<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION FEBRUARY 2, 1998.
FILE NO. 333-43021
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
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: FEBRUARY 6, 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
PROSPECTUS
VIB CORP
VALLEY INDEPENDENT BANK
1498 Main Street
El Centro, California 92243
Telephone: (760) 337-3200
February __, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Valley Independent Bank which will be held on Tuesday, March 10, 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 FEBRUARY __, 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 MARCH 10, 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, March 10, 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 January 23,
1998, 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
February __, 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 MARCH 10, 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
Year 2000 Impact.....................................................25
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, March 10, 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 February __, 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, will have an anti-takeover effect and should 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 with all 3 regulatory agencies and approved. The
merger is not expected to be consummated until mid March, 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 6,187,123 shares of the Bank's Common
Stock on January 23, 1998, 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 January 23, 1998, 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., 12,294(4) 2,745 .24%
Executive Vice President
and Chief Credit Officer
Charles Ellis, 16,904 22,293 .63%
Director
R. Stephen Ellison, 155,850(5) 28,095 2.96%
Director
Richard D. Foss, 78,639(6) 27,598 1.71%
Chairman of the Board
of Directors
Harry G. Gooding, III, 4,541(7) 8,560 .21%
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 January 23, 1998 ("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 1,426 shares allocated to Mr. Brittain pursuant to the Bank's
401(k) Plan and 3,038 shares in the ESOP.
(5) Includes 130,777 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 9,051 shares held in trust for the benefit of Mr. Foss.
(7) Includes 1,317 shares allocated to Mr. Gooding pursuant to the Bank's
401(k) Plan and 2,393 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) 215,949(5)(9) 112,041 5.21%
Director, President, and
Chief Executive Officer
Edward McGrew, 28,447 28,180 .91%
Director
Ronald A. (Rusty) Pedersen,(10) 388,733(5) 14,845 6.51%
Vice Chairman of the
Board of Directors
Martin E. Plourd, 15,184(11) 3,232 .30%
Executive Vice President
and Branch Administrator
John L. Skinner, 47,827 19,415 1.08%
Director
Thomas Topuzes, 14,903(12) 11,560 .43%
Executive Vice President and
Chief Administrative Officer
Alice Helen Lowery Westerfield,(13) 295,222(14) 23,302 5.13%
Vice Chairman of the Board of
Directors; Customer Relations,
Coachella Valley
All Directors and Executive 1,012,939(5) 301,866 20.26
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 6,909 shares allocated to Mr. Kern pursuant to the Bank's
401(k) Plan and 5,226 shares in the ESOP.
(10) Mr. Pedersen's business address is 330 West Aten Road, Imperial,
California 92251.
(11) Includes 186 shares allocated to Mr. Plourd pursuant to the Bank's
401(k) Plan and 2,767 shares in the ESOP.
(12) Includes 2,149 shares allocated to Mr. Topuzes pursuant to the Bank's
401(k) Plan and 3,405 shares in the ESOP.
(13) Ms. Westerfield's business address is 1491 South Sixth Street,
Coachella, California 92236.
(14) Includes 114 shares allocated to Ms. Westerfield pursuant to the
Bank's 401(k) Plan and 1,634 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"). The Commissioner approved the
transaction on December 19, 1997. The FRB issued its approval on December 29,
1997. The FDIC issued its approval on January 22, 1998.
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 mid March, 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
General. 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. Thus, 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.
Similarities. 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.
In addition, both corporations have the same liquidation rights and shareholders
of both corporations have no preemptive rights.
Differences.
1. AUTHORIZED LEGISLATION
The two 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.
2. VOTING RIGHTS; CUMULATIVE VOTING
The two 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.
3. RANGE OF DIRECTORS
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
66 2/3% of the outstanding shares.
7
<PAGE> 17
4. "ANTI-TAKEOVER" PROVISIONS
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.
5. DIVIDENDS AND CHARTER AMENDMENTS
The Bank's and the Holding Company's corporate structures differ with
respect to dividends and amendments to their charter documents. 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.
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 January 23,
1998, 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, 58 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(3)
December 31, 1997........... 19.13 16.50 94,870(3)
</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(4) 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) Exclusive of shares issued pursuant to the Bank's 1997 Unit Offering.
(4) 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.
Year 2000 Impact
Many computer systems will not properly recognize date sensitive
information when the date changes to the year 2000. Computer systems that do not
properly recognize the year 2000 could generate erroneous data or cause the
system to fail. Those computer systems will have to be modified or replaced
prior to the year 2000 in order to remain functional.
During 1996 the Bank began the process of identifying and addressing
the issues surrounding the year 2000 and its impact on the Bank's operations.
That process continued through 1997 during which the Bank conducted a
comprehensive review of its computer systems to identify applications that would
be effected by the year 2000 issue and the Bank developed an implementation plan
to bring the Bank's systems into compliance prior to the year 2000. The Bank's
compliance program includes review of bank-wide computer processing systems as
well as review of third party vendors' interface systems and review of large
corporate borrowers' systems. During 1997 the Bank completed the assessment
phase of its program and anticipates, during 1998, completing the implementation
and beginning the validation of hardware and software upgrades, system
replacements, vendor certifications and other associated changes. The Bank
anticipates that final implementation and validation will occur in early 1999,
with final certification of all internal systems by no later than June 30, 1999.
Simultaneously, the Bank will be evaluating the impact of year 2000 compliance
on large corporate customers as well as all third party vendors.
The Bank expects to implement successfully the systems and programming
changes necessary to address the year 2000 issue and does not believe that the
costs of such actions will have a material effect on the Bank's results of
operations or financial condition. There can be no assurance, however, that
there will not be a delay in, or increased costs associated with, the
implementation of such changes, and the Bank's inability to implement such
changes could have an adverse effect on future results of operations. Similarly,
there can be no assurance that third party vendors' systems will be year 2000
compliant and, consequently, the Bank could incur incremental costs to convert
to other vendors.
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 ................. $35,837,000 $ 500 $ 1,000 $35,837,000
Retained Earnings ............ 4,054,000 4,054,000
Unrealized Gain
(Loss) on Securities.......... 267,000 0 0 267,000
----------- ----------- ----------- -----------
Total ..................... $40,158,000 $ 500 $ 1,000 $40,158,000
=========== =========== =========== ===========
Common Stock Data:
Authorized ................... 13,500,000 10,000,000 20,000,000 20,000,000
Outstanding .................. 6,187,123 100 100 6,187,123
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
1,645,874 shares, of which 808,270 shares have been exercised and options for
664,858 shares were outstanding, leaving 172,746 shares available for future
grants as of January 23, 1998. 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 January 23,
1998, there were approximately 77 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 32.3% 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 January 23, 1998:
<TABLE>
<CAPTION>
NAME OR IDENTIFICATION OF GROUP NUMBER OF SHARES
- ------------------------------- ----------------
<S> <C>
Jack Brittain, Jr. 24,853
Harry G. Gooding, III 29,292
Dennis L. Kern 132,683
Martin E. Plourd 22,555
Thomas Topuzes 31,752
All Executive Officers as a Group (5 in Number) 241,135
All Non-officer Directors as a Group (7 in Number) 161,826
All Directors as a Group (8 in Number) 294,509
All Other Optionees as a Group (65 in Number) 261,893
All Optionees as a Group (77 in Number) 664,858
</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: February __, 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 JANUARY 30, 1998.
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 JANUARY 30, 1998
- ------------------------------
CHARLES ELLIS
DIRECTOR JANUARY __, 1998
- ------------------------------
R. STEPHEN ELLISON
/S/ RICHARD D. FOSS CHAIRMAN OF THE BOARD JANUARY 30, 1998
- ------------------------------ OF DIRECTORS
RICHARD D. FOSS
/S/ HARRY G. GOODING, III EXECUTIVE VICE PRESIDENT JANUARY 30, 1998
- ------------------------------ AND CHIEF FINANCIAL OFFICER
HARRY G. GOODING, III (AND PRINCIPAL ACCOUNTING
OFFICER)
/S/ DENNIS L. KERN DIRECTOR, PRESIDENT AND JANUARY 30, 1998
- ------------------------------ CHIEF EXECUTIVE OFFICER
DENNIS L. KERN
/S/ EDWARD MCGREW DIRECTOR JANUARY 30, 1998
- ------------------------------
EDWARD MCGREW
/S/ RONALD A. PEDERSEN VICE CHAIRMAN OF THE JANUARY 30, 1998
- ------------------------------ BOARD OF DIRECTORS
RONALD A. PEDERSEN
/S/ JOHN L. SKINNER DIRECTOR JANUARY 30, 1998
- ------------------------------
JOHN L. SKINNER
/S/ ALICE HELEN LOWERY WESTERFIELD VICE CHAIRMAN OF THE BOARD JANUARY 30, 1998
- ---------------------------------- 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 (amended).............................. __
</TABLE>
- -----------------
* Previously filed
<PAGE> 1
EXHIBIT 99
PROXY
VALLEY INDEPENDENT BANK
SPECIAL MEETING OF SHAREHOLDERS
MARCH 10, 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, March 10, 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 February __, 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 February __, 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: , 1998
------------------------------------ -------------- -
(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.
