------- ------ -------- -------- ------
NON INTEREST-BEARING LIABILITIES:
Demand deposits.......................... 64,575 57,368
Other liabilities........................ 2,024 1,316
-------- --------
Total Non Interest-Bearing Liabilities..... 66,599 58,684
-------- --------
Shareholders' Equity....................... 25,144 21,783
-------- --------
Total Liabilities and Shareholders'
Equity................................... $271,105 $234,273
======== ========
Net Interest Income........................ $17,133 6.02% $15,803 6.38%
======== ------ ======== ------
Net Interest Income as a Percent of
Interest-Earning Assets.................. 7.05% 7.45%
======== ========
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994
----------------------------------
AVERAGE AMOUNT OF
BALANCE INTEREST AVERAGE
(000'S) (000'S) RATE
-------- --------- -------
<S> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS:
Interest bearing deposits.................................
Investment securities..................................... $ 21,840 $ 1,164 5.33%
Federal funds sold........................................ 3,548 168 4.74
Loans(1).................................................. 163,820 17,213 10.51
-------- ------- ------
Total interest-earning assets............................... 189,208 18,545 9.80
-------- ------- ------
NON INTEREST-EARNING ASSETS:
Cash and due from banks................................... 13,456
Allowance for credit losses............................... (2,110)
Premises and equipment.................................... 3,569
Other assets.............................................. 4,453
--------
Total Non Interest-Earning Assets........................... 19,368
--------
Total Assets................................................ $208,576
========
LIABILITIES AND EQUITY
INTEREST-BEARING LIABILITIES:
Money Market and Now accounts............................. $ 53,699 $ 1,331 2.48%
Time and savings deposits................................. 51,504 1,650 3.20
Time deposits over $100,000............................... 25,945 1,043 4.02
-------- ------- ------
Total Interest-Bearing Deposits............................. 131,148 4,024 3.07
Borrowed funds............................................ 6,798 275 4.05
-------- ------- ------
Total Interest-Bearing Liabilities.......................... 137,946 4,299 3.12
-------- ------- ------
NON INTEREST-BEARING LIABILITIES:
Demand deposits........................................... 50,916
Other liabilities......................................... 720
--------
Total Non Interest-Bearing Liabilities...................... 51,636
--------
Shareholders' Equity........................................ 18,994
--------
Total Liabilities and Shareholders' Equity.................. $208,576
========
Net Interest Income......................................... $14,246 6.68%
======= ------
Net Interest Income as a Percent of Interest-Earning
Assets.................................................... 7.53%
======
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------
1997 1996
------------------------------ ------------------------------
AVERAGE AMOUNT OF AVERAGE AMOUNT OF
BALANCE INTEREST AVERAGE BALANCE INTEREST AVERAGE
(000'S) (000'S) RATE (000'S) (000'S) RATE
-------- --------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS
Interest bearing deposits........................ $ 879 $ 26 5.89%
Investment securities............................ 63,664 2,071 6.50 $ 24,389 $ 825 6.77%
Federal funds sold............................... 8,497 220 5.17 1,406 34 4.72
Loans(1)......................................... 255,991 12,813 10.01 199,855 10,533 10.54
-------- -------- ------ -------- ------- -----
Total interest-earning assets...................... 329,031 15,130 9.20 225,650 11,392 10.10
-------- -------- ------ -------- ------- -----
NON INTEREST-EARNING ASSETS
Cash and due from banks.......................... 24,558 15,273
Allowance for credit losses...................... (2,800) (2,222)
Premises and equipment........................... 7,227 4,073
Other Assets..................................... 14,129 7,231
-------- -------
Total Non Interest-Earning
Assets........................................... 43,114 24,355
-------- -------
Total Assets....................................... $372,145 $250,005
-------- -------
LIABILITIES AND EQUITY
INTEREST-BEARING LIABILITIES
Money Market and Now
accounts...................................... $ 79,529 $ 964 2.42% $ 51,744 $ 646 2.50%
Time and savings deposits........................ 113,737 2,441 4.29 68,942 1,428 4.14
Time deposits over $100,000...................... 57,394 1,522 5.30 37,963 1,039 5.47
-------- -------- ------ -------- ------- -----
Total Interest-Bearing
Deposits......................................... 250,660 4,927 3.93 158,649 3,113 3.92
Borrowed funds................................... 488 14 5.74 4,907 138 5.62
-------- -------- ------ -------- ------- -----
Total Interest-Bearing
Liabilities...................................... 251,148 4,941 3.93 163,556 3,251 3.98
-------- -------- ------ -------- ------- -----
NON INTEREST-BEARING LIABILITIES:
Demand deposits.................................. 91,225 59,942
Other liabilities................................ 2,001 2,185
-------- -------
Total Non Interest-Bearing
Liabilities...................................... 93,226 62,127
-------- -------
Shareholders' Equity............................... 27,771 24,322
-------- -------
Total Liabilities and
Shareholders' Equity............................. $372,145 $250,005
======== =======
Net Interest Income................................ $10,189 5.27% $ 8,141 6.12%
======= ====== ======= ====
Net Interest Income as a
Percent of Interest-Earning
Assets........................................... 6.19% 7.22%
======== ====
</TABLE>
- ---------------
(1) Yields and amounts include loan fees and late charges of $1,430,979,
$1,429,445, $1,621,597, $672,680 and $640,468 for the years ended December
31, 1996, 1995 and 1994, and for the six months ended June 30, 1997 and
1996, respectively.
<PAGE> 7
NET INTEREST INCOME AND NET INTEREST MARGIN
Average interest-earning assets totaled $243.0 million in 1996, an increase
of $30.7 million, or 14.5%, compared to 1995. Average investment securities and
federal funds sold decreased $2.4 million, or 7.7%, and $6.6 million, or 54.6%,
respectively, as the Bank experienced significant average loan growth of $39.4
million, or 23.4%. In 1995 average interest-earning assets increased $23.1
million, or 12.2%, from a 1994 average of $189.2 million.
Average interest-earning assets totaled $329.0 million during the six
months ending June 30, 1997, an increase of $103.4 million, or 45.8%, compared
to the same period last year. As a result of the acquisitions of Bank of the
Desert, N.A., and the two branch locations from Wells Fargo Bank, N.A., all
comparative areas of earning assets grew significantly. This growth was
highlighted by an increase in average total loans of $56.1 million, or 28.1%, to
$256.0 million.
Average interest-bearing liabilities grew $25.6 million, or 16.6%, from
$153.8 million for 1995 to $179.4 million for 1996. During 1996, all
interest-bearing liability categories increased. In 1995, average interest-
bearing liabilities increased $15.9 million, or 11.5%, from $138.0 million for
1994.
Average interest-bearing liabilities for the six months ended June 30,
1997, increased $87.6 million, or 53.6%, to average $251.1 million as compared
to the same period last year. During this comparative period average
interest-bearing deposit categories increased $92.0 million, or 58.0%, to $250.7
million. Average borrowed funds decreased $4.4 million, or 90.1%, to $484,000
during the same periods. These comparative changes were significantly affected
by the acquisitions previously discussed.
Interest income in 1996 was $24.3 million, an increase of $2.5 million, or
11.4%, compared to 1995. The increase in interest income was the result of
volume increases in average loans offset slightly by decreases in average
investments and federal funds sold as well as a slightly lower overall interest
rate environment. The yield on interest-earning assets decreased 27 basis points
to 9.99% in 1996 from 10.26% in 1995. The yield on the loan portfolio, the
largest portion of the Bank's interest earning assets, decreased 82 basis
points, from 11.38% in 1995 to 10.56% in 1996.
Interest income for the six month period ended June 30, 1997 was $15.1
million, an increase of $3.7 million, or 32.8%, compared to the six months
ending June 30, 1996. The increase in interest income was primarily the result
of the volume increases previously discussed. This increase was offset by a
decreasing interest rate environment. The yield on interest-earning assets
decreased 90 basis points to 9.20% for the six months ended June 30, 1997 from
10.10% for the comparative period last year.
Interest expense increased $1.2 million, or 19.3%, to $7.1 million during
1996. The increase in interest expense was the result of volume increases in all
interest-bearing categories, slightly offset by decreases in interest rates. The
cost of total interest-bearing liabilities increased 9 basis points from 3.88%
in 1995 to 3.97% in 1996.
Interest expense increased $1.7 million, or 52.0%, during the six months
ending June 30, 1997 as compared to the same period last year. The increase in
interest expense was principally the result of the acquisitions discussed
previously. This increase was partially offset by a declining interest rate
environment. The cost of interest-bearing funds decreased 5 basis points from
3.98% for the six months ended June 30, 1996 to 3.93% for the six months ended
June 30, 1997.
Net interest income was $17.1 million for 1996 which represented an
increase from the prior year of $1.3 million, or 8.4%. The net interest spread
percentage, which represents the difference between the rate earned on average
interest-earning assets and the rate paid on average interest-bearing
liabilities, decreased to 6.02% for the year-ending December 31, 1996, compared
to 6.38% in 1995. Net interest income as a percentage of average
interest-earning assets, or the net interest margin, decreased to 7.05% in 1996
compared to 7.45% in 1995. Despite a greater proportionate growth in the higher
yielding interest-earning asset categories, a higher cost mix of
interest-bearing liabilities as well as the repricing effect of interest-earning
assets and interest-bearing liabilities in a lower rate environment were the
principal causes for the reduced yields in both net interest spread percentage
and net interest margin.
<PAGE> 8
Net interest income, which amounted to $15.8 million in 1995, represented
an increase of $1.6 million, or 10.9%, compared to 1994. Interest income was
$21.8 million, an increase of $3.2 million, or 17.4%, compared to 1994. The
increase in interest income was the combined result of volume increases in all
interest-earning asset categories and a higher overall interest rate
environment. The yield on interest-earning assets increased 46 basis points to
10.26% in 1995 from 9.80% in 1994. Interest expense increased $1.7 million, or
38.9%, to $6.0 million during 1995. The higher interest rate environment was the
primary cause for the increase in interest expense. The cost of total interest
bearing liabilities increased 76 basis points from 3.12% in 1994 to 3.88% in
1995. The increase in interest cost was also the result of increases in all
deposit categories exclusive of money market and now accounts. Interest on
borrowed funds decreased as a result of a decrease in volume partially offset by
a slight increase in the federal funds rate. As a result, net interest margin
decreased in 1995 compared to 1994, from 7.53% to 7.45%, and the net interest
spread percentage decreased from 6.68% to 6.38%.
Net interest income was $10.2 million for the six months ending June 30,
1997, representing an increase of $2.0 million, or 25.2%, from June 30, 1996.
The net interest spread decreased to 5.27% for the period ending June 30, 1997,
compared to 6.12% for the same period in 1996. Net interest income as a
percentage of average interest-earning assets decreased to 6.19% for the period
ending June 30, 1997, compared to 7.22% for the period ended June 30, 1996. The
lower interest rate environment was the primary reason for the comparative
decrease in yield for both the net interest spread and the net interest margin.
The following table sets forth the dollar amount of changes in interest
earned and paid for each major category of interest-earning assets and
interest-bearing liabilities and the amount of changes attributable to changes
in average balances (volume) or changes in average interest rates. The variances
attributable to both balance and rate changes have been allocated to volume and
rate changes in proportion to the relationship of the absolute dollar amounts of
the changes in each category. Tax-exempt interest income from investment
securities has not been adjusted to a tax-equivalent basis since the effect of
such an adjustment would not be material.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995 JUNE 30, 1997
OVER OVER OVER
YEAR ENDED YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994 JUNE 30, 1996
INCREASE/DECREASE DUE INCREASE/DECREASE DUE INCREASE/DECREASE DUE
TO CHANGE IN (000'S) TO CHANGE IN (000'S) TO CHANGE IN (000'S)
----------------------------- ---------------------------- ---------------------------
NET NET NET
VOLUME RATE CHANGE VOLUME RATE CHANGE VOLUME RATE CHANGE
------ ------- ------ ------ ------ ------ ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing
deposits................. $ 15 $ 15 $ 26 $ 26
Investment securities...... (133) $ 228 95 $ 509 $ 214 $ 723 1,395 $(149) 1,246
Federal funds income....... (373) (33) (406) 406 118 524 166 20 186
Loans(1)(2)................ 4,227 (1,446) 2,781 517 1,467 1,984 2,929 (649) 2,280
------ ------- ------ ------ ------ ------ ------ ----- ------
Total Interest Income...... 3,736 (1,251) 2,485 1,432 1,799 3,231 4,516 (778) 3,738
INTEREST-BEARING LIABILITIES:
Money market and NOW....... 247 89 336 (68) (61) (129) 372 (54) 318
Time and savings........... 359 (59) 300 526 675 1,201 987 26 1,013
Time deposits over
$100,000................. 429 (30) 399 347 507 854 531 (48) 483
Borrowed funds............. 128 (8) 120 (260) 8 (252) (125) 1 (124)
------ ------- ------ ------ ------ ------ ------ ----- ------
Total Interest Expense..... 1,163 (8) 1,155 545 1,129 1,674 1,765 (75) 1,690
------ ------- ------ ------ ------ ------ ------ ----- ------
Interest Differential or
Net
Interest Income.......... $2,573 $(1,243) $1,330 $ 887 $ 670 $1,557 $2,751 $(703) $2,048
====== ======= ====== ====== ====== ====== ====== ===== ======
</TABLE>
- ---------------
(1) The average balance of non-accruing loans is immaterial as a percentage of
total loans and as such have been included in net loans.
(2) Loan fees and late charges of $1,430,979, $1,429,445, $1,621,597, $672,680
and $640,468 for the years ended December 31, 1996, 1995, and 1994, and for
the six months ended June 30, 1997 and 1996, respectively, have been
included in the interest income computation.
<PAGE> 9
LOANS
Total loans averaged $208.2 million in 1996, an increase of $39.5 million,
or 23.4%, compared to 1995. The average loan growth is reflective of the recent
acquisition of Bank of the Desert, N.A., and of a market with a strong
agricultural base, which has been constrained to a minor degree by the recent
Mexican peso currency devaluation. At December 31, 1996, total loans were $245.4
million representing an increase of $54.5 million, or 28.6%, over December 31,
1995. The yield on the total portfolio decreased 82 basis points to 10.56% in
1996, from 11.38% in 1995. This decrease in yield was the result of the
repricing of variable-rate loans in an overall lower interest rate environment.
In 1995 total loans averaged $168.7 million which represented an increase
of $4.9 million, or 3.0%, compared to 1994. At December 31, 1995, total loans
were $190.9 million which represented an increase of $21.9 million, or 13.0%,
over December 31, 1994. The yield on the total portfolio increased 87 basis
points to 11.38% in 1995 from 10.51% in 1994. This increase was the result of
the repricing of variable rate loans in an overall higher interest rate
environment.
Loan growth was moderate during the six months ending June 30, 1997. This
growth has been stimulated by the economic soundness of the communities serviced
by the Bank as well as the diminishing effect of the devaluation of the peso
currency by the Mexican government. Total loans at June 30, 1997 were $272.5
million which represented an increase of $73.4 million, or 36.8%, from June 30,
1996. This increase since June 30, 1996 also includes $19.3 million in loans
acquired in the Bank of the Desert merger, which was consummated in September,
1996, and the Wells Fargo branch acquisition consummated in February, 1997.
The loan portfolio represents the diversification of the markets served. At
December 31, 1996, and June 30, 1997, there were no significant concentrations
of loans within any particular industry. However, the local economies of the
Bank's service area are agriculturally related and are impacted by fluctuations
in farming commodity pricing.
The following tables set forth the amount of the Bank's total outstanding
loans, net of participations sold, in each category as of the dates indicated.
The retained portion of SBA loans, as well as the guaranteed portion of such
loans held for sale, are included primarily within the commercial and real
estate construction loan totals.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
1996 1995 1994
------------------- ------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
(000'S) OF TOTAL (000'S) OF TOTAL (000'S) OF TOTAL
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Commercial & agricultural................................... $ 76,742 31.1% $ 61,895 32.2% $ 54,458 32.0%
Real estate -- construction................................. 26,419 10.7 21,637 11.3 25,459 15.0
Real estate -- other........................................ 122,007 49.4 91,626 47.7 73,412 43.2
Installment................................................. 21,711 8.8 16,924 8.8 16,683 9.8
-------- ------ -------- ------ -------- ------
Total Loans................................................. $246,879 100.0% $192,082 100.0% $170,012 100.0%
======== ====== ======== ====== ======== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
--------------------------------------------- ---------------------------------------------
1993 1992 1997 1996
-------------------- -------------------- -------------------- --------------------
PERCENT PERCENT PERCENT PERCENT
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
(000'S) TOTAL (000'S) TOTAL (000'S) TOTAL (000'S) TOTAL
-------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial &
agricultural............. $ 47,480 29.4% $ 76,707 58.5% $ 74,530 27.2% $ 56,309 28.3%
Real
estate -- construction... 26,588 16.5 16,317 12.5 36,791 13.4 19,801 9.9
Real estate -- other....... 70,763 43.8 24,727 18.9 139,468 50.9 106,308 53.4
Installment................ 16,591 10.3 13,264 10.1 23,298 8.5 16,746 8.4
-------- ------ -------- ------ -------- ------ -------- ------
Total Loans................ $161,422 100.0% $131,015 100.0% $274,087 100.0% $199,164 100.0%
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
<PAGE> 10
NON-PERFORMING ASSETS
Non-performing assets consist of non-accrual loans and certain past due
loans not on non-accrual. Non-accrual loans include loans that are past due 90
days or more as to principal or interest, or where reasonable doubt exists as to
timely collectibility. At the time a loan is placed on non-accrual status,
previously accrued and uncollected interest is reversed against interest income
in the current period. Interest collections on non-accrual loans are generally
credited to interest income when received. However, if ultimate collectibility
of principal is in doubt, interest collections are applied as principal
reductions.
Interest accruals cease on mortgage and consumer loans, excluding home
equity loans, when they are 90 days past due. At that time, previously accrued
and uncollected interest is reversed against income. These loans are charged off
when they are 120 days past due. For home equity loans, accruals cease at 180
days and uncollected interest is reversed against interest income. Thereafter,
these loans are continually reviewed and charged off when deemed uncollectible.
The following table provides information with respect to components of the
Bank's non-performing assets as of the dates indicated. The Bank had $7.8
million and $5.0 million in restructured loans outstanding as of December 31,
1996 and 1995, respectively. There were $8.1 million and $6.9 million in
outstanding restructured loan balances at June 30, 1997, and June 30, 1996,
respectively.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------------- ---------------
1996 1995 1994 1993 1992 1997 1996
(000'S) (000'S) (000'S) (000'S) (000'S) (000'S) (000'S)
------ ------ ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Non-accrual loans....................... $5,020 $4,327 $1,837 $1,801 $ 796 $4,692 $4,690
Loans past due 90 days or more but not
on non-accrual basis.................. 137 846 515 670 182 70 361
------ ------ ------ ------ ---- ------ ------
Total................................... $5,157 $5,173 $2,352 $2,471 $ 978 $4,762 $5,051
====== ====== ====== ====== ==== ====== ======
</TABLE>
The following table sets forth the gross interest income that would have
been recorded for the periods indicated if the non-accrual loans had been
current in accordance with their terms and the amount of interest income
actually recognized on these loans:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
<S> <C> <C>
Interest income -- original terms......... $ 475,569 $270,253
Interest income -- recorded............... 163,921 123,028
-------- --------
Forgiven Interest Income.................. $ 311,648 $147,225
======== ========
</TABLE>
Properties taken in foreclosure, or other real estate owned, constitute
another category of non-performing assets. Other real estate owned increased
from $1.2 million at December 31, 1995 to $1.9 million at December 31, 1996. The
increase in 1996, $.8 million, or 66.2%, was a combination of properties
acquired in the Bank of the Desert, N.A., acquisition as well as the local
economic impact of the recent Mexican peso currency devaluation. In 1995 other
real estate outstandings increased $862,862, or 229.5%, primarily as a
consequence of the Mexican currency devaluation.
Total other real estate owned at June 30, 1997 was $2.6 million. This
represented an increase of $1.0 million, or 62.6%, from June 30, 1996. The
increase in other real estate outstandings during 1997 was a consequence
primarily of properties acquired through acquisition (Bank of the Desert, N.A.)
as well as a slight increase in foreclosure activity. The Bank is actively
marketing these properties for sale.
INVESTMENTS
Total investments averaged $29.0 million in 1996 representing a decrease of
$2.4 million from 1995. At December 31, 1996, the investment portfolio amounted
to $36.5 million, a decrease of $2.9 million compared to December 31, 1995. In
1996, the yield of the portfolio on a tax-equivalent basis increased 16 basis
points to 7.62%. This increase was the result of maturities in the lower
yielding U.S. Government and agencies portfolio
<PAGE> 11
which resulted in a portfolio mix with a greater percentage of the higher
yielding state and municipal securities.
The investment strategy employed during 1996 and the first six months of
1997 was the investment of temporarily idle deposit growth funds and investment
maturities primarily into short-term callable federal agency obligations. The
nature of these securities have provided liquidity through periodic repayment of
principal and interest. The callable characteristic of these investments also
provide liquidity to fund anticipated loan growth in the future.
U.S. Government and federal agencies averaged $19.1 million during 1996, a
decrease of $5.4 million, or 22.0%. This decrease reflected the strategy to
provide liquidity for anticipated loan growth. The yield on the portfolio
increased 17 basis points to 6.93% in 1996, compared to 6.76% in 1995.
State and municipal securities increased on average $2.9 million to $9.8
million in 1996. The taxequivalent yield on this portfolio declined 78 basis
points to 8.75% in 1996, compared with 9.53% in 1995.
Federal funds sold averaged $5.5 million in 1996, a decrease of $6.6
million, or 54.5%, compared to 1995. At December 31, 1996, there were $8.0
million in federal funds sold outstandings. These funds represent excess funds
temporarily invested. The yield on federal funds decreased 50 basis points to
5.21% in 1996. The decrease in yield was reflective of the lower interest rate
environment.
The investment portfolio averaged $31.4 million during 1995, representing
an increase of $9.5 million over 1994. At December 31, 1995, total investments
amounted to $39.4 million, an increase of $20.2 million compared to December 31,
1994. The portfolio yield on a tax-equivalent basis increased 55 basis points in
1995 to 7.46% as a result of the higher interest rate environment.
During the first six months of 1997 the investment portfolio averaged $63.7
million which represented an increase of $39.3 million, or 161.0%, from the
comparable period in 1996. The portfolio yield on a tax-equivalent basis for the
six months ended June 30, 1997 was 7.33%, which represented a decrease of 52
basis points from the six months ended June 30, 1996. The decline in portfolio
yield was primarily the result of a lower interest rate environment during the
first six months of 1997.
Securities are pledged to meet security requirements imposed as a condition
to receipt of public fund deposits. At December 31, 1996 and December 31, 1995,
the market value of securities pledged to secure public deposits was
approximately $5.9 million and $9.2 million, respectively. The market value of
securities pledged to secure public deposits at June 30, 1997 and June 30, 1996
was approximately $10.9 million and $5.2 million, respectively.
<PAGE> 12
The following tables summarize the amounts and distribution of the Bank's
investment securities held as of the dates indicated, and the weighted
tax-equivalent average yield as of December 31, 1996 and June 30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------------
1996 1995 1994
---------------------------- ----------------- -----------------
BOOK MARKET WEIGHTED BOOK MARKET BOOK MARKET
VALUE VALUE AVERAGE VALUE VALUE VALUE VALUE
(000'S) (000'S) YIELD (000'S) (000'S) (000'S) (000'S)
------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
U.S. TREASURY & GOVERNMENT
AGENCIES:
Within one year............... $ 1,093 $ 1,095 5.83% $ 1,030 $ 1,030 $ 1,294 $ 1,274
One to five years............. 11,582 11,637 6.93 16,749 16,817 3,591 3,407
Over five years............... 9,962 9,947 7.06 11,188 11,132 9,505 8,790
------- ------- ---- ------- -------
Total U.S. Treasury & Government
Agencies...................... 22,637 22,679 6.93 28,967 28,979 14,390 13,471
STATE AND POLITICAL
SUBDIVISIONS:
Within one year............... 681 684 7.26 542 544 -- --
One to five years............. 2,470 2,569 9.52 2,185 2,376 1,410 1,417
Over five years............... 10,266 10,590 8.67 7,095 7,494 4,052 4,281
------- ------- ---- ------- -------
Total State and Political
Subdivisions.................. 13,417 13,843 8.75 9,822 10,414 5,462 5,698
------- ------- ---- ------- -------
Total Other Securities.......... 0 0 0 0 0 25 25
------- ------- ---- ------- -------
Total Securities................ $36,054 $36,522 7.62% $38,789 $39,393 $19,877 $19,194
======= ======= ==== ======= =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------------
1997 1996
---------------------------- -----------------
BOOK MARKET WEIGHTED BOOK MARKET
VALUE VALUE AVERAGE VALUE VALUE
(000'S) (000'S) YIELD (000'S) (000'S)
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
U.S. TREASURY & GOVERNMENT AGENCIES:
Within one year................................ $ 564 $ 564 5.27% $ 501 $ 501
One to five years.............................. 11,817 11,842 6.82 6,781 6,749
Over five years................................ 36,182 36,234 7.06 4,618 4,552
------- ------- ---- ------- -------
Total U.S. Treasury & Government Agencies........ 48,563 48,640 6.98 11,900 11,802
STATE AND POLITICAL SUBDIVISIONS:
Within one year................................ 680 681 6.74 290 292
One to five years.............................. 2,764 2,919 8.98 1,984 2,048
Over five years................................ 18,579 19,146 8.01 6,969 7,119
------- ------- ---- ------- -------
Total State and Political Subdivisions........... 22,023 22,746 8.09 9,243 9,459
------- ------- ---- ------- -------
Total Securities................................. $70,586 $71,386 7.33% $21,143 $21,691
======= ======= ==== ======= =======
</TABLE>
Under the FASB Accounting Standards securities "held to maturity" are
stated at cost, adjusted for amortization of premiums and accretion of discounts
over the period to maturity, or to an earlier call, if appropriate, on a
straight-line basis. Such securities include those that management intends and
has the ability to hold into the foreseeable future. Securities would be
considered "available for sale" if they would be sold under certain conditions,
among these being changes in interest rates, fluctuations in deposit levels or
loan demand, or need to restructure the portfolio to better match the maturity
or interest rate characteristics of liabilities with assets. Securities
classified as "available for sale" are accounted for at their current fair value
rather than historical cost. Unrealized gains or losses are not recognized as
current income, but rather as an increase or decrease of capital, net of income
taxes, through a separate reserve.
The entirety of the investment portfolio was classified as "available for
the sale" as of December 31, 1996, 1995, and 1994 and as of June 30, 1997 and
1996.
<PAGE> 13
DEPOSITS
Total deposits averaged $241.4 million during 1996, an increase of $30.6
million, or 14.5%, compared with 1995. At December 31, 1996 total deposits were
$303.9 million representing, an increase of $73.4 million, or 31.8%, over
December 31, 1995. Deposit growth was primarily utilized to fund loan growth.
During 1996 demand deposits averaged $64.6 million, an increase of $7.2
million, or 12.6%, from the average $57.4 million for 1995. Demand deposits
amounted to $86.6 million at year-end 1996, representing an increase of $11.5
million, or 15.3%, compared to the prior year-end.
Money market and NOW accounts averaged $59.3 million, an increase of $8.4
million, or 16.4%, over 1995. These accounts totaled $70.7 million at year-end,
an increase of $19.5 million, or 38.0%, from 1995. Regular savings deposits
increased $1.9 million, or 7.3%, over 1995 to average $27.7 million. At year end
these deposits amounted to $29.6 million, an increase of $3.9 million, or 15.2%,
compared to the prior year. Total time deposits averaged $89.8 million in 1996,
an increase of $13.2 million, or 17.2%, compared with 1995. At December 31, 1996
these balances totaled $117.1 million, an increase of $38.5 million, or 49.0%,
from the prior year-end. The cost of total interest-bearing deposits increased
to 3.95% in 1996 from 3.88% in 1995, or 7 basis points. This rise in overall
cost was a result of the higher average interest rates paid on money market
accounts offset slightly by reduced yields on certificates of deposits.
In 1995 total deposits averaged $210.8 million, representing an increase of
$28.7 million, or 15.8%, compared to 1994. At December 31, 1995 total deposits
amounted to $230.5 million, an increase of $26.0 million, or 12.7%, from the
prior year-end. The cost of interest-bearing deposits was 3.88% in 1995 and
represented an increase of 81 basis points from 3.07% in 1994.
Total deposits at June 30, 1997 increased $131.7 million, or 55.6%, from
June 30, 1996 to $368.5 million. During the first six months of 1997 total
deposits averaged $341.9 million, an increase of $123.3 million, or 56.4 %, from
the first six months of 1996. This increase includes the assumption of deposits
acquired from Wells Fargo Bank, N.A., discussed earlier and the normal seasonal
deposit cycle experienced in the Imperial and Coachella Valleys as it relates to
the local agricultural business cycle. This increase is also inclusive of $32.6
million of deposits acquired in the Bank of the Desert, N.A., merger.
For the first six months of 1997 the cost of total interest-bearing
deposits increased slightly to 3.93% from 3.92 % for the same period in 1996.
The following tables reflect the Bank's deposits, based upon average
balances, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ---------------------------- ----------------------------
AVERAGE PERCENT AVERAGE AVERAGE PERCENT AVERAGE AVERAGE PERCENT AVERAGE
BALANCE OF RATE BALANCE OF RATE BALANCE OF RATE
(000'S) TOTAL PAID (000'S) TOTAL PAID (000'S) TOTAL PAID
-------- ------- ------- -------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DEMAND:
Non interest-bearing..... $ 64,575 26.7% N/A $ 57,368 27.2% N/A $ 50,916 28.0% N/A
Money market and NOW..... 59,292 24.6 2.59% 50,929 24.1 2.36% 53,699 29.5 2.48%
SAVINGS.................... 27,699 11.5 2.01 25,816 12.3 2.08 24,295 13.3 2.17
TIME:
Under $100,000........... 47,609 19.7 5.45 42,115 20.0 5.50 27,209 14.9 4.12
$100,000 or more......... 42,229 17.5 5.44 34,574 16.4 5.49 25,945 14.3 4.02
-------- ----- ---- -------- ----- ---- -------- ----- ----
Total Deposits............. $241,404 100.0% 2.89% $210,802 100.0% 2.82% $182,064 100.0% 2.21%
======== ===== ==== ======== ===== ==== ======== ===== ====
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------
1997 1996
-------------------------------- --------------------------------
AVERAGE PERCENT AVERAGE AVERAGE PERCENT AVERAGE
BALANCE OF RATE BALANCE OF RATE
(000'S) TOTAL PAID (000'S) TOTAL PAID
-------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
DEMAND:
Non interest-bearing.................... $ 91,225 26.7% N/A $ 59,942 27.4% N/A
Money market and NOW.................... 79,529 23.2 2.42% 51,744 23.7 2.50%
SAVINGS................................... 38,624 11.3 1.96 25,529 11.7 1.99
TIME:
Under $100,000.......................... 75,113 22.0 5.49 43,413 19.8 5.41
$100,000 or more........................ 57,394 16.8 5.30 37,963 17.4 5.47
-------- ----- ---- -------- ----- ----
Total Deposits............................ $341,885 100.0% 2.88% $218,591 100.0% 2.85%
======== ===== ==== ======== ===== ====
</TABLE>
BORROWED FUNDS
Borrowed funds, which consist of federal funds purchased and other forms of
borrowing, are utilized primarily for funding loans and investments. During 1996
as a result of loan growth exceeding deposit growth and investment portfolio
maturities, there was an increase in the use of borrowed funds.
In 1996 borrowed funds averaged $2.5 million, an increase of $2.2 million,
or 580.6%, from 1995. At year-end there were no outstandings in borrowed funds,
a decrease of $1.4 million from the prior year-end. The cost of borrowed funds
decreased 53 basis points to 5.65% in 1996 from 6.18% in 1995. The decline in
cost was reflective of the lower interest rate environment.
Borrowed funds in 1995 averaged $.4 million, a decrease of $6.4 million, or
94.5%, compared to 1994. At year-end 1995 there were $1.4 million in borrowed
funds. This represented an increase of $1.4 million from December 31, 1994. The
cost of borrowed funds increased 213 basis points to 6.18% from 4.05% in 1994 as
a result of increased interest rates in 1995.
During the first six months of 1997 borrowed funds averaged $.5 million, a
decrease of $4.4 million, or 90.1%, compared to the six month period ending June
30, 1996. The decreased utilization of borrowed funds in 1997 resulted from core
deposit growth as well as acquired deposits exceeding loan growth.
The cost of borrowed funds during 1997 increased 12 basis points from 5.62%
for the six months ended June 30, 1996 to 5.74% for the six months ended June
30, 1997.
PROVISIONS FOR CREDIT LOSSES
The allowance for credit losses at December 31, 1996 was $2.6 million,
compared to $2.0 million at December 31, 1995, an increase of $.6 million, or
30.1%. As a percent of total loans, the allowance was 1.07% at year-end 1996,
compared to 1.06% at the end of 1995. At year-end 1994, the allowance was $2.5
million, or 1.48% of total loans.
The allowance for credit losses at June 30, 1997 was $2.7 million, compared
to $2.3 million at June 30, 1996, an increase of $.4 million, or 18.6%. As a
percent of total loans, the allowance was 1.01% at June 30, 1997, compared to
1.16% at June 30, 1996.
Management of the Bank believes the allowance at December 31, 1996 and June
30, 1997 was adequate based on present economic conditions and its ongoing
evaluation of the risks inherent in the Bank's loan portfolio. In evaluating the
adequacy of the allowance for credit losses the Bank considers the special risks
involved in agriculture because at least 14.3% of its loans are agriculturally
related and the Imperial and Coachella Valleys are dependent upon the success of
its agricultural businesses. These risks include fluctuations in commodity
prices which do not necessarily match the general rate of inflation; dependence
of the agricultural community on the export market and the adverse impact which
the dollar's strength against other currencies has had on such exports;
variability of production costs, weather and climatic changes; and
<PAGE> 15
the fact that, in any downturn in the economy, agriculture is usually one of the
last sectors of the economy to recover. Furthermore, agricultural businesses are
extremely sensitive to actions of governmental agencies regarding price
supports, subsidies and import or export policies, the impact of which cannot be
predicted.
The Bank has also established a standard process in assessing the adequacy
of the allowance for loan losses. In addition to reviewing the inherent risks of
the loan portfolio consideration is given to exposures such as economic
conditions, credit concentrations, collateral coverage, the composition of the
loan portfolio and trends in delinquencies. Specific allocations are identified
by loans with general allocations assigned to the various loan categories. Loans
classified by regulatory authorities are included in the process of assessing
the adequacy of the allowance for credit losses. This process seeks to maintain
an allowance level adequate to provide for potential losses.
The provision for credit losses was $.6 million in 1996, a decrease of $.4
million from the $1.0 million provided in 1995. The provision expense in 1994
was $1.2 million.
The provision for credit losses was $.6 million for the six months ended
June 30, 1997 as compared to $.3 million provided for the comparable period
ended June 30, 1996.
Net charge-offs were $323,000, or .16% of average loans, in 1996 as
compared to $1,478,000, or .88%, in 1995. In 1994 net charge-offs were $543,000,
or .33% of average loans. Net charge-offs are projected to be $300,000 in 1997,
assuming total recoveries of approximately $275,000, of which approximately
$225,000 is anticipated to be recovered in the third quarter. Based upon the
known risks in the portfolio as well as historical trends, 60% of the projected
1997 net charge-offs are anticipated to be commercial and agricultural and 20%
are anticipated to be real estate construction loans. The remaining 20% of
projected 1997 charge-offs are anticipated to be installment loans to
individuals.
Net charge-offs for the first six months of 1997 were $516,000, or .20% of
average loans, for the first six months of 1997 as compared to $61,000, or .03%,
for the first six months of 1996.
At December 31, 1996, as well as at June 30, 1997, the loan portfolio was
not subject to any known significant risks except the non-performing loans
previously identified. The Bank's loan portfolio at December 31, 1996 as well as
at June 30, 1997 did not have any outstanding in international loans and,
accordingly, did not have any direct risk associated with the recent currency
devaluation in Mexico.
<PAGE> 16
The following table summarizes, for the periods indicated, loan balances at
the end of each period and average loans for the period, changes in the
allowance for credit losses arising from loans charged off, recoveries on loans
previously charged off, and additions to the allowance which have been charged
to operating expense and certain ratios relating to the allowance for credit
losses. While management has attributed reserves to various portfolio segments,
the allowance is general in nature and is available for the entire portfolio.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1996 1995 1994 1993 1992 1997 1996
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES (000's)
Average Loans................................. $208,178 $168,743 $163,820 $135,476 $116,834 $255,991 $199,855
Total loans at end of period.................. $245,421 $190,902 $168,969 $160,517 $130,308 $272,531 $199,164
ALLOWANCE FOR CREDIT LOSSES (000's)
Balance -- beginning of period................ $ 2,024 $ 2,494 $ 1,827 $ 1,325 $ 1,200 $ 2,634 $ 2,024
Charge-offs:
Commercial and agricultural................. 257 1,446 389 1,277 251 293 246
Real estate-construction.................... 406 51 77 21 100 142 167
Installment................................. 282 304 132 131 115 155 198
-------- -------- -------- -------- -------- -------- --------
Total Charge-Offs............................. 945 1,801 604 1,429 466 590 611
Recoveries:
Commercial and agricultural................. 575 272 12 900 6 64 532
Real estate-construction.................... 12 18 6 49
Installment................................. 35 33 43 14 6 10 18
-------- -------- -------- -------- -------- -------- --------
Total Recoveries.............................. 622 323 61 963 12 74 550
-------- -------- -------- -------- -------- -------- --------
Net charge-offs............................... 323 1,478 543 466 454 516 61
Provision for credit losses................... 635 1,008 1,210 968 579 625 350
Reserves acquired by acquisition.............. 298
-------- -------- -------- -------- -------- -------- --------
Balance -- end of period...................... $ 2,634 $ 2,024 $ 2,494 $ 1,827 $ 1,325 $ 2,743 $ 2,313
======== ======== ======== ======== ======== ======== ========
RATIOS:
Net loans charged off to average loans...... 0.16% 0.88% 0.33% .34% .39% .40%(1) .06%(1)
Net loans charged off to total loans at end
of period................................. 0.13 0.77 0.32 .29 .35 .38(1) .06(1)
Allowance for credit losses to average
loans..................................... 1.27 1.20 1.52 1.35 1.13 1.07 1.16
Allowance for credit losses to total loans
at end of period.......................... 1.07 1.06 1.48 1.14 1.02 1.01 1.16
Net loans charged off to allowance for
credit losses............................. 12.26 73.02 21.77 25.51 34.26 37.62(1) 5.27(1)
Net loans charged off to provision for
credit losses............................. 50.87 146.63 44.88 48.14 78.41 82.56 17.43
</TABLE>
- ---------------
(1) These ratios have been annualized.
NON-INTEREST INCOME
Total non-interest income was $3.1 million in 1996 and $2.5 million in 1995
and 1994. Service charges and fees on deposit accounts were $1,904,000 in 1996,
an increase of $393,000, or 26.0%, over 1995. In 1995 service charge income rose
$29,000, representing an increase of 1.9%, from 1994. The increases in service
charge income have been directly related to the acquisition of the Bank of the
Desert, N.A., as well as the internal Bank growth in the number and volume of
deposit accounts.
Other income amounted to $375,000 in 1996, an increase of $82,000, or
28.0%, compared to the prior year. In 1995 other income totaled $293,000,
representing an increase of $103,000, or 54.2%, from 1994.
Income generated through the sale of residential mortgage and government
guaranteed small business loans have providedan additional source of earnings.
In 1996, the gains on sale of loans and related servicing fees totaled $659,000,
an increase of $272,000, or 70.3%, from 1995. Loan sale gains in 1995 amounted
to $387,000, a decrease of $151,000, or 28.1%, from 1994.
<PAGE> 17
During 1996, the Bank discontinued its mortgage function. As a result,
mortgage fees in 1996 totaled $88,000 representing a decrease of $238,000, or
73.1%. In 1995, mortgage fees totaled $326,000 which was an increase of $86,000,
or 35.5%, from 1994.
For the year ended December 31, 1996, securities gains were $49,000,
compared to $2,000 in 1995. Securities gains in 1994 were $42,000.
Total non-interest income amounted to $1.9 million for the six months ended
June 30, 1997, representing an increase of $.5 million, or 39.9%, compared with
the same period in 1996. A $.5 million increase in service charges on deposits
as a result of the Bank of the Desert, N.A., and Wells Fargo Bank, N.A.,
acquisitions, offset partially by an $87,000 decrease in gains on the sale of
government guaranteed small business loans and an $88,000 decrease in mortgage
fees were the primary reasons for the increase in total non-interest income.
NON-INTEREST EXPENSE
Non-interest expense in 1996 totaled $15.7 million, an increase of $2.3
million, or 17.2%, as compared to 1995. These expenditures amounted to $13.4
million in 1995, representing an increase of $1.2 million, or 10.0%, over 1994.
Non-interest expense for the six months ended June 30, 1997 was $9.8
million, an increase of $2.3 million, or 30.5%, as compared to the same period
in 1996.
Salary expense in 1996 amounted to $6.1 million, an increase of $.5
million, or 8.9%, compared to 1995. The increase in salaries was due primarily
to personnel additions related to the merger with Bank of the Desert, N.A., and
merit increases, partially offset by reduced performance incentive compensation.
In 1995, salary expense was $5.6 million, an increase of $.8 million, or 16.3%,
compared to 1994.
Salary expense during the first six months of 1997 was $3.6, an increase of
$.8 million, or 28.6%, over the comparable period in 1996. The growth in salary
expense is attributable to staffing additions related to the Bank of the Desert,
N.A. and Wells Fargo Bank, N.A., branch acquisitions, merit increases and paid
commissions, offset partially by a reduction in performance incentives.
Employee benefits expense was $2.0 million for the year ended December 31,
1996, an increase of $.3 million, or 17.6%, compared to 1995. The increase in
benefits was attributable primarily to the previously discussed staffing
additions, increases in medical insurance expense and the funding of the Bank's
ESOP and 401K plans. In 1995, employee benefit expense amounted to $1.7 million,
representing an increase of $.1 million, or 8.4%, compared to 1994.
Employee benefits expense was $1.2 million for the period ending June 30,
1997, an increase of $.1 million, or 9.8%, from the same period in the prior
year. The increase in benefits expense is attributable to the previously
discussed staffing additions, increased 401K funding costs and increases in
medical insurance expense offset by decreased funding costs for the Bank's ESOP
and other employment costs.
Occupancy expenses were $1.3 million in 1996, an increase of $.3 million,
or 35.9%, compared to 1995. In 1995, occupancy expenses amounted to $.9 million,
representing an increase of $46,000, or 5.3%, compared to 1994. Furniture and
equipment expense totaled $1.5 million in 1996, an increase of $.4 million, or
32.2%, over 1995. In 1995, furniture and equipment expense amounted to $1.1
million, an increase of $.2 million, or 15.8%, compared with 1994. The increase
in occupancy, furniture and equipment expenses in 1996 was primarily related to
the merger with Bank of the Desert N.A.
Occupancy expenses were $.7 million for the period ended June 30, 1997, an
increase of $.2 million, or 35.7%, as compared to the same period in 1996.
Furniture and equipment expense was $.9 million for the first six months in
1997, an increase of $.2 million, or 22.6%, from the same period in 1996. These
increases were primarily the result of the acquisitions previously discussed.
Other expenses amounted to $4.8 million in 1996, an increase of $762,000,
or 18.9%, compared to 1995. Increased insurance, data processing, business
promotion expense and other real estate owned expenses, partially offset by
decreased legal and professional fees and regulatory assessments were the
primary causes for
<PAGE> 18
the increase in this category. Other expenses in 1995 were $4.1 million,
representing an increase of $.1 million, or 2.7%, over 1994.
Other expenses amounted to $3.4 million during the period ended June 30,
1997, an increase of $1.1 million, or 44.4%, from the same period in the prior
year. Increases in the areas of intangible asset amortization, business
development, data processing, professional fee costs and expenses related to the
previously discussed acquisitions were the primary causes for the increase in
this category.
CAPITAL RESOURCES
Shareholders' equity averaged $25.1 million in 1996, an increase of $3.4
million, or 15.4%, compared to 1995. At December 31, 1996 shareholders' equity
amounted to $27.0 million, an increase of $3.4 million, or 14.2%, over the prior
year. During 1995 shareholders' equity averaged $21.8 million, an increase of
$2.8 million, or 14.7%, compared to 1994. At December 31, 1995, shareholders'
equity totaled $23.7 million, representing an increase of $3.8 million, or
19.1%, compared to year-end 1994. Book Value Per Share increased to $4.95 at
year-end 1996 from $4.48 the prior year-end. Book Value Per Share at year-end
1994 was $3.85.
During the six months ending June 30, 1997, shareholders' equity averaged
27.8 million, an increase of $3.4 million, or 14.2%, compared to the same period
ending June 30, 1996. Total shareholders' equity as of June 30, 1997 was $28.7
million which represented an increase of $3.9 million, or 15.7%, from June 30,
1996. The increase since June 30, 1996 included a $.4 million increase in the
cumulative unrealized gain on securities classified as available for sale. Book
Value Per Share increased to $5.21 at June 30, 1997 from $4.63 at June 30, 1996.
Under regulatory guidelines, capital adequacy is measured as a percentage
of risk-adjusted assets in which risk percentages are applied to assets on as
well as off the balance sheet. At December 31, 1996, the Tier I and total
risk-based capital ratios were 8.76% and 9.69%, respectively, compared to 11.64%
and 12.65%, respectively, at December 31, 1995. At June 30, 1997, the Tier I and
total risk-based capital ratios were 7.55% and 8.40%, respectively, compared to
10.48% and 11.46%, respectively, at June 30, 1996. The minimum regulatory
guidelines for Tier I and total risk-based capital ratios are 4.0% and 8.0%,
respectively. The leverage ratio, which is a measure of average Tier I capital
to adjusted average assets, was 7.91% at December 31, 1996, compared to 9.66% at
year-end 1995. The leverage ratio at December 31, 1994 was 9.68%. The leverage
ratios at June 30, 1997 and 1996 were 6.15% and 9.73%, respectively. The Bank's
leverage ratio exceeds the current regulatory minimum of 3.0%. The Bank's
capital adequacy supports the Bank's present size and projected near-term
growth, but may not be adequate to support longer term growth or additional
acquisitions.
LIQUIDITY AND LIABILITY MANAGEMENT
The Bank's Asset/Liability Committee (ALCO) functions to manage the
maintenance of liquidity and the preservation of net interest income when
subjected to fluctuations in market interest rates. The ability to meet funding
commitments present and in the future is the measure of liquidity. Liquidity is
also needed to meet borrowing needs, deposit withdrawals and asset growth. The
Bank develops liquidity through deposit growth, maturities and repayments of
loans and investments, net interest income, fee income and access to purchased
funds through correspondent banks or other entities.
The liquidity position of the Bank remained adequate during 1996 and thru
the first six months of 1997 as a result of strong deposit growth and moderated
loan growth. In addition, the Bank maintained a consistently strong net interest
income margin and developed expanded sources of purchased funds.
The Bank's ALCO manages the interest rate sensitivity or repricing
characteristics of the Bank's assets and liabilities. The Bank's primary source
of earnings is net interest income, which is subject to movements in interest
rates. To minimize the effect of changes in rates the balance sheet requires
structuring in order that the repricing opportunities for both assets and
liabilities exist in nearly equivalent amounts at approximately similar time
intervals. Interval differences may exist at times creating interest sensitivity
gaps which represent the difference between interest sensitive assets and
interest sensitive liabilities. These gaps are static in nature
<PAGE> 19
and do not consider future activity. As such, these gap measurements serve best
as an indicator for potential interest rate exposure.
The sensitivity to interest rate fluctuations is measured in several time
frames. Various strategies such as liability cost administration and
redeployment of asset maturities are utilized to preserve interest income from
the effect of changes in interest rates. The gap positions are monitored as a
function of the asset and liability management process. The monitoring process
includes the use of periodic simulated business forecasts which incorporate
various interest rate environments. Financial modeling is utilized to assist
management in maintaining consistent earnings in an environment of changing
interest rates.
The following table sets forth the relative maturities of the commercial,
agricultural and construction loan portfolios and provides a breakout relative
to fixed and variable rate loan maturities for the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
---------------------------------- ----------------------------------
OVER ONE OVER ONE
YEAR BUT YEAR BUT
ONE YEAR LESS THAN OVER ONE YEAR LESS THAN OVER
OR LESS FIVE YEARS FIVE YEARS TOTAL OR LESS FIVE YEARS FIVE YEARS TOTAL
-------- ---------- ---------- -------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LOANS (000's):
Commercial and agricultural..... $52,781 $ 16,383 $ 7,578 $ 76,742 $46,066 $ 20,155 $ 8,309 $ 74,530
Real estate -- construction..... 13,898 4,885 7,636 26,419 24,037 5,170 7,584 36,791
------- ------- ------- -------- ------- ------- ------- --------
Total........................... $66,679 $ 21,268 $ 15,214 $103,161 $70,103 $ 25,325 $ 15,893 $111,321
======= ======= ======= ======== ======= ======= ======= ========
Loans with predetermined (fixed)
interest rates................ $ 6,932 $ 5,719 $ 4,326 $ 16,977 $ 5,484 $ 6,559 $ 4,946 $ 16,989
Loans with variable (floating)
interest rates................ 59,747 15,549 10,888 86,184 64,619 18,766 10,947 94,332
------- ------- ------- -------- ------- ------- ------- --------
Total........................... $66,679 $ 21,268 $ 15,214 $103,161 $70,103 $ 25,325 $ 15,893 $111,321
======= ======= ======= ======== ======= ======= ======= ========
</TABLE>
The following schedule sets forth the maturities of time certificates of
deposit over $100,000 and their relative mix as of December 31, 1996 and June
30, 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
-------------------- --------------------
BALANCE PERCENT BALANCE PERCENT
(000'S) OF TOTAL (000'S) OF TOTAL
------- -------- ------- --------
<S> <C> <C> <C> <C>
Less than three months............................... $21,486 42.6% $30,920 48.9%
Three months through six months...................... 18,395 36.5 13,307 21.0
Seven months through twelve months................... 8,751 17.4 16,734 26.5
Over twelve months................................... 1,757 3.5 2,299 3.6
------- ----- ------- -----
Total................................................ $50,389 100.0% $63,260 100.0%
======= ===== ======= =====
</TABLE>
INFLATION
The impact of inflation on a financial institution differs significantly
from that exerted on an industrial concern, primarily because its assets and
liabilities consist largely of monetary items. The relatively low proportion of
the Bank's fixed assets to total assets of 2.0%, 1.4% and 2.0% at December 31,
1996, December 31, 1995 and June 30, 1997, respectively, reduces both the
potential for inflated earnings resulting from understated depreciation charges,
and the potential for significant understatement of absolute asset values.
However, financial institutions are affected by inflation's impact on non
interest expenses, such as salaries and occupancy expense, and to some extent,
by inflative impact on interest rates.
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of Valley Independent Bank
We have audited the accompanying statement of condition of Valley Independent
Bank as of December 31, 1996 and the related statements of income, changes in
shareholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Bank's management. Our responsibility
is to express an opinion on these financial statements based on our audit. The
financial statements as of December 31, 1995 and 1994, were audited by Dayton &
Associates, who merged with Vavrinek, Trine, Day & Co. as of September 1, 1996,
and whose report dated January 29, 1996 expressed an unqualified opinion on
those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Valley Independent Bank as of
December 31, 1996, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
VAVRINEK, TRINE, DAY & CO.
January 17, 1997, except for Note P as to
which the date is February 14, 1997 and
Note L as to which the date is May 30, 1997
Laguna Hills, California
<PAGE> 21
VALLEY INDEPENDENT BANK
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1996 AND 1995 AND JUNE 30, 1997 (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
1997 1996 1995
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks....................................... $ 29,305 $ 26,886 $ 19,435
Interest-Bearing Deposits..................................... 879 879 --
Securities Available for Sale -- Note B....................... 71,386 36,522 39,393
Federal Funds Sold............................................ 5,500 8,000 --
Loans -- Note C:
Commercial.................................................. 46,692 41,646 26,625
Agricultural................................................ 27,838 35,096 35,270
Real Estate -- Construction................................. 36,791 26,419 21,636
Real Estate -- Other........................................ 139,468 122,008 91,627
Consumer.................................................... 23,298 21,710 16,924
-------- -------- --------
TOTAL LOANS......................................... 274,087 246,879 192,082
Net Deferred Loan Fees...................................... (1,556) (1,458) (1,180)
Allowance for Credit Losses................................. (2,743) (2,634) (2,024)
-------- -------- --------
NET LOANS........................................... 269,788 242,787 188,878
Premises and Equipment -- Note D.............................. 7,960 6,586 3,697
Other Real Estate Owned....................................... 2,643 1,947 1,172
Cash Surrender Value -- Life Insurance........................ 2,144 2,008 1,690
Deferred Tax Assets -- Note G................................. 1,536 1,571 532
Goodwill -- Note O............................................ 3,780 1,901 --
Accrued Interest and Other Assets............................. 4,386 4,478 2,668
-------- -------- --------
$ 399,307 $333,565 $257,465
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits -- Note E:
Noninterest-Bearing Demand.................................. $ 104,067 $ 86,597 $ 75,063
Money Market and NOW........................................ 87,529 70,656 51,189
Savings..................................................... 44,647 29,608 25,707
Time Deposits Under $100,000................................ 68,949 66,695 42,336
Time Deposits $100,000 and Over............................. 63,260 50,388 36,239
-------- -------- --------
TOTAL DEPOSITS...................................... 368,452 303,944 230,534
Federal Funds Purchased....................................... -- -- 1,400
Accrued Interest and Other Liabilities........................ 2,165 2,581 1,853
-------- -------- --------
TOTAL LIABILITIES................................... 370,617 306,525 233,787
Commitments and Contingencies -- Note H
Shareholders' Equity -- Notes I, J, and L:
Common Shares -- Authorized 13,500,000 Shares; Issued and
Outstanding: 5,507,030 at June 30, 1997, 5,458,369 at
December 31, 1996, and 4,886,015 at December 31, 1995.... 24,564 24,287 18,652
Undivided Profits........................................... 3,654 2,474 4,670
Net Unrealized Appreciation on Available-for-Sale
Securities, Net of Taxes of $328 in 1997, $194 in 1996
and $248 in 1995......................................... 472 279 356
-------- -------- --------
TOTAL SHAREHOLDERS' EQUITY.......................... 28,690 27,040 23,678
-------- -------- --------
$ 399,307 $333,565 $257,465
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 22
VALLEY INDEPENDENT BANK
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 AND
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER
--------------------- ---------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans.............. $ 12,813 $ 10,533 $ 21,979 $ 19,197 $ 17,213
Interest on Investment Securities....... 2,071 825 1,980 1,887 1,164
Other Interest Income................... 246 34 302 692 168
--------- --------- --------- --------- ---------
TOTAL INTEREST INCOME........... 15,130 11,392 24,261 21,776 18,545
INTEREST EXPENSE
Interest on Money Market and NOW........ 964 646 1,538 1,202 1,331
Interest on Savings Deposits............ 379 254 557 538 528
Interest on Time Deposits............... 3,584 2,213 4,890 4,210 2,165
Interest on Other Borrowings............ 14 138 143 23 275
--------- --------- --------- --------- ---------
TOTAL INTEREST EXPENSE.......... 4,941 3,251 7,128 5,973 4,299
--------- --------- --------- --------- ---------
NET INTEREST INCOME............. 10,189 8,141 17,133 15,803 14,246
Provision for Credit Losses............... 625 350 635 1,008 1,210
--------- --------- --------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR CREDIT LOSSES... 9,564 7,791 16,498 14,795 13,036
NONINTEREST INCOME
Service Charges and Fees................ 1,473 824 1,904 1,511 1,482
Gain on Sale of Loans and Servicing
Fees................................. 194 281 659 387 538
Mortgage Fees........................... -- 88 88 326 241
Gain on Sale of Securities.............. -- 13 49 2 42
Other Income............................ 261 172 375 293 190
--------- --------- --------- --------- ---------
1,928 1,378 3,075 2,519 2,493
--------- --------- --------- --------- ---------
11,492 9,169 19,573 17,314 15,529
NONINTEREST EXPENSE
Salaries and Employee Benefits.......... 4,792 3,907 8,192 7,350 6,426
Occupancy Expenses...................... 731 538 1,254 922 876
Furniture and Equipment................. 852 695 1,474 1,116 964
Other Expenses -- Note F................ 3,432 2,377 4,829 4,061 3,955
--------- --------- --------- --------- ---------
9,807 7,517 15,749 13,449 12,221
--------- --------- --------- --------- ---------
INCOME BEFORE INCOME TAXES........... 1,685 1,652 3,824 3,865 3,308
Income Taxes -- Note G.................... 497 532 1,249 1,440 1,028
--------- --------- --------- --------- ---------
NET INCOME...................... $ 1,188 $ 1,120 $ 2,575 $ 2,425 $ 2,280
========= ========= ========= ========= =========
Per Share Data:
Net Income.............................. $ 0.20 $ 0.20 $ 0.46 $ 0.44 $ 0.43
========= ========= ========= ========= =========
Number of Shares Used in Computation.... 5,824,357 5,625,833 5,646,136 5,503,150 5,301,938
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 23
VALLEY INDEPENDENT BANK
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 AND
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
NET UNREALIZED
APPRECIATION
COMMON SHARES (DEPRECIATION)
-------------------- ON AVAILABLE-
NUMBER OF UNDIVIDED FOR-SALE
SHARES AMOUNT PROFITS SECURITIES TOTAL
--------- ------- --------- -------------- -------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1994............. 4,293,401 $14,816 $ 2,806 $ 478 $18,100
Stock Dividends........................ 175,242 1,241 (1,241)
Cash Dividends......................... (8) (8)
Exercise of Stock Options.............. 109,263 362 362
Net Income............................. 2,280 2,280
Net Changes in Unrealized Depreciation
on Available-for-Sale Securities. Net
of Taxes of $612..................... (881) (881)
--------- ------- ------- ----- -------
BALANCE AT DECEMBER 31, 1994........... 4,577,906 16,419 3,837 (403) 19,853
Stock Dividends........................ 183,556 1,581 (1,581)
Cash Dividends......................... (11) (11)
Exercise of Stock Options, Including
the Realization of Tax Benefits of
$166................................. 124,553 652 652
Net Income............................. 2,425 2,425
Net Changes in Unrealized Appreciation
on Available-for-Sale Securities, Net
of Taxes of $528..................... 759 759
--------- ------- ------- ----- -------
BALANCE AT DECEMBER 31, 1995........... 4,886,015 18,652 4,670 356 23,678
Stock Dividends........................ 406,538 4,756 (4,756)
Cash Dividends......................... (15) (15)
Exercise of Stock Options, Including
the Realization of Tax Benefits of
$195................................. 165,816 879 879
Net Income............................. 2,575 2,575
Net Changes in Unrealized Appreciation
on Available-for-Sale Securities, Net
of Taxes of $54...................... (77) (77)
--------- ------- ------- ----- -------
BALANCE AT DECEMBER 31, 1996........... 5,458,369 24,287 2,474 279 27,040
Cash Dividends......................... (8) (8)
Exercise of Stock Options.............. 48,661 277 277
Net Income............................. 1,188 1,188
Net Changes in Unrealized Appreciation
on Available-for-Sale Securities, Net
of Taxes of $134..................... 193 193
--------- ------- ------- ----- -------
BALANCE AT JUNE 30, 1997 (UNAUDITED)... 5,507,030 $24,564 $ 3,654 $ 472 $28,690
========= ======= ======= ===== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 24
VALLEY INDEPENDENT BANK
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 AND
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED DECEMBER
--------------------- ----------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net Income................................................. $ 1,188 $ 1,120 $ 2,575 $ 2,425 $ 2,280
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation and Amortization.......................... 835 568 1,285 954 837
Deferred Income Taxes.................................. (100) (285) (236) 374 (493)
Amortization of Premium/Discount on Investment
Securities........................................... 55 (23) (7) 70 77
Loss on Other Real Estate Owned........................ 4 131 110 -- 171
Net Realized Gains on Available-for-Sale Securities.... -- (13) (49) (2) (42)
Provision for Credit Losses............................ 625 350 635 1,008 1,210
Gain on Sale of Fixed Assets........................... (28) -- -- (26) (5)
Gain on Sale of Other Real Estate Owned................ -- -- -- (45) (7)
Net Increase in Cash Surrender Value-Life Insurance.... (136) (192) (318) (171) (106)
Net Change in Accrued Interest, Other Assets and Other
Liabilities.......................................... (324) (514) (743) (271) 258
-------- -------- -------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.......... 2,119 1,142 3,252 4,316 4,180
INVESTING ACTIVITIES
Proceeds from Sales of Other Real Estate Owned............. 188 -- -- 424 107
Purchases of Available-for-Sale Securities............... (45,935) (5,933) (26,334) (32,121) (616)
Proceeds from Sales of Available-for-Sale Securities..... -- 11,635 17,003 3,460 2,728
Proceeds from Maturities of Available-for-Sale
Securities............................................. 11,344 11,980 20,837 9,655 4,467
Net Cash Received from Purchase of Bank of the Desert,
N.A.................................................... -- -- 943 -- --
Proceeds from Sales of Equipment......................... 39 -- -- 26 16
Net Increase in Loans.................................... (28,514) (9,785) (36,303) (24,652) (9,114)
Purchases of Premises and Equipment...................... (2,081) (1,746) (3,041) (1,278) (666)
-------- -------- -------- -------- --------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES... (64,959) 6,151 (26,895) (44,486) (3,078)
FINANCING ACTIVITIES
Net Increase in Demand Deposits and Savings Accounts....... 47,364 3,953 10,651 10,653 14,005
Net Increase in Time Deposits............................ 15,126 2,245 29,174 15,390 14,486
Net Change in Federal Funds Purchased.................... -- (1,400) (1,400) 1,400 (12,260)
Payments for Dividends................................... (8) (7) (15) (11) (8)
Proceeds from Exercise of Stock Options.................. 277 303 684 486 362
-------- -------- -------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES.............. 62,759 5,094 39,094 27,918 16,585
-------- -------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... (81) 12,387 15,451 (12,252) 17,687
Cash and Cash Equivalents at Beginning of Year............. 34,886 19,435 19,435 31,687 14,000
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR............... $ 34,805 $ 31,822 $ 34,886 $ 19,435 $ 31,687
======== ======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash Used During the Year for Interest................... $ 4,887 $ 3,262 $ 7,018 $ 5,887 $ 4,239
Cash Used During the Year for Income Taxes............... $ 177 $ 652 $ 1,787 $ 1,070 $ 1,527
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 25
VALLEY INDEPENDENT BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995, AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Bank operates ten branches in Imperial, San Diego, and Riverside
Counties. The Bank's primary source of revenue is providing loans to customers,
who are predominately small and middle-market businesses and individuals.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
For the purpose of presentation in the statements of cash flows, cash and
cash equivalents are defined as those amounts included in the statements of
financial condition captions "Cash and Due from Banks" and "Federal Funds Sold".
Securities Available for Sale
Available-for-sale securities consist of bonds, notes, debentures, and
certain equity securities not classified as trading securities nor as
held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are reported as a net amount in a separate component of capital until
realized.
Gains and losses on the sale of available-for-sale securities are
determined using the specific identification method.
Premiums and discounts are recognized in interest income using the interest
method over the period to maturity.
Loans Held for Sale
Mortgage and SBA loans originated and intended for sale in the secondary
market are carried at the lower of cost or estimated market value in the
aggregate. Net unrealized losses are recognized through a valuation allowance by
charges to income.
Loans
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their outstanding
unpaid principal balances reduced by any charge-offs or specific valuation
accounts and net of any deferred fees or costs on originated loans, or
unamortized premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs are capitalized
and recognized as an adjustment of the yield of the related loan.
<PAGE> 26
VALLEY INDEPENDENT BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as they become
due. When interest accrual is discontinued, all unpaid accrued interest is
reversed. Interest income is subsequently recognized only to the extent cash
payments are received.
For impairment recognized in accordance with Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards No. 114, Accounting by
Creditors for Impairment of a Loan (SFAS No. 114), as amended by SFAS 118, the
entire change in the present value of expected cash flows is reported as either
provision for loan losses in the same manner in which impairment initially was
recognized, or as a reduction in the amount of provision for loan losses that
otherwise would be reported.
Allowance for Credit Losses
The allowance for credit losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic evaluation
of the adequacy of the allowance is based on the Bank's past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrower's ability to repay, the estimated value of any
underlying collateral, and current economic conditions.
Other Real Estate Owned
Real estate properties acquired through, or in lieu of, loan foreclosure
are initially recorded at fair value at the date of foreclosure establishing a
new cost basis. After foreclosure, valuations are periodically performed by
management and the real estate is carried at the lower of cost, or fair value
minus estimated costs to sell. Revenue and expenses from operations and changes
in the valuation allowance are included in other expenses.
Premises and Equipment
Land is carried at cost. Bank premises, furniture and equipment, and
leasehold improvements are carried at cost, less accumulated depreciation and
amortization. Depreciation is provided using the straight-line method over the
estimated service lives of the related assets. Leasehold improvements are
amortized over the lives of the respective leases or the service lives of the
improvements, which ever is shorter.
Income Taxes
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets or
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
Financial Instruments
In the ordinary course of business, the Bank has entered into off-balance
sheet financial instruments consisting of commitments to extend credit,
commitments under credit card arrangements, commercial letters of credit, and
standby letters of credit. Such financial instruments are recorded in the
financial statements when they are funded or related fees are incurred or
received.
<PAGE> 27
VALLEY INDEPENDENT BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net Income per Share
Net income per share of common stock has been computed on the basis of the
weighted average number of shares of common stock and common stock equivalents
(options) outstanding during the year.
Current Accounting Pronouncements
In June of 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities", as
amended by SFAS No. 127 "Deferral of the Effective Date of Certain Provisions of
FASB Statement No. 125, establishing accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of the financial-components approach. This
approach requires the recognition of financial assets when control is
surrendered, and the derecognition of liabilities when they are extinguished.
Specific criteria are established for determining when control has been
surrendered in the transfer of financial assets. Liabilities and derivatives
incurred or obtained by transferors in conjunction with the transfer of
financial assets are required to be measured at fair value, if practicable.
Servicing assets and other retained interests in transferred assets are required
to be measured by allocating the previous carrying amount between the assets
sold, if any, and the interest that is retained, if any, based on the relative
fair values of the assets on the date of the transfer. Servicing assets retained
are subsequently subject to amortization and assessment for impairment.
Management has not determined the potential impact this statement will have,
however, management believes that there will be no material effect on the Bank's
financial condition or results of operations. SFAS No. 125 is effective for
transactions occurring after December 31, 1996.
Reclassifications
Certain reclassifications were made to prior years' presentations to
conform to the current year. These reclassifications are of a normal recurring
nature.
<PAGE> 28
VALLEY INDEPENDENT BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE B -- INVESTMENT SECURITIES
Debt and equity securities have been classified in the statements of
financial condition according to management's intent. The carrying amount of
securities and their approximate fair values at December 31 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
DECEMBER 31, 1996:
U.S. Treasury Securities.......................... $ 468 $ 39 $ -- $ 507
U.S. Government and Agency Securities............. 17,486 82 16 17,552
States and Political Subdivisions................. 13,417 432 5 13,844
Mortgage-Backed Securities........................ 4,678 20 79 4,619
------- ---- ---- -------
$36,049 $573 $100 $36,522
======= ==== ==== =======
AVAILABLE-FOR-SALE SECURITIES:
DECEMBER 31, 1995:
U.S. Treasury Securities.......................... $ 728 $ 60 $ -- $ 788
U.S. Government and Agency Securities............. 19,805 78 19 19,864
States and Political Subdivisions................. 9,822 606 14 10,414
Mortgage-Backed Securities........................ 8,434 2 109 8,327
------- ---- ---- -------
$38,789 $746 $142 $39,393
======= ==== ==== =======
</TABLE>
Gross realized gains and gross realized losses on sales of
available-for-sale securities were:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
GROSS REALIZED GAINS:
U.S. Government and Agency Securities........................... $ 88 $ 19 $ --
States and Political Subdivisions............................... 31 28 46
---- ---- ----
$119 $ 47 $ 46
==== ==== ====
GROSS REALIZED LOSSES:
U.S. Government and Agency Securities........................... $ 23 $ -- $ --
Mortgage-Backed Securities...................................... 47 45 4
---- ---- ----
$ 70 $ 45 $ 4
==== ==== ====
</TABLE>
<PAGE> 29
VALLEY INDEPENDENT BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE B -- INVESTMENT SECURITIES (CONTINUED)
Investment securities carried at approximately $6,328 and $11,891, at
December 31, 1996 and 1995, respectively, were pledged to secure public deposits
and other purposes as required by law. The scheduled maturities of securities
available for sale at December 31, 1996, were as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- -------
<S> <C> <C>
Due in One Year or Less................................. $ 1,381 $ 1,385
Due from One Year to Five Years......................... 12,880 13,073
Due from Five to Ten Years.............................. 6,547 6,665
Due after Ten Years..................................... 10,563 10,780
Mortgage-Backed Securities.............................. 4,678 4,619
------- -------
$36,049 $36,522
======= =======
</TABLE>
NOTE C -- LOANS
The Bank's loan portfolio consists primarily of loans to borrowers within
Imperial and Riverside counties. Although the Bank seeks to avoid concentrations
of loans to a single industry or based upon a single class of collateral, real
estate and agricultural associated businesses are among the principal industries
in the Bank's market area. As a result, the Bank's loan and collateral
portfolios are, to some degree, concentrated in those industries.
The Bank also originates real estate related and farmland loans for sale to
governmental agencies and institutional investors. At December 31, 1996 and
December 31, 1995, the Bank was servicing approximately $54,172 and $46,258,
respectively, in loans previously sold.
A summary of the changes in the allowance for credit losses follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------- ------
<S> <C> <C> <C>
Balance at Beginning of Year.................... $2,024 $ 2,494 $1,827
Additions to the Allowance Charged to Expense... 635 1,008 1,210
Recoveries on Loans Charged Off................. 622 323 61
Allowance on Loans Acquired from Bank of the
Desert, N.A. ................................. 298 -- --
------ ------- ------
3,579 3,825 3,098
Less Loans Charged Off.......................... (945) (1,801) (604)
------ ------- ------
Balance at End of Year.......................... $2,634 $ 2,024 $2,494
====== ======= ======
</TABLE>
The following is a summary of the investment in impaired loans, the related
allowance for credit losses, and income recognized thereon as of December 31:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Recorded Investment in Impaired Loans...................... $8,151 $6,806
====== ======
Related Allowance for Credit Losses........................ $1,670 $1,053
====== ======
Average Recorded Investment in Impaired Loans.............. $6,773 $3,486
====== ======
Interest Income Recognized for Cash Payments............... $ 230 $ 35
====== ======
</TABLE>
<PAGE> 30
VALLEY INDEPENDENT BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE C -- LOANS (CONTINUED)
Loans having carrying values of $1,108, $1,241, and $119 were transferred
to other real estate owned in 1996, 1995 and 1994, respectively. During 1996,
loans totaling $367 were made to facilitate the sale of other real estate owned.
NOTE D -- PREMISES AND EQUIPMENT
A summary of premises and equipment as of December 31 follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Land..................................................... $ 1,772 $ 570
Buildings and Improvements............................... 2,519 1,356
Furniture, Fixtures, and Equipment....................... 5,472 3,956
Leasehold Improvements................................... 1,184 935
------- -------
10,947 6,817
Less Accumulated Depreciation and Amortization........... (4,361) (3,120)
------- -------
$ 6,586 $ 3,697
======= =======
</TABLE>
NOTE E -- DEPOSITS
At December 31, 1996, the scheduled maturities of time deposits are as
follows:
<TABLE>
<S> <C>
1997.............................................. $111,546
1998.............................................. 3,310
1999.............................................. 1,257
2000.............................................. 970
--------
$117,083
========
</TABLE>
NOTE F -- OTHER EXPENSES
Other expenses, as of December 31, consist of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Data Processing.................................. $ 699 $ 593 $ 495
Advertising...................................... 354 258 246
Legal and Professional........................... 874 924 661
Regulatory Assessments........................... 4 221 382
Insurance........................................ 112 77 103
Office Expenses.................................. 869 641 619
Promotion........................................ 908 689 599
Other Real Estate Owned.......................... 157 -- 163
Other............................................ 852 658 687
------ ------ ------
$4,829 $4,061 $3,955
====== ====== ======
</TABLE>
<PAGE> 31
VALLEY INDEPENDENT BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE G -- INCOME TAXES
The provisions for income taxes included in the statements of income
consist of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Current:
Federal........................................ $1,174 $ 847 $1,231
State.......................................... 311 219 290
------ ------ ------
1,485 1,066 1,521
Deferred......................................... (236) 374 (493)
------ ------ ------
$1,249 $1,440 $1,028
====== ====== ======
</TABLE>
Deferred taxes are a result of differences between income tax accounting
and generally accepted accounting principles with respect to income and expense
recognition.
The following is a summary of the components of the deferred tax asset and
liability accounts recognized in the accompanying statements of financial
condition:
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
Deferred Tax Assets:
Allowance for Credit Losses Due to Tax Limitations......................... $ 531 $ 556
Valuation Allowance for Other Real Estate Owned............................ 186 --
Premises and Equipment Due to Depreciation Difference...................... 286 38
State Taxes................................................................ 88 59
Net Operating Loss and Tax Credit Carryforwards............................ 331 --
Reserve for Deferred Compensation.......................................... 311 219
Other Assets/Liabilities................................................... 32 --
------ -----
1,765 872
Deferred Tax Liabilities:
Market Value Adjustment on Investment Securities........................... (194) (248)
Other Assets/Liabilities................................................... -- (92)
------ -----
(194) (340)
------ -----
Net Deferred Taxes........................................................... $1,571 $ 532
====== =====
</TABLE>
At December 31, 1996, the Bank had net operating loss carryforwards
(acquired from Bank of the Desert, N.A.) for federal and state income tax
purposes of approximately $852 and $256, respectively, which expire beginning in
the years 2011 and 2001, respectively. Alternative minimum tax credit
carryforwards for tax purposes, which do not expire, are $22 as of December 31,
1996.
A comparison of the federal statutory income tax rates to the Bank's
effective income tax rates follow:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Federal Tax Rate................................. $1,300 34.0% $1,314 34.0% $1,125 34.0%
California Franchise Taxes, Net of Federal Tax
Benefit........................................ 170 4.4 202 5.2 149 4.5
Tax Savings from Exempt Loan and Investment
Interest....................................... (197) (5.2) (145) (3.8) (174) (5.3)
Other Items -- Net............................... (24) (0.6) 69 1.8 (72) (2.1)
------ ---- ------ ---- ------ ----
Bank's Effective Rate............................ $1,249 32.6% $1,440 37.2% $1,028 31.1%
====== ==== ====== ==== ====== ====
</TABLE>
<PAGE> 32
VALLEY INDEPENDENT BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE H -- COMMITMENTS AND CONTINGENCIES
The Bank has entered into leases for its branches and operating facilities,
which expire at various dates through 2015. These leases include provisions for
periodic rent increases as well as payment by the lessee of certain operating
expenses. Rental expense relating to these leases was approximately $446 in
1996, $324 in 1995, and $303 in 1994.
The approximate future minimum annual payments for these leases by year are
as follows:
<TABLE>
<S> <C>
1997................................................ $ 469
1998................................................ 322
1999................................................ 292
2000................................................ 286
2001................................................ 293
Thereafter.......................................... 1,311
------
$2,973
======
</TABLE>
The minimum rental payments shown above are given for the existing lease
obligations and are not a forecast of future rental expense.
The Bank has entered into a twenty-year lease for the construction of new
administrative offices. The lease term will start upon completion of
construction and calls for tentative annual payments of $319. This office will
allow the Bank to consolidate its administrative operations from existing
facilities.
The Bank is involved in various litigation which has arisen in the ordinary
course of its business. In the opinion of management, the disposition of such
pending litigation will not have a material effect on the Bank's financial
statements.
In the ordinary course of business, the Bank enters into financial
commitments to meet the financing needs of its customers. These financial
commitments include commitments to extend credit and standby letters of credit.
Those instruments involve, to varying degrees, elements of credit and interest
rate risk not recognized in the statements of condition.
The Bank's exposure to credit loss in the event of nonperformance on
commitments to extend credit and standby letters of credit is represented by the
contractual amount of those instruments. The Bank uses the same credit policies
in making commitments as it does for loans reflected in the financial
statements.
As of December 31, 1996, the Bank had the following outstanding financial
commitments whose contractual amount represents credit risk:
<TABLE>
<S> <C>
Commitments to Extend Credit...................... $ 99,721
Standby Letters of Credit......................... 686
--------
$100,407
========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract. Standby
letters of credit are conditional commitments to guarantee the performance of a
Bank customer to a third party. Since many of the commitments and standby
letters of credit are expected to expire without being drawn upon, the total
amounts do not necessarily represent future cash requirements. The Bank
evaluated each customer's credit worthiness on a case-by-case basis. The amount
of collateral obtained if deemed necessary by the Bank is based on management's
credit evaluation of the customer. The majority of the Bank's commitments to
extend credit and standby letters of credit are secured by real estate.
<PAGE> 33
VALLEY INDEPENDENT BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE I -- STOCK OPTION PLAN
At December 31, 1996, the Bank has a fixed stock option plan, which is
described below. The Bank applies APB Opinion 25 and related interpretations in
accounting for its plan. Accordingly, no compensation cost has been recognized
for its fixed stock option plan. Had compensation costs for this plan been
determined based on the fair value at the grant dates consistent with the method
of SFAS 123, the impact would not have materially affected net income.
In 1989, the Bank adopted a stock option plan (the "1989 Plan") which was
last amended in 1993, under which 1,581,964 shares of the Bank's common shares
may be issued to directors, officers, and key employees at not less than 100% of
the fair market value at the date the options are granted.
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions for
1996, 1995 and 1994, respectively: risk-free rates of 6.1%, 5.4% and 7.8%;
volatility of 15% percent for all years, and expected lives of three years.
A summary of the status of the Bank's fixed stock option plan as of
December 31, 1996, 1995, and 1994, and changes during the years ending on those
dates is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at Beginning of
Year........................... 702,751 $ 5 707,623 $4 656,984 $3
Granted.......................... 47,466 10 153,419 8 193,939 7
Exercised........................ (180,947) 4 (139,464) 3 (126,738) 3
Forfeited........................ (8,354) 7 (18,827) 6 (16,562) 3
-------- -------- --------
Outstanding at End of Year....... 560,916 6 702,751 5 707,623 4
======== ======== ========
Options exercisable at
year-end....................... 284,362 5 325,080 5 399,239 4
Weighted-average fair value of
options granted during the
year........................... $2.03 $1.50 $1.42
</TABLE>
The following table summarizes information about fixed options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED-AVERAGE WEIGHTED WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------------------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 3 to $ 4....................... 233,851 1.9 years $ 4 133,314 $3
$ 5 to $ 7....................... 185,069 2.9 7 134,114 7
$ 8 to $ 9....................... 112,042 3.9 9 16,934 9
$10 to $13....................... 29,954 4.7 11 -- --
------- -------
$ 3 to $13....................... 560,916 2.8 6 284,362 5
======= =======
</TABLE>
NOTE J -- EMPLOYEE STOCK OWNERSHIP AND RETIREMENT SAVINGS PLANS
The Bank has adopted an Employee Stock Ownership Plan and a Retirement
Savings Plan for the benefit of its employees. Contributions to the Plans are
determined annually by the Board of Directors. The combined expenses for these
plans were $292 in 1996, $200 in 1995, and $384 in 1994.
<PAGE> 34
VALLEY INDEPENDENT BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE K -- RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Bank has granted loans to certain
officers and directors and the companies with which they are associated. In the
Bank's opinion, all loans and loan commitments to such parties are made on
substantially the same terms including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons. The
balance of these loans outstanding at December 31, 1996 and 1995 was
approximately $3,488 and $2,306, respectively.
NOTE L -- STOCK DIVIDENDS AND STOCK SPLITS
The Bank has issued stock dividends in 1996, 1995, and 1994, and
three-for-two stock splits in 1995 and 1994. On May 30, 1997, the Bank recorded
a six for five stock split for shareholders of record on May 9, 1997. The per
share data in the statements of income and the information in Note I and Note O
have been adjusted to give retroactive effect to these dividends and splits.
NOTE M -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the asset
or obligation could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. Fair value estimates are
made at a specific point in time based on relevant market information and
information about the financial instrument. These estimates do not reflect any
premium or discount that could result from offering for sale at one time the
entire holdings of a particular financial instrument. Because no market value
exists for a significant portion of the financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature,
involve uncertainties and matters of judgment and, therefore, cannot be
determined with precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on financial instruments both on and off the
balance sheet without attempting to estimate the value of anticipated future
business, and the value of assets and liabilities that are not considered
financial instruments. Additionally, tax consequences related to the realization
of the unrealized gains and losses can have a potential effect on fair value
estimates and have not been considered in many of the estimates.
The following methods and assumptions were used to estimate the fair value
of significant financial instruments:
Financial Assets
The carrying amounts of cash, short term investments, due from customers on
acceptances, and bank acceptances outstanding are considered to approximate fair
value. Short term investments include federal funds sold, securities purchased
under agreements to resell, and interest bearing deposits with banks. The fair
values of investment securities, including available for sale, are generally
based on quoted market prices. The fair value of loans are estimated using a
combination of techniques, including discounting estimated future cash flows and
quoted market prices of similar instruments where available.
Financial Liabilities
The carrying amounts of deposit liabilities payable on demand, commercial
paper, and other borrowed funds are considered to approximate fair value. For
fixed maturity deposits, fair value is estimated by discounting estimated future
cash flows using currently offered rates for deposits of similar remaining
<PAGE> 35
VALLEY INDEPENDENT BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE M -- FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
maturities. The fair value of long term debt is based on rates currently
available to the Bank for debt with similar terms and remaining maturities.
Off Balance Sheet Financial Instruments
The fair value of commitments to extend credit and standby letters of
credit is estimated using the fees currently charged to enter into similar
agreements. The fair value of these financial instruments is not material.
The estimated fair value of financial instruments at December 31 is
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and Due From Banks..................... $ 26,886 $ 26,886 $ 19,435 $ 19,435
Interest-Bearing Deposits................... $ 879 $ 879 $ -- $ --
Investment Securities....................... $ 36,522 $ 36,522 $ 39,393 $ 39,393
Federal Funds Sold.......................... $ 8,000 $ 8,000 $ -- $ --
Loans....................................... $ 242,787 $ 239,970 $ 188,878 $ 184,480
Cash Surrender Value -- Life Insurance...... $ 2,008 $ 2,008 $ 1,690 $ 1,690
FINANCIAL LIABILITIES:
Deposits.................................... $ 303,944 $ 303,524 $ 230,534 $ 230,642
Federal Funds Purchased..................... $ -- $ -- $ 1,400 $ 1,400
</TABLE>
NOTE N -- REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory - and possibly additional discretionary - actions
by regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1996, that the Bank
meets all capital adequacy requirements to which it is subject.
<PAGE> 36
VALLEY INDEPENDENT BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE N -- REGULATORY MATTERS (CONTINUED)
As of December 31, 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well-capitalized under the
regulatory framework for prompt corrective action (there are no conditions or
events since that notification that management believes have changed the Bank's
category). To be categorized as well-capitalized, the Bank must maintain minimum
ratios as set forth in the table below. The following table also sets forth the
Bank's actual capital amounts and ratios:
<TABLE>
<CAPTION>
AMOUNT OF CAPITAL REQUIRED
-----------------------------------
TO BE TO BE
ADEQUATELY WELL-
ACTUAL CAPITAL CAPITALIZED CAPITALIZED
--------------- --------------- ---------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
Total Capital (to Risk-Weighted
Assets).............................. $27,410 9.7% $22,581 8.0% $28,227 10.0%
Tier 1 Capital (to Risk-Weighted
Assets).............................. $24,776 8.7% $11,291 4.0% $16,936 6.0%
Tier 1 Capital (to Average Assets)...... $24,776 7.9% $12,525 4.0% $15,656 5.0%
AS OF DECEMBER 31, 1995:
Total Capital (to Risk-Weighted
Assets).............................. $25,340 12.7% $16,027 8.0% $20,034 10.0%
Tier 1 Capital (to Risk-Weighted
Assets).............................. $23,316 11.6% $ 8,014 4.0% $12,020 6.0%
Tier 1 Capital (to Average Assets)...... $23,316 9.7% $ 9,651 4.0% $12,065 5.0%
</TABLE>
The California Financial Code provides that a bank may not make a cash
distribution to its shareholders in excess of the lessor of the bank's undivided
profits or the bank's net income for its last three fiscal years less the amount
of any distribution made by the bank to shareholders during the same period.
Under these restrictions, approximately $2,474 was available for payment of
dividends at December 31, 1996.
Banking regulations require that all banks maintain a percentage of their
deposits as reserves in cash or on deposit with the Federal Reserve Bank. At
December 31, 1996, required reserves were approximately $3,354.
NOTE O -- MERGER WITH BANK OF THE DESERT, N.A.
On September 12, 1996, the Bank acquired 100% of the outstanding common
stock of Bank of the Desert, N.A. (BOD) for $3,295 in cash. BOD had total assets
of approximately $31,858. The acquisition was accounted for using the purchase
method of accounting in accordance with Accounting Principles Board Opinion No.
16. "Business Combinations". Under this method of accounting, the purchase price
was allocated to the assets acquired and deposits and liabilities assumed based
on their fair values as of the acquisition date. The financial statements
include the operations of BOD from the date of the acquisition. Goodwill arising
from the transaction totaled approximately $1,933 and is being amortized over
fifteen years on a straight-line basis.
<PAGE> 37
VALLEY INDEPENDENT BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1996, 1995, AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
NOTE O -- MERGER WITH BANK OF THE DESERT, N.A. (CONTINUED)
The following table sets forth selected unaudited pro forma combined
financial information of the Bank and BOD for the years ended December 31, 1996
and 1995. The pro forma operating data reflects the effect of the acquisition of
BOD as if it was consummated at the beginning of each year presented. The pro
forma results are not necessarily indicative of the results that would have
occurred had the acquisition been in effect for the full years presented, nor
are they necessarily indicative of the results of future operations (amounts in
thousands, except per share data).
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Interest and Noninterest Income.................... $ 29,816 $ 27,529
Net Income......................................... $ 1,822 $ 2,003
Net Income per Share............................... $ .33 $ .36
</TABLE>
These proforma disclosures include adjustment to interest income from the
payment of the purchase price in cash and goodwill amortization. No adjustments
have been reflected in these amounts for the expected cost savings to be derived
from this merger.
NOTE P -- PROPOSED PURCHASE OF WELLS FARGO, N.A. BRANCHES
During 1996 the Bank entered into an agreement to assume the deposits and
purchase the deposit related loans of two Wells Fargo branches. The Bank paid
book value for the deposit related loans and fixed assets and a premium of 4.5%
of the average daily deposits. Total deposits were approximately $40,000. The
purchase was consummated on February 14, 1997.
<PAGE> 1
EXHIBIT 13.2
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON D.C.
FORM F-4
Quarterly report under Section 13 of the Securities and Exchange Act of 1934 for
quarter ended September 30, 1997.
FDIC Insurance Certificate Number: 23364
IRS Tax Identification Number: 95-3463626
VALLEY INDEPENDENT BANK
Incorporated in the State of California
1498 Main Street, El Centro, California 92243
Registrant's telephone number: [760] 370-3600
Indicate by check-mark if the Bank, as a "small business issuer" as defined
under 17 CFR 240.126-2, is providing alternative disclosures as permitted for
small business issues in this Form F-4. [ ]
Indicate by check-mark whether the bank:
1. Filed all reports required to be filed by Section 13 of the Securities
Exchange Act of 1934 during the preceding 12 months [or for such shorter
period that the bank was required to file such reports]; and
2. Has been subject to such filing requirements for the past 90 days.
[x] Yes [ ] No
Outstanding shares of common stock as of September 30, 1997:
5,536,383
<PAGE> 2
ITEM 1. FINANCIAL STATEMENTS
VALLEY INDEPENDENT BANK
STATEMENTS OF CONDITION
UNAUDITED [000's]
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
ASSETS
Cash & Due From Banks
Non-Interest Bearing Deposits $ 25,769 $ 26,886
Interest Bearing Deposits $ 586 $ 879
U.S. Treasury Securities 533 507
U.S. Agency Securities 57,004 22,171
Municipal Bonds 17,545 13,843
Federal Funds Sold 0 8,000
Gross Loans 283,309 245,421
Allowance for Credit Losses (2,932) (2,634)
Net Loans 280,477 242,787
Fixed Assets 11,244 6,586
Other Real Estate Owned 2,998 1,948
Other Assets 13,483 9,958
- -------------------------------------------------------------------------------------------------------
TOTAL ASSETS $409,639 $333,565
- -------------------------------------------------------------------------------------------------------
LIABILITIES and EQUITY
Demand Deposits $104,025 $ 86,597
Interest Bearing Transaction Accounts 90,617 70,656
Savings Deposits 40,771 29,608
CDs under $100M 71,338 66,695
CDs over $100M 65,994 50,388
- -------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 372,745 303,944
- -------------------------------------------------------------------------------------------------------
Federal Funds Purchased and Securities Sold 1,500 0
under Repurchase Agreements
Other Borrowed Funds 2,831
Other Liabilities 2,698 2,581
- -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 379,774 306,525
- -------------------------------------------------------------------------------------------------------
EQUITY
Common Stock 24,764 24,287
Retained Earnings 4,755 2,474
Unrealized gain (loss) on securities available for
sale, net of applicable deferred income taxes 346 279
- -------------------------------------------------------------------------------------------------------
TOTAL EQUITY 29,865 27,040
- -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & EQUITY $409,639 $333,565
=======================================================================================================
</TABLE>
2
<PAGE> 3
VALLEY INDEPENDENT BANK
STATEMENTS OF INCOME
UNAUDITED [000'S]
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
===========================================================================================================
<S> <C> <C> <C> <C>
INTEREST AND FEE INCOME
Interest on Investment Securities - Taxable $ 1,000 $ 418 $ 2,556 $ 947
Interest on Investment Securities - Non Taxable 266 142 807 439
Interest on Federal Funds Sold 95 141 315 174
Interest & Fee Income on Loans 7,023 5,455 19,836 15,988
- -----------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 8,384 6,156 23,514 17,548
- -----------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest Bearing Transaction Accounts 147 122 410 331
Savings Deposits 655 474 1,735 1,165
CDs over $100M 829 575 2,351 1,614
CDs under $100M 992 576 3,054 1,750
Federal Funds Purchased 19 3 33 141
Miscellaneous 60 0 60 0
- -----------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 2,702 1,750 7,643 5,001
- -----------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 5,682 4,406 15,871 12,547
Provision for Possible Credit Losses 445 145 1,070 495
- -----------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION 5,237 4,261 14,801 12,052
- -----------------------------------------------------------------------------------------------------------
OTHER INCOME
Service Charges on Deposits 670 317 1,773 922
Other Fees 324 206 866 647
Gain on Sale of Loans 371 208 565 489
Gain on Sale of Securities 192 36 192 49
Other Income 49 19 138 57
- -----------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 1,606 786 3,534 2,164
- -----------------------------------------------------------------------------------------------------------
OTHER EXPENSE
Salaries & Benefits 2,602 2,072 7,394 5,979
Occupancy Expense 447 320 1,178 858
Furniture & Fixtures Expense 449 339 1,301 1,034
Other Operating Expense 1,652 951 5,084 3,328
- -----------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSE 5,150 3,682 14,957 11,199
- -----------------------------------------------------------------------------------------------------------
Gross Operating Income 1,693 1,365 3,378 3,017
Income Tax 592 480 1,089 1,012
- -----------------------------------------------------------------------------------------------------------
NET INCOME $ 1,101 $ 885 $ 2,289 $ 2,005
- -----------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE $ 0.20 $ 0.16 $ 0.42 $ 0.37
AVG SHARES USED FOR COMPUTATION 5,522,083 5,388,291 5,505,125 5,339,668
===========================================================================================================
</TABLE>
3
<PAGE> 4
VALLEY INDEPENDENT BANK
STATEMENT OF CHANGES IN CAPITAL
(UNAUDITED)
<TABLE>
<CAPTION>
UNREALIZED GAIN (LOSS)
OF SECURITIES
COMMON STOCK AVAILABLE FOR SALE,
NET OF APPLICABLE
NUMBER OF RETAINED DEFERRED INCOME
SHARES AMOUNT EARNINGS TAXES TOTAL
====================================================================================================================
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 4,072,115 $18,652,232 $4,669,962 $356,222 $23,678,416
Stock Dividends 338,782 4,755,505 (4,755,505) 0
Cash Payments for Fractional Shares (15,701) (15,701)
Exercise of Stock Options 138,180 878,956 878,956
Net Income for the Year 2,575,207 2,575,207
SFAS 115 Adjustment, Net of Taxes (77,345) (77,345)
- --------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 4,549,077 24,286,693 2,473,963 278,877 27,039,533
Stock Split 914,900
Cash Payments for Fractional Shares (7,848) (7,848)
Exercise of Stock Options 67,056 393,303 393,303
Proceeds from Issuance of Stock 5,000 83,750 83,750
Net Income- Period Ended
September 30, 1997 2,288,875 2,288,875
SFAS 115 Adjustment Net of Taxes 66,967 66,967
- --------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1997 5,536,383 $24,763,746 $4,754,990 $345,844 $29,864,580
====================================================================================================================
</TABLE>
4
<PAGE> 5
VALLEY INDEPENDENT BANK
STATEMENTS OF CASH FLOW
CHANGES IN FINANCIAL POSITION
UNAUDITED [000'S]
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
===========================================================================================================
<S> <C> <C>
OPERATING INCOME
Net Income $ 2,289 $ 2,005
Adjustments to Reconcile Income to Net Cash Provided by Operating Activities
Provided by Operating Activities
Depreciation 1,128 867
Provision for Credit Losses 1,070 495
Net Change in Accrued Interest, Other Assets & Other Liabilities (4,243) (3,000)
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES (244) 367
- -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from Sales & Maturities of Investment Securities 37,646 29,203
Purchase of Investment Securities (75,914) (27,002)
Net Change in Loans & Other Real Estate Owned (38,938) (36,469)
Purchase of Premises & Equipment (2,925) (3,797)
- -----------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (80,131) (38,065)
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net Decrease in Demand Deposits & Savings Accounts 48,552 25,088
Net Change in Time Deposits 20,249 16,351
Net Change in Federal Funds Purchased 1,500 (1,400)
Payments for Dividends (8) (7)
Proceeds from Issuance of Stock 84 0
Proceeds for Exercise of Stock Options 393 358
- -----------------------------------------------------------------------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES 70,770 40,390
- -----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH (9,117) 2,692
& CASH EQUIVALENTS
Cash & Cash Equivalents at Beginning of Year 34,886 19,435
- -----------------------------------------------------------------------------------------------------------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 25,769 $ 22,127
- -----------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 6
The Statements of Condition, Statements of Income, Statements of Cash Flow, and
Statement of Changes in Capital for the periods ended September 30, 1997 and
1996 have been prepared by Valley Independent Bank (the "Bank") without audit.
In the opinion of management, all adjustments [which include only normal
recurring adjustments] necessary to present fairly the financial position,
results of operations and changes in financial condition at September 30, 1997
have been made.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
This analysis is designed to provide a more complete understanding of the
material changes and tends related to the Bank's financial condition, results of
operations, cash flow and capital resources. This discussion should be read in
conjunction with the attached Financial Statements included in Item 1, and the
Bank's Annual Report on Form F-2.
GENERAL
During the third quarter of 1997, the Bank achieved record quarterly net
earnings of $1,101,000 or $.20 per share, compared to $885,000 for the third
quarter of 1996, or $.16 per share. Record year-to-date net earnings of
$2,289,000 for the period ending September 30, 1997 were also achieved. Net
earnings for the nine months ending September 30, 1997 was $.42 per share based
upon average shares outstanding of 5,505,125. This compared with net earnings of
$2,005,000 or $.37 per share based upon the average shares outstanding of
5,339,668 for the same period in 1996.
The Board of Directors approved a six-for-five split of the Bank's no par value
common stock. The stock split was effective May 9, 1997, for shareholders of
record on that date, and issued on May 30, 1997. All per share figures have been
retroactively adjusted for the stock split and previous stock dividends.
The Bank's financial performance during the nine months ended September 30, 1997
was not only highlighted by continued earnings growth, but also by the
acquisition of two branch locations from Wells Fargo Bank, N.A. in Blythe and
Tecate, California, the establishment of a loan production office in Yuma,
Arizona and the construction of a new corporate facility in El Centro,
California.
6
<PAGE> 7
The loan production office in Yuma, Arizona commenced operations on January 13,
1997. This office represents a natural extension of the Bank's presence in Yuma
and La Paz Counties. The Yuma area marketplace presents a tremendous opportunity
for the Bank especially in light of the area's major banks reducing their
presence and consolidating decision-making to major metropolitan areas. This
office was established with minimum overhead expense and as an operation is
expected to reach break-even profitability prior to year-end.
Effective February 14, 1997, the Bank acquired certain of the assets and assumed
the deposit liabilities of the Blythe and Tecate, California branch offices of
Wells Fargo Bank, N.A., a national banking association headquartered in San
Francisco, California. As a result of the acquisition, the Bank assumed the
deposit liabilities of the two branches, in the aggregate amount of
approximately $42,761,000, purchased the fixed assets of the two branches, and
assumed the leases for the two branch locations. The aggregate purchase price
paid by the Bank was $3,791,000, which included a premium for the deposits
assumed in the amount of $1,975,000.
The new corporate facility, approximately 25,000 square feet, was occupied in
July, 1997, and consolidated the El Centro, California loan production office as
well as the Bank's Executive Management, Loan Administration, Human Resources
Department and Marketing Department. The Bank leases the facility and will
temporarily sublet
approximately 7,500 square feet.
Loan growth was strong during the nine months ending September 30, 1997. This
growth has been stimulated by the expanded market area and economic soundness of
the communities serviced by the Bank as well as the diminishing effect of the
devaluation of the peso currency by the Mexican government. Total gross loans at
September 30, 1997 were $283.3 million which represented an increase of $37.9
million or 15.4% from December 31, 1996. Since September 30, 1996, total gross
loans have increased $56.5 million or 24.9%. This increase since September, 1996
also includes $19.3 million in loans acquired in the Bank of the Desert merger
which was consummated in September 1996 and the Wells Fargo branch acquisition
consummated in February, 1997.
Total deposits at September 30, 1997 increased $68.8 million or 22.6% from
year-end 1996 to $372.7 million. This increase includes the assumption of
deposits acquired from Wells Fargo, discussed earlier and the normal seasonal
deposit cycle experienced in the Imperial and Coachella Valleys as it relates to
the local agricultural business cycle. Total deposits, compared to September 30,
1996, increased $100.8 million or 37.1%. This increase is inclusive of $32.6
million of deposits acquired in the Bank of the Desert merger.
7
<PAGE> 8
The Bank's liquidity position, which was significantly enhanced by the Wells
Fargo branch acquisitions, continued to increase and remained adequate to meet
future foreseeable contingencies. The Bank's liquidity ratio has increased from
18.82% at September 30, 1996 and 21.34% at December 31, 1996 to 22.94% at
September 30, 1997. At September 30, 1997 the Bank had no outstandings in
federal funds sold. This compared to $3.2 million in sold funds outstanding at
September 30, 1996. Since December 31, 1996, Federal Funds sold have decreased
$8.0 million. During the same periods, the Bank's investment portfolio increased
from $38.8 million at September 30, 1996 and $38.2 million at December 31, 1996,
to $75.7 million at September 30, 1997.
NET INTEREST INCOME
Average interest-earning assets totaled $338.6 million during the nine months
ending September 30, 1997, an increase of $105.5 million or 45.3% compared to
the same period last year. As a result of the acquisitions of Bank of the
Desert, N.A., and the two branch locations from Wells Fargo Bank, N.A., all
comparative areas of earning assets grew significantly. This growth was
highlighted by an increase in average total loans of $60.7 million or 30.2% to
$261.9 million. Average interest-bearing liabilities for the nine months ended
September 30, 1997 increased $87.8 million or 51.6% to average $257.9 million as
compared to the same period last year. During this comparative period average
interest-bearing deposit categories increased $89.8 million or 53.8% to $256.5
million. Average borrowed funds decreased $2.0 million or 59.0% to $1.4 million
during the same period. These comparative changes were significantly affected by
the acquisitions previously discussed.
Interest income for the nine month period ended September 30, 1997 was $23.5
million, an increase of $6.0 million or 34.0% compared to the nine months ending
September 30, 1996. The increase in interest income was primarily the result of
the volume increases previously discussed. This increase was offset by a
decreasing interest rate environment. The yield on interest-earning assets
decreased 52 basis points to 8.87% for the nine months ended September 30, 1997
from 9.39% for the comparative period last year.
Interest expense increased $2.6 million to $7.6 million or 52.8% during the nine
months ending September 30, 1997 as compared to the same period last year. The
increase in interest expense was principally the result of the acquisitions
discussed previously. This increase was partially due to a slightly higher cost
of funds. The rise in the cost of funds, despite a declining interest rate
environment, was primarily the result of a $60,000 increase in miscellaneous
interest expense related to the new corporate center capitalized lease. The cost
of interest-bearing funds increased 4 basis points from 3.92% for the nine
months ended September 30, 1996 to 3.98% for the nine months ended September 30,
1997.
8
<PAGE> 9
Net interest income was $15.9 million for the nine months ending September 30,
1997, representing an increase of $3.3 million or 26.5% from September 30, 1996.
The net interest spread, which represents the difference between the rate earned
on average interest-earning assets and the rate paid on average interest-bearing
liabilities decreased to 4.91% for the period ending September 30, 1997,
compared to 5.47% for the same period in 1996. Net interest income as a
percentage of average interest-earning assets, or the net interest margin,
decreased to 5.85% for the period ending September 30, 1997, compared to 6.53%
for the period ended September 30, 1996. The lower interest rate environment was
the primary reason for the comparative decrease in yield for both the net
interest spread and the net interest margin.
Interest income for the third quarter of 1997 was $8.4 million which represented
an increase of $2.2 million or 36.2% to the comparative period ending September
30, 1996. Interest expense was $2.7 million for the three month period ending
September 30, 1997, an increase of $1.0 million or 54.4% compared to the same
period in 1996. Net interest income during the third quarter ending September
30, 1997 was $5.7 million, an increase of $1.3 million or 29.0% for the
comparative period ending September 30, 1996. The same factors affecting the
nine month period also applies to the third quarter comparisons of 1997 to 1996.
PROVISION FOR POSSIBLE CREDIT LOSSES
The allowance for credit losses at September 30, 1997 was $2.8 million, compared
to $2.6 million at September 30, 1996, an increase of $.3 million or 10.8%, and
compared to $2.7 million at June 30, 1997, an increase of $.1 million or 3.2%.
As a percent of total loans, the allowance was 1.00% at September 30, 1997,
compared to 1.13% at September 30, 1996 and 1.01% at June 30, 1997.
The provision for possible credit losses was $1,070,000 for the first nine
months of 1997, an increase of $575,000 or 116.2% from the $495,000 provided for
the first nine months of 1996. The provision was $445,000 for the third quarter
of 1997, compared to $145,000 for the third quarter of 1996, an increase of
$300,000 or 206.9%.
Total non-accrual loans as of September 30, 1997 were $5.4 million as compared
to $4.9 million at September 30, 1996 and $4.7 million at June 30, 1997.
Non-accrual loans increased $.7 million during the third quarter of 1997. Net
charge-offs were $872,000 for the nine months ended September 30, 1997. This
compared to $259,000 for the same period in 1996. During the third quarter
ending September 30, 1997, $356,000 was recorded in net charge-offs compared to
$199,000 in net charge-offs in the third quarter of 1996.
9
<PAGE> 10
The Bank has an established standard process for assessing the adequacy of the
allowance for credit losses. In addition to reviewing the inherent risks of the
loan portfolio, consideration is given to exposures such as economic conditions,
credit concentrations, collateral coverage, the composition of the loan
portfolio and trends in delinquencies. Specific allocations are identified by
loans with general allocations assigned to the various loan categories. Loans
classified by the Bank's internal review or by the regulatory authorities are
included in the process of assessing the adequacy of the allowance for credit
losses. This process seeks to maintain an allowance level adequate to provide
for potential losses.
Management of the Bank believes the allowance at September 30, 1997, was
adequate based on present economic conditions and its ongoing evaluation of the
risks inherent in the Bank's loan portfolio.
OTHER INCOME
Total other income amounted to $3.5 million for the nine months ended September
30, 1997 representing an increase of $1.4 million or 63.3% compared with the
same period in the prior year. A $.9 million increase in service charges on
deposits and a $.2 million increase in other fees primarily as a result of the
Bank of the Desert, N.A. and Wells Fargo Bank, N.A. acquisitions, a $76,000
increase in gains on the sale of Small Business Administration loans as well as
$143,000 increase on the gain on sale of securities were the primary reasons for
the increase in other income.
Total other income for the third quarter of 1997 was $1.6 million, an increase
of $.8 million or 104.3% from the third quarter of 1996. The increase resulted
from the same factors as applicable to the nine month periods.
OTHER EXPENSE
Total other expense in the first nine months of 1997 was $15.0 million, an
increase of $3.8 million or 33.6% as compared to the same period in 1996. Salary
expense during the first nine months of 1997 was $5.6 million, an increase of
$1.2 million or 27.3% over the comparable period in 1996. The growth in salary
expense is attributable to staffing additions related to the Bank of the Desert,
N.A. and Wells Fargo Bank branch acquisitions, merit increases and paid
commissions, offset partially by a reduction in performance incentives.
10
<PAGE> 11
Employee benefits expense was $1.8 million for the period ending September 30,
1997, an increase of $.3 million or 20.0% from the same period in the prior
year. The increase in benefits expense is attributable to the previously
discussed staffing additions, increased 401K funding costs and increases in
medical insurance expense offset by decreased funding costs for the Bank's ESOP.
Occupancy expenses were $1.2 million for the period ended September 30, 1997, an
increase of $.3 million or 37.3% as compared to the first nine months in 1996.
Furniture and equipment expense was $1.3 million for the nine months of 1997, an
increase of $.3 million or 25.8% from the same period in 1996. These increases
were primarily the result of the acquisitions previously discussed and the
completion of the new corporate facility in July of this current year.
Other operating expense amounted to $5.1 million during the first nine months
ended September 30, 1997, an increase of $1.8 million or 52.8% from the same
period in the prior year. Increases in the areas of intangible asset
amortization, business development, data processing, professional fee costs and
expenses related to the previously discussed acquisitions were the primary
causes for the increase in this category.
For the third quarter of 1997, total other expense was $5.2 million, up from
$3.7 million for the third quarter of 1996, an increase of 39.9%. The increases
in each category were for the same reasons.
INCOME TAXES
Income tax expense for the nine months ending September 30, 1997 was $1,089,000
as compared with $1,012,000 for the same period in 1996. The increase in tax
expense was primarily attributable to a $361,000 increase in taxable income
offset partially by a decrease in the Bank's effective tax rate from 33.5% for
the nine months ended September 30, 1996 to 32.2% for the nine months ended
September 30, 1997. The effective tax rate decrease was the result of a $368,000
increase in non-taxable income from municipal securities. Income taxes for the
third quarter were $592,000, an increase of $112,000 or 23.3% from the third
quarter of 1996. The increase in expense was primarily related to a $328,000
increase in taxable income offset partially by a reduction in the Bank's
effective tax rate from 35.2% for the three months ended September 30, 1996 to
35.0% for the three months ended September 30, 1997. The effective tax rate
decrease was primarily the result of a $124,000 increase in non-taxable income
from municipal securities.
11
<PAGE> 12
CAPITAL RESOURCES
Total stockholders' equity as of September 30, 1997 was $29.9 million which
represented an increase of $2.9 million from December 31, 1996 and $4.0 million
from September 30, 1996. The increase since December 31, 1996 included a $67,000
increase in the cumulative unrealized gain on securities classified as available
for sale.
Under regulatory guidelines, capital adequacy is measured as a percentage of
risk- adjusted assets in which risk percentages are applied to assets on as well
as off the balance sheet. Tier 1 capital consists of common stock and retained
earnings and total capital includes a portion of the allowance for credit
losses. At September 30, 1997 the Tier 1 and total risk based capital ratios
were 7.48% and 8.30%, respectively, compared to 9.30% and 10.00%, respectively,
at September 30, 1996 and 8.76% and 9.69% at December 31, 1996, respectively.
The current minimum regulatory guidelines for Tier 1 and total risk-based
capital ratios are 4.0% and 8.0%, respectively.
The leverage ratio, which is a measure of Tier 1 capital to adjusted average
assets, was 6.34% at September 30, 1997, compared to 8.63% at September 30, 1996
and 7.91% at December 31, 1996. The Bank's leverage ratio also exceeds the
current regulatory minimum of 3.0%. Accordingly, the Bank's capital ratios
exceed all regulatory minimums and support projected near-term growth, but may
not be adequate to support longer term growth or additional acquisitions. In
this regard the Bank is currently in the process of raising additional Tier I
capital through a unit offering with each unit consisting of 5 shares of common
stock and 1 warrant to purchase an additional share of common stock. The
offering commenced on September 9, 1997 with the original intent to raise $5.0
million in capital. The purpose of this offering is to increase the Bank's
regulatory capital ratios, increase the total capital to support the Bank's
continued growth in deposits and loans, including anticipated growth through
acquisitions, and to support a proposal to organize a bank holding company. The
offering was oversubscribed and regulatory application was made on October 15,
1997 and approved on October 22, 1997 to increase the capital offering amount to
$8.3 million.
Effective June 17, 1997 the Bank received regulatory approval for the sale and
issuance of up to 50,000 shares of common stock to the Bank's ESOP upon
authorization by the Bank's Board of Directors. During the third quarter 5,000
shares were issued in this regard.
12
<PAGE> 13
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
The Bank's Asset/Liability Committee (ALCO) functions to manage the maintenance
of liquidity and the preservation of net interest income when subjected to
fluctuations in market interest rates. The ability to meet funding commitments
present and in the future is the measure of liquidity. Liquidity is also needed
to meet borrowing needs, deposit withdrawals and asset growth. The Bank develops
liquidity through deposit growth, maturities and repayments of loans and
investments, net interest income, fee income and access to purchased funds
through correspondent banks or other entities.
Management maintains a liquidity policy which includes a liquidity contingency
plan to meet necessary or unforeseen liquidity requirements. Lines of credit
have been established with various correspondents, as well as the Federal
Reserve Bank, in order to meet short-term seasonal fluctuations.
Liquidity as measured in accordance with FDIC methodology at September 30, 1997
was 22.94%. This compared with a ratio of 18.82% at September 30, 1996 and
21.34% at December 31, 1996. The present liquidity level, which has increased
from December 31, 1996 and September 30, 1996 as a combined result of the
previously discussed acquisitions and the seasonal fluctuations in deposit
growth due to the agricultural economy of the Bank's service areas, exceeds the
Bank's policy range. The Bank continually strives to develop new sources of
liquidity to assure continued compliance with its policy.
The ALCO Committee manages the interest rate sensitivity or repricing
characteristics of the Bank's assets and liabilities. The Bank's primary source
of earnings is net interest income, which is subject to movements in interest
rates. To minimize the effect of changes in rates the balance sheet requires
structuring in order that the repricing opportunities for both assets and
liabilities exist in nearly equivalent amounts at approximately similar time
intervals. Interval differences may exist at times creating interest sensitivity
gaps which represent the difference between interest sensitive assets and
interest sensitive liabilities. These gaps are static in nature and do not
consider future activity. As such, these gap measurements serve best as an
indicator for potential interest rate exposure.
The sensitivity to interest rate fluctuations is measured in several time
frames. Various strategies such as liability cost administration and
redeployment of asset maturities are utilized to preserve interest income from
the effect of changes in interest rates. The gap positions are monitored as a
function of the asset and liability management process. The monitoring process
includes the use of periodic simulated business forecasts which incorporate
various interest rate environments. Financial modeling is utilized to assist
management in maintaining consistent earnings in an environment of changing
interest rates.
13
<PAGE> 14
At September 30, 1997, the Bank's thirty day and one year static gap ratios were
89.66% and 75.48%, respectively. These ratios compared with respective ratios of
116.67% and 92.65% at September 30, 1996. The Bank is presently liability
sensitive and should experience decreased yields in increasing rate environments
and increased yields in decreasing rate environments.
INFLATION
The impact of inflation on a financial institution differs significantly from
that exerted on an industrial company, primarily because its assets and
liabilities consist largely of monetary items. The relatively low ratio of fixed
assets to total assets of 2.7% at September 30, 1997, reduces the potential for
inflated earnings resulting from understated depreciation changes. However,
financial institutions are affected by inflation's impact on non-interest
expenses, such as salaries and occupancy expense, and to some extent, by the
inflative impact on interest rates.
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the Bank has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
VALLEY INDEPENDENT BANK
/s/ HARRY G. GOODING III
----------------------------------------------------
HARRY G. GOODING III, EVP/Chief Financial Officer
/s/ ROBERT R. MOORE
----------------------------------------------------
ROBERT R. MOORE, VP/Treasurer
10/29/97
----------------------------------------------------
DATE
14
<PAGE> 1
EXHIBIT 23.2
[VAVRINEK, TRINE, DAY & CO., LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our Independent Auditor's Report dated
January 17, 1997 regarding the statements of financial condition of Valley
Independent Bank as of December 31, 1996 and December 31, 1995, and the related
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996, and the reference to
our firm as "experts", in the Form S-4 filed with the Securities and Exchange
Commission.
/s/ VAVRINEK, TRINE, DAY & CO.
December 19, 1997
Laguna Hills, California
<PAGE> 1
EXHIBIT 99
PROXY
VALLEY INDEPENDENT BANK
SPECIAL MEETING OF SHAREHOLDERS
FEBRUARY 24, 1998
The undersigned shareholder of Valley Independent Bank (the "Bank")
hereby nominates, constitutes and appoints R. Stephen Ellison, John L. Skinner
and Alice Helen Lowery Westerfield, and each of them, the attorney, agent, and
proxy of the undersigned, with full powers of substitution, to vote all stock of
the Bank which the undersigned is entitled to vote at the Special Meeting of
Shareholders of the Bank to be held at the Bank's Main Office, 1448 Main Street,
El Centro, California 92243, on Tuesday, February 24, 1998, at 6:00 p.m. and at
any and all adjournments thereof, as fully and with the same force and effect as
the undersigned might or could do if personally present there at, as follows:
1. Approval of Bank Holding Company Reorganization. To approve the
Plan of Reorganization and Merger Agreement dated November 18,
1997, pursuant to which the Bank will become a subsidiary of the
newly-organized bank holding company, VIB Corp, and shareholders
of the Bank will become shareholders of VIB Corp, as more fully
described in the Proxy Statement dated January 23[?], 1997,
accompanying the Notice of Special Meeting.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. Stock Option Plan. To approve, as prospective shareholders of VIB
Corp, the VIB Corp 1997 Stock Option Plan described in the Proxy
Statement dated January 23[?], 1997, accompanying the Notice of
Special Meeting.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Other Business. To transact such other business as may properly
come before the Meeting and any adjournment or adjournments
thereof.
PLEASE SIGN AND DATE THE OTHER SIDE
<PAGE> 2
PLEASE SIGN AND DATE BELOW
THE BOARD OF DIRECTORS RECOMMENDS A VOTE OF "FOR" ON PROPOSALS 1 AND 2.
THE PROXY CONFERS AUTHORITY AND SHALL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS, UNLESS CONTRARY INSTRUCTIONS ARE
INDICATED, IN WHICH CASE THE PROXY SHALL BE VOTED IN ACCORDANCE WITH SUCH
INSTRUCTIONS. IN ALL OTHER MATTERS, IF ANY, PRESENTED AT THE MEETING, THIS PROXY
SHALL BE VOTED IN ACCORDANCE WITH THE RECOMMENDATIONS OF THE BANK'S BOARD OF
DIRECTORS.
------------------------------------ Dated:_____________ , 199__
(Number of Shares)
------------------------------------ -----------------------------
(Please Print Your Name) (Signature of Shareholder)
------------------------------------ -----------------------------
(Please Print Your Name) (Signature of Shareholder)
(Please date this Proxy and sign your name as it appears on the
stock certificates. Executors, administrators, trustees, etc., should give their
full titles. All joint owners should sign.)
I do [ ] do not [ ] expect to attend the Meeting.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND
MAY BE REVOKED BY THE SHAREHOLDER DELIVERING IT PRIOR TO ITS EXERCISE BY FILING
WITH THE CORPORATE SECRETARY OF THE BANK AN INSTRUMENT REVOKING THIS PROXY OR A
DULY EXECUTED PROXY BEARING A LATER DATE OR BY APPEARING AND VOTING IN PERSON AT
THE MEETING.
