<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
SOUTH VALLEY BANCORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
Mailed to Shareholders
on or about April 22, 1996.
SOUTH VALLEY BANCORPORATION
500 TENNANT STATION
MORGAN HILL, CALIFORNIA 95037
(408) 778-1510
PROXY STATEMENT
INFORMATION CONCERNING THE SOLICITATION
The enclosed Proxy is solicited by, and on behalf of, the Board of
Directors of South Valley Bancorporation, a California corporation (the
"Company"), for use at the 1996 Annual Meeting of Shareholders (the "Meeting")
to be held at the Golden Oak Restaurant, 16695 Condit Road, Morgan Hill,
California 95037 on Thursday, May 16, 1996 at 3:00 p.m. Only shareholders of
record on April 12, 1996 (the "Record Date") will be entitled to vote at the
Meeting. At the close of business on the Record Date, the Company had
outstanding 1,314,166 shares of its no par value common stock (the "Common
Stock").
Shareholders of the Company are entitled to one vote for each share
held, except that for the election of directors, each shareholder has cumulative
voting rights and is entitled to as many votes as shall equal the number of
shares held by such shareholder multiplied by the number of directors to be
elected. Each shareholder may cast all of his or her votes for a single
candidate or distribute such votes among any or all of the candidates as he or
she chooses. However, no shareholder shall be entitled to cumulate votes (in
otherwords, cast for any candidate a number of votes greater than the number of
shares held by such shareholder) unless such candidate's or candidates' name(s)
have been placed in nomination prior to the voting and the shareholder has given
notice at the Meeting prior to the voting of the shareholder's intention to
cumulate votes. If any shareholder has given such notice, all shareholders may
cumulate their votes for candidates in nomination. An opportunity will be given
at the Meeting prior to the voting for any shareholder who desires to do so, to
announce his or her intention to cumulate his or her votes. The proxy holders
are given, under the terms of the Proxy, discretionary authority to cumulate
votes represented by shares for which they are named in the Proxy.
Any shareholder giving a Proxy in the form accompanying this Proxy
Statement has the power to revoke or suspend it prior to its exercise. The Proxy
may be revoked prior to the Meeting (i) by filing with the Company's Secretary
an instrument revoking it or a duly elected Proxy bearing a later date or (ii)
by appearing and voting in person at the Meeting.
The Company will bear the entire cost of preparing, assembling,
printing and mailing proxy materials furnished by the Board of Directors to
shareholders. Copies of proxy materials will be furnished to brokerage houses,
fiduciaries and custodians to be forwarded to the beneficial owners of the
Common Stock. In addition to the solicitation of proxies by use of the mail,
some of the officers, directors and employees of the Company and South Valley
National Bank (the "Bank") may, without additional
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<PAGE> 3
compensation, solicit proxies by telephone or personal interview, the costs of
which will be borne by the Company.
Votes cast by proxy or in person at the Meeting will be counted by the
Inspector of Elections for the Meeting. The Inspector will treat abstentions and
"broker non-votes" (shares held by brokers or nominees as to which instructions
have not been received from the beneficial owners or persons entitled to vote
and the broker or nominee does not have discretionary voting power under
applicable rules of the stock exchange or other self-regulatory organization of
which the broker or nominee is a member) as shares that are present and entitled
to vote for purposes of determining the presence of a quorum. Abstentions and
"broker non-votes" will not be counted as shares voted for purposes of
determining the outcome of any matter as may properly come before the Meeting.
Unless otherwise instructed, each valid Proxy returned which is not
revoked will be voted in accordance with the Proxy Card FOR Proposals No. 1 and
No. 2, as described in this Proxy Statement, and, at the proxy holder's
discretion, on such other matters, if any, which may come before the Meeting
(including any proposal to postpone or adjourn the Meeting).
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of the Record Date, April 12, 1996, no group or individual known to
the Company owned beneficially more than five percent (5%) of the outstanding
shares of its Common Stock, except as described below:
<TABLE>
<CAPTION>
Amount and
Name and Address Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class(1)
- -------------- ------------------- -------------------- -----------
<S> <C> <C> <C>
Common Stock STANLEY G. KAZEZSKI 67,000 5.1%
550 Ortega Avenue 219-B
Mountain View, CA 94040-1581
Common Stock ROGER C. KNOPF 117,234(2) 8.8%
14692 Knopf Court
Morgan Hill, CA 95037
</TABLE>
(1) All percentages are calculated on the basis of the number of shares
outstanding as of the Record Date (1,314,166) plus shares subject to options
that are currently exercisable or will become exercisable within sixty (60) days
of the Record Date (20,064).
(2) Includes 2,744 shares held in the name of Mr. Knopf's children, 26,283
shares held by the Knopf Construction Co. Retirement Plan and options to
purchase 2,904 shares, immiately exercisable by Mr. Knopf.
SECURITY OWNERSHIP OF MANAGEMENT
The following tables sets forth information as of the Record Date,
April 12, 1996, concerning the equity ownership of directors, nominees, and
executive officers named in the Summary Compensation Table and directors and
executive officers of the Corporation and the Bank as a group. All of the shares
shown in the following table are owned both of record and beneficially except as
indicated in the notes to
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<PAGE> 4
the table. The Company has only one class of shares outstanding, which is Common
Stock. There are no current arrangements known to the Corporation that may
result in a change in control of the Corporation. Except as otherwise noted in
the footnotes below, each person has sole voting and investment power with
respect to the shares listed.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
Title of Class of Beneficial Owner(1) Beneficial Ownership(2) of Class(3)
- -------------- ---------------------- ----------------------- -----------
<S> <C> <C> <C>
Common Stock Laurence M. Connell 12,762(4) 1.0%
Common Stock Richard L. Conniff -- --
Common Stock Joseph A. Filice 21,260(5) 1.6%
Common Stock Eugene R. Guglielmo 43,544(6) 3.3%
Common Stock Roger C. Knopf 117,234(7) 8.8%
Common Stock Edward J. Lazzarini 14,300(8) 1.1%
Common Stock R. Kurt Michielssen 1,758 .1%
Common Stock Donald G. Mountz 31,231(9) 2.3%
Common Stock James R. Price 37,031(10) 2.8%
Common Stock Mary Lou Rawitser 1,760(11) .1%
Common Stock Brad L. Smith 38,644(12) 2.9%
All directors and executive officers
as a group (11 persons) 319,524 23.9%
</TABLE>
(1) The address for each person listed in the table is the address of the
Company, 500 Tennant Station, Morgan Hill, California 95037.
(2) All shares are calculated on the basis of the number of current shares held
plus shares subject to options that are currently exercisable or will become
exercisable within sixty (60) days of the Record Date.
(3) All percentages are calculated on the basis of the number of shares
outstanding as of the Record Date plus shares subject to options that are
currently exercisable or will become exercisable within sixty (60) days of the
Record Date.
(4) Includes 1,005 shares held by an IRA trust for the benefit of Mr. Connell,
1,005 shares held by an IRA trust for the benefit of his wife and options to
purchase 2,904 shares, immediately exercisable by Mr. Connell.
(5) Includes 16,490 shares held in trust for which Mr. Filice and his wife are
trustees and beneficiaries, 1,866 shares representing Mr. Filice's 10% pro rata
share of 18,660 shares held by Filereno Investments, a partnership and options
to purchae 2,904 shares, immediately exercisable by Mr. Filice.
(6) Includes 29,184 shares held in the name of Emilio Guglielmo Winery, Inc.,
of which Mr. Guglielmo is a shareholder, director and executive officer, 1,831
shares owned by Emilio Guglielmo Winery Inc. Profit Sharing Plan and options to
purchase 2,904 shares, immediately exercisable by Mr. Guglielmo.
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<PAGE> 5
(7) Includes 2,744 shares held in the name of Mr. Knopf's children, 26,283
shares held by the Knopf Construction Co. Retirement Plan and options to
purchase 2,904 shares, immediately exercisable by Mr. Knopf.
(8) Includes 5,500 shares held by an IRA trust for the benefit of Mr.
Lazzarini, 235 shares held by an IRA trust for the benefit of his wife, 3,025
shares held by the Lazzco Inc. Deferred Benefit Pension Plan Trust and options
to purchase 2,904 shares, immediately exercisable by Mr. Lazzarini.
(9) Includes 14,294 shares held by D.G. Mountz Assoc. Employee's Profit Sharing
Trust, 14,033 held in the name of the Mountz Family Trust and options to
purchase 2,904 shares, immediately exercisable by Mr. Mountz.
(10) Includes 2,289 shares held in the name of the Price Family Trust, 33, 422
shares held by LynRob Enterprises, Inc. Profit Sharing Trust and options to
purchase 1,320 shares, immediately exercisable by Mr. Price.
(11) Includes options to purchase 1,320 shares immediately exercisable by Ms.
Rawitser.
(12) Includes 4,345 vested shares held in the name of Mr. Smith by the South
Valley National Bank ESOP, of which Mr. Smith is a Trustee.
PROPOSAL NO. 1
ELECTION OF DIRECTORS OF THE COMPANY
The Bylaws of the Company provide a procedure for nomination for
election of members of the Board of Directors, which procedure is printed in
full in the Notice of Annual Meeting of Shareholders accompanying this Proxy
Statement. Nominations not made in accordance therewith may be disregarded by
the chairman of the meeting and upon his instruction, the inspector of elections
shall disregard all votes cast for such nominee(s).
The number of directors authorized for election at this meeting is nine
(9). The Board of Directors has nominated the nine (9) nominees, all of whom are
incumbent directors, to serve as the Company's directors. Each director elected
will hold office until the next Annual Meeting of Shareholders and until his
successor is elected and qualified.
All Proxies will be voted FOR the election of the nine (9) nominees
listed below, all of whom are incumbent directors, as recommended by the Board
of Directors, unless authority to vote for the election of directors is
withheld. The nominees receiving the highest number of affirmative votes of all
the shares entitled to be voted for them shall be elected as directors.
Abstentions and votes cast against nominees or votes withheld will have no
effect on the election of directors. If any of the nominees should unexpectedly
decline or be unable to act as a director, the Proxies may be voted for a
substitute nominee to be designated by the Board of Directors. The Board of
Directors has no reason to believe that any nominee will become unavailable and
has no present intention to nominate a person or persons in addition to, or in
lieu of those named below.
The following table sets forth certain information as of the Record
Date, April 12, 1996, with respect to those persons nominated by the Board of
Directors for election of directors as well as all executive officers. The
Company knows of no arrangements, including any pledge by any person or
securities of the Company, the operation of which may, at a subsequent date,
result in a change of control
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<PAGE> 6
of the Company. There are no arrangements or understandings by which any of the
executive officers or directors of either the Company or the Bank were selected.
There is no family relationship between any of the directors and executive
officers.
<TABLE>
<CAPTION>
Name Age Positions Held with the Corporation and the Bank
- ---- --- ------------------------------------------------
<S> <C> <C>
Laurence M. Connell 62 Director of Company since 1982; Director of Bank
since 1983.
Richard L. Conniff 49 Senior Vice President and Chief Financial Officer of
Bank since 1995.
Joseph A. Filice 59 Director of Company since 1982; Director of Bank
since 1983.
Eugene R. Guglielmo 46 Director of Company since 1982; Director of Bank
since 1983.
Roger C. Knopf 55 Chairman of the Company and Bank since 1995; Director
of Company since 1982; Director of Bank since 1983.
Edward J. Lazzarini 67 Director of Company since 1982; Director of Bank
since 1983.
R. Kurt Michielssen 44 Senior Vice President and Credit Administrator of
Bank since 1984.
Donald G. Mountz 65 Director of Company and Bank since 1984.
James R. Price 70 Director of Company and Bank since 1994.
Mary Lou Rawitser 52 Director of Company and Bank since 1994.
Brad L. Smith 46 Director of Company since 1985; President and Chief
Executive Officer of Company since 1994; Director,
President and Chief Executive Officer of Bank since
1985.
</TABLE>
DIRECTORS
The principal occupation(s) during the past five years of each nominee
for director of the Company whose name appears in the table above is as follows:
LAURENCE M. CONNELL has been owner and President of Connell Realty
Inc., a real estate brokerage located in Gilroy, California since 1969.
JOSEPH A. FILICE has been the President of Greco Filice Accountancy
Corporation located in Gilroy, California since 1980.
EUGENE R. GUGLIELMO has been the General Manager and Secretary of
Emilio Guglielmo Winery, Inc. located in Morgan Hill, California since 1972.
ROGER C. KNOPF has been the owner and President of Knopf Construction
Co., a custom home builder located in Morgan Hill, California since 1979.
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<PAGE> 7
EDWARD J. LAZZARINI has been the owner and President of Lazzco, Inc., a
real estate rental company located in Morgan Hill, California since 1978. He has
been a practicing certified public accountant since 1957.
DONALD G. MOUNTZ has been the President and Chief Executive Officer of
Mountz, Inc., a manufacturer and marketer of precision torque equipment located
in San Jose, California since 1965.
JAMES R. PRICE has been the President of LynRob Enterprises, a real
estate development firm located in Morgan Hill, California since 1990.
Previously, Mr. Price served as Chairman of ASCO Air Conditioning, Inc., a
heating and air conditioning contractor located in Morgan Hill, California.
MARY LOU RAWITSER has been a financial planner in Gilroy, California
since 1978.
None of the Company's or the Bank's directors is a director of any
other company with a class of securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended, or subject to the requirements
of Section 15(d) of such Act or any company registered under the Investment
Company Act of 1940.
COMMITTEES OF THE BOARD OF DIRECTORS
There were fifty-eight (58) meetings of the Company's and the Bank's
Boards of Directors and their respective Committees during the fiscal year ended
December 31, 1994. Each director attended at least 75% of the aggregate number
of Board of Directors' meetings and meetings held by all committees of the Board
on which each such director served.
The Boards of Directors of the Company and the Bank have established
the following standing committees, with membership as noted:
The Executive Committee is chaired by Mr. Knopf. Messrs. Lazzarini,
Mountz and Smith are also members. The Executive Committee has general authority
to perform those functions delegated to it by the Board of Directors or by the
Chairman of the Board of Directors. The Executive Committee held eight (8)
meetings during 1995.
The Audit Committee (a) recommends to the Board of Directors an outside
accounting firm to conduct an annual audit of the books and records of the
Company and the Bank, (b) reviews with such accounting firm the results of the
annual audit, (c) reviews the performance of the accounting firm, and (d)
consults with the accounting firm with regard to the adequacy of internal
accounting controls. The Audit Committee is chaired by Mr. Knopf and includes
the entire Board of Directors. The Audit Committee held four (4) meetings during
1995.
The Stock Option Committee's principal function is to administer the
Company's stock option plans. The Committee is chaired by Mr. Knopf and includes
the entire Board of Directors. The Stock Option Committee held one (1) meeting
during 1995.
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<PAGE> 8
The Company has no standing Nominating Committee. The selection of the
Company's nominees for directors may be carried out by the Board of Directors or
by any shareholder pursuant to the procedure outlined in Section 2.3 of the
Company's Bylaws as set forth in the Notice of Annual Meeting of the
Shareholders.
The Directors' Loan and Investment Committee reviews and evaluates the
loan and investment policies and portfolios of the Bank. The committee also
reviews and approves loan requests which exceed the discretionary lending limits
of management's loan committee. The Directors' Loan and Investment Committee is
chaired by Mr. Filice and includes Messrs. Connell, Knopf, Lazzarini and Smith.
The Directors' Loan and Investment Committee held twenty-two (22) meetings
during 1995.
The Personnel Committee reviews recommendations of management
concerning changes in salaries, promotions, job titles and fringe benefits for
Bank officers, and any other necessary personnel matters that relate to policies
and procedures. The Personnel Committee is chaired by Mr. Knopf and includes the
entire Board. The Personnel Committee held one (1) meeting during 1995.
DIRECTOR COMPENSATION
Directors other than Mr. Smith are compensated at the standard rate of
$500 per month for all board meetings held during that month, plus $150 for each
Committee meeting attended, except for the Chairman who receives a standard rate
of $1,000 per month for all services. Mr. Smith, as an inside director, does not
receive any director compensation. Except as described, there are no other
standard arrangements pursuant to which directors of the Company or the Bank are
compensated for services as a director, including any additional amounts payable
for committee participation or special assignments, and there are no other
arrangements pursuant to which any director of the Company or Bank was
compensated during the Company's last fiscal year for services as a director. As
a group, directors of the Company received $71,000 as compensation for services
during 1995.
EXECUTIVE MANAGEMENT
RICHARD L. CONNIFF has been a Senior Vice President and Chief Financial
Officer of the Company and Bank since September 1995. Mr. Conniff was President
and Chief Executive Officer of California Security Bank, San Jose, California
during the first part of 1995. From 1984 to 1994 he was President and Chief
Executive Officer of Business Bancorp and its subsdidiary, California Business
Bank, N.A., San Jose, California.
R. KURT MICHIELSSEN has been a Senior Vice President and Credit
Administrator of the Bank since 1984. Previously he was an Assistant Vice
President and Loan Officer at Wells Fargo Bank.
BRAD L. SMITH has been President and Chief Executive Officer of the
Bank since 1985 and has been President and Chief Executive Officer of the
Company since 1994. He was formerly a Vice President with Pacific Valley Bank
managing its Gilroy office. Mr. Smith also serves as Chairman of the newly
formed Good Samaritan Charitable Foundation Board of Trustees, a not-for-profit
organization providing medical services to Santa Clara County.
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<PAGE> 9
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the aggregate cash
compensation paid to the Chief Executive Officer and all other executive
officers of the Company and the Bank for services provided during the fiscal
years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Annual Compensation Long Term Compensation
Awards Payouts
- ---------------------------------------------------------------------------------------------------------------------------
Other Securities
Annual Restricted Underlying LTIP All Other
Name and Compen- Stock Options/ payouts Compen-
Principal Position(1) Year Salary ($)(2) Bonus($)(3) sation($)(4) Awards($) SAR's(#)(5) ($) sation($)(6)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brad L. Smith 1995 149,487 48,200 -- -- -- --
President and CEO of the 1994 146,922 58,916 -- -- -- -- 12,313
Company and the Bank 1993 141,620 48,000 -- -- -- -- 10,601
- ---------------------------------------------------------------------------------------------------------------------------
R. Kurt Michielssen 1995 91,901 15,500 -- -- -- --
Senior Vice President of 1994 83,200 18,720 -- -- -- -- 5,860
the Bank 1993 80,533 13,000 -- -- -- -- 4,714
- ---------------------------------------------------------------------------------------------------------------------------
Thomas A. Sa(7) 1995 51,002 -- -- -- -- -- --
Senior Vice President and 1994 77,000 14,580 -- -- -- -- 3,222
CFO of the Company and 1993 62,000 10,500 -- -- -- -- 3,741
the Bank
- ---------------------------------------------------------------------------------------------------------------------------
Richard L. Conniff(8) 1995 33,333 6,200 -- -- -- -- --
Senior Vice President and
CFO of the Company and
the Bank
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All individuals named in the table are officers of South Valley National
Bank (the "Bank"), the sole subsidiary of the Company and its primary operating
unit. Amounts disclosed in the table reflect compensation earned as officers of
the Bank. Messrs. Smith and Sa also served as unsalaried officers of the
Company.
(2) Amounts shown include cash and noncash earned and received by executive
officers as well as amounts earned but deferred at the election of those
officers under the 401(k) Plan.
(3) Amounts indicated as bonus payments were earned for performance during
1995, 1994 and 1993, but paid in the first quarter of the following years, 1996,
1995 and 1994, respectively.
(4) No executive officer received perquisites or other personal benefits in
excess of the lesser of $50,000 or 10% of each such officer's total annual
salary and bonus during 1995, 1994 and 1993.
(5) The Company has adopted, subject to shareholder approval of Proposal No. 2,
a 1995 Stock Option Plan (the "1995 Plan"). Pursuant to the 1995 Plan, options
may be granted to directors, executive officers and key employees of the Company
and its subsidiary. Options granted under the 1995 Plan may be either incentive
options or nonstatutory options. Options granted under the 1995 Plan become
exercisable in accordance with a vesting schedule established at the time of
grant. Vesting may not extend beyond ten years from the date of grant. Upon a
change in control, options do not become fully vested and exercisable, but may
be assumed or equivalent options may be substituted by a successor company.
Options granted under the 1995 Plan are adjusted to protect against dilution in
the event of certain changes in the Company's capitalization, including stock
splits and stock dividends. Options were granted, subject to shareholder
approval of Proposal No. 2, to executive officers under the 1995 Plan during the
first quarter of 1996. All options granted under the 1995 Plan to the named
executive officers were incentive stock options and for an exercise price equal
to the fair market value of the
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<PAGE> 10
Company's Common Stock on the date of grant. No executive officer received
grants of options under any stock option plan during 1995, 1994 or 1993.
(6) The Company has an Employee Stock Ownership Plan ("ESOP") in which,
generally, all full time salaried employees over the age of twenty are eligible
to participate. Each year the Company may contribute Common Stock and/or cash to
the ESOP which is allocated to each participant in proportion to his or her
total annual regular compensation for the year. The ESOP may borrow funds which,
in addition to the Company's cash contributions, may be used to purchase the
Company's Common Stock from the Company or on the open market. The Company's
total accrued contributions to the ESOP for the calendar years 1995, 1994 and
1993 were $92,000, $111,100, and $81,800, respectively.
The Company also has a 401(k) tax deferred savings plan in which, generally, all
employees are eligible to participate. Participating employees may defer a
portion of their compensation to the 401(k) Plan. The Company, at its option,
may make matching contributions on participant deferrals at a rate determined
annually by the Company (32% in 1995, 41% in 1994, and 35% in 1993). The
matching contribution vests over a period of seven years. For the calendar years
1995, 1994 and 1993 the Company's accrued contributions to the 401(k) Plan were
$30,000, $33,700 and $26,000, respectively.
Amounts shown include Company matching cash contributions made under the 401(k)
Plan and cash allocations to accounts under the ESOP for the benefit of the
named executives.
(7) Mr. Sa resigned from his position as Senior Vice President and Chief
Financial Officer for the Bank and the Company effective August 4, 1995.
(8) Mr. Conniff joined the Company and the Bank as Senior Vice President and
Chief Financial Officer as of September 5, 1995.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The table reflecting option grants during fiscal year 1995 has been
omitted as no option grants were made to the named executive officers during
1995.
AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
The table reflecting aggregated option exercises during fiscal year
1995 has been omitted as no options were exercised by any of the named executive
officers of the Company during 1995. There were no options outstanding at 1995
year-end either exercisable or unexercisable by any of the named executive
officers of the Company as all options had previously expired.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE IN CONTROL ARRANGEMENTS
On March 28,1996, the Bank entered into an employment agreement with
Brad L. Smith, the President and Chief Executive Officer for the Bank and the
Company, and a member of both their Boards of Directors. The agreement provides
for base salary in the amount of $153,150 per year, subject to increase upon Mr.
Smith's annual review. Mr. Smith is entitled to receive an annual cash bonus
under the agreement based upon goals and performance criteria established by the
Board of Directors each year during the term of the agreement. The agreement
also provides for (a) the grant of stock options, in the discretion of the Board
of Directors, to acquire Company Common Stock, (b) a policy of additional
supplemental disability insurance equal to 50% of his base salary payable until
he reaches age 65, (c) $650,000 worth of term life insurance, (d) an automobile
for his business use, including insurance
9
<PAGE> 11
thereon, and (e) severance pay in the amount of two times his average annual
compensation for the previous five years upon a change in control of the Company
or the Bank by merger, acquisition, consolidation, reorganization, liquidation
or dissolution.
On March 28, 1996, the Bank entered into an employment agreement with
Richard L. Conniff, the Senior Vice President and Chief Financial Officer for
the Company and the. The agreement provides for base salary in the amount of
$100,000 per year, subject to increase upon Mr.Conniff's annual review. Mr.
Conniff is entitled to receive an annual cash bonus under the agreement based
upon goals and performance criteria established by the Board of Directors each
year during the term of the agreement. The agreement also provides for (a) the
grant of stock options, in the discretion of the Board of Directors, to acquire
Company Common Stock, (b) an automobile allowance in the amount of $700 per
month, and (c) severance pay in the amount of one times his average annual
compensation upon a change in control of the Company or the Bank by merger,
acquisition, consolidation, reorganization, liquidation or dissolution.
On March 28, 1996, the Bank entered into an employment agreement with
R. Kurt Michielssen, the Bank's Senior Vice President and Credit Administrator.
The agreement provides for a base salary in the amount of $90,000 per year,
subject to increase upon Mr. Michielssen's annual review. Mr. Michielssen is
entitled to receive an annual cash bonus under the agreement based upon goals
and performance criteria established by the Board of Directors each year during
the term of the agreement. The agreement also provides for (a) the grant of
stock options, in the discretion of the Board of Directors, to acquire Company
Common Stock, (b) an automobile allowance in the amount of $300 per month, and
(c) severance pay in the amount of one times his average annual compensation for
the previous five years upon a change in control of the Company or the Bank by
merger, acquisition, consolidation, reorganization, liquidation or dissolution.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, executive officers and shareholders beneficially owning ten
percent (10%) or more of the Company's securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of the Company's equity securities. Officers, directors and 10% or
more shareholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file. To the Company's knowledge, based
solely on review of the copies of such reports furnished to the Company and
written representations that no other reports were required during the fiscal
year ended December 31, 1995, all Section 16(a) filing requirements applicable
to its officers, directors and beneficial owners of 10% or more of the Company's
securities appear to have been met.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Except as set forth below, there were no transactions or series of
similar transactions, since the beginning of the Company's last fiscal year, or
any currently proposed transaction or series of transactions, to which the
Company or the Bank was or is to be a party, in which the amount involved
exceeds $60,000 and in which any director, executive officer, nominee for
director or 5% shareholder of
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<PAGE> 12
the Company or the Bank, or any member of the immediate family of any such
person had or will have a direct or indirect material interest.
CERTAIN BUSINESS RELATIONSHIPS
There were no business relationships during 1995 of the type requiring
disclosure under Item 404(b) of Regulation S-K.
INDEBTEDNESS OF MANAGEMENT
The directors and officers of the Company, and certain of the
businesses and professional organizations with which they are associated, have
had, but are not obligated to have, banking transactions with the Bank in the
ordinary course of business. Loans and commitments to loans included in such
transactions have been and will continue to be made in accordance with
applicable laws and on substantially the same terms, including interest rates
and collateral requirements, as those prevailing at the time for comparable
transactions with other persons of similar credit-worthiness and which do not
involve more than the normal risk of collectibility or present other unfavorable
features.
PROPOSAL NO. 2
APPROVAL OF THE 1995 STOCK OPTION PLAN
General
Approval of the 1995 Stock Option Plan requires the affirmative vote of
a majority of the shares of the Company's Common Stock present at the Annual
Meeting in person or by proxy. The Board of Directors unanimously recommends a
vote FOR approval of the 1995 Stock Option Plan. All Proxies will be voted FOR
approval of the 1995 Stock Option Plan.
On October 19, 1995 the Company's Board of Directors approved the 1995
Stock Option Plan (the "1995 Plan") and reserved 332,000 shares of common stock
for issuance under the 1995 Plan. The significant terms of the 1995 Plan are
described below. A copy of the 1995 Plan is attached to this Proxy Statement as
Exhibit A.
Purpose
The 1995 Plan is designed as a method whereby those key
employees and nonemployee directors ("Outside Directors") eligible to
participate in the Plan, who are primarily responsible for the management and
growth of the Company's business and who are presently making and are expected
to make substantial contributions to the Company's future management and growth,
may be offered incentives in addition to those presently available, and may be
stimulated by increased personal involvement in the fortunes and success of the
Company to continue in its service, thereby advancing the interests of the
Company and its shareholders. The 1995 Plan provides for grants of options to
executive officers and employees in the discretion of the Board of Directors,
and for automatic (or "formula") grants to each Outside Director (including all
current Outside Directors) of the Company.
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<PAGE> 13
Administration
The 1995 Plan will be administered by the Board of Directors of the
Company. No discretion concerning decisions regarding the plan is afforded to
any person who is not a "disinterested" person under Rule 16b-3 under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"). The
interpretation and construction of any provision of the 1995 Plan by the Board
is final and conclusive. Members of the Board receive no additional compensation
for their services in connection with the administration of the 1995 Plan.
Grants
The following table shows, to the extent determinable, the benefits
allocated to the specified persons and groups under the 1995 Plan, conditional
upon approval of the 1995 Plan by the shareholders of the Company. Options to
Outside Directors were granted automatically on December 7, 1995, the date a
permit was issued by the Department of Corporations authorizing the Company to
grant options under the 1995 Plan. Options to executives and other employees
were granted January 25, 1996. Because future awards to executive officers and
employees of the Company are discretionary and cannot be determined at this
time, the table does not reflect any such awards. All share numbers and stock
prices have been adjusted for a 10% stock dividend declared for shareholders of
record February 16, 1996, and payable February 23, 1996.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Name and Position Exercise Price Per Share ($) Shares Granted (#)
- --------------------------------------------------------------------------------
<S> <C> <C>
Brad L. Smith 13.50 39,600
President & CEO
- --------------------------------------------------------------------------------
Richard L. Conniff 13.50 14,400
Senior Vice President & CFO
- --------------------------------------------------------------------------------
R. Kurt Michielssen 13.50 14,400
Senior Vice President
- --------------------------------------------------------------------------------
All Executive Officers 13.50 68,400
as a group (3 persons)
- --------------------------------------------------------------------------------
All Outside Directors 13.50 66,000(1)
as a group (8 persons)
- --------------------------------------------------------------------------------
All Non-Executive Officers 13.50 40,150
as a group (14 persons)
- --------------------------------------------------------------------------------
</TABLE>
(1) Represents the number of shares for which the 1995 Plan authorizes options
to be granted automatically to each current Outside Director, times the current
number of such directors.
Terms of Options
Options granted to Outside Directors under the 1995 Plan each have a
term of 10 years and are vested for exercise over a 3-year vesting schedule.
Options granted to employees under the 1995 Plan have terms and vesting
schedules determined by the Board of Directors, or its committee, provided that
the term may not exceed ten years.
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<PAGE> 14
FORM OF CONSIDERATION. Consideration to be paid for shares issued upon
exercise of options granted under the 1995 Plan may include cash, certified
check, official bank check or the equivalent thereof; or other shares of the
Company's Common Stock which have been beneficially owned for at least six
months, with a fair market value on the exercise date equal to the aggregate
exercise price of the shares being purchased.
In addition, an option may be exercised by delivering to the Company
(i) an exercise notice instructing the Company to deliver the certificates for
the shares purchased to a designated brokerage firm and (ii) a copy of
irrevocable instructions delivered to the brokerage firm to sell the shares
acquired upon exercise of the option and to deliver to the Company from the sale
proceeds sufficient cash to pay the exercise price and applicable withholding
taxes arising as a result of the exercise.
OPTION PRICE. The per share exercise price of options is 100% of the
fair market value of the Company's Common Stock on the date of grant, unless the
optionee receiving the option owns more than 10% of the Company's outstanding
shares, in which event the exercise price will be 110% of fair market value on
the date of grant.
TERMINATION OF AFFILIATION. The 1995 Plan provides that if an optionee
ceases to be affiliated with the Company (an Outside Director ceases to serve as
a director of the Company or an employee's status as an employee is terminated),
the option may be exercised within three months after the date he or she ceases
to be a director or employee as to all or part of the shares that the optionee
was entitled to exercise at the date of such termination, provided that the date
of exercise may not occur after the expiration of the term of the option.
Death. In the event of the death of an optionee, the option may be
exercised by the optionee's estate at any time within twelve months after death,
but only to the extent that the option would have been exercisable at the time
of death.
Disability. If an optionee is unable to continue his or her service as
a director or employee of the Company as a result of disability, the option may
be exercised at any time within twelve months after the date of termination of
the optionee's services as a director or employee, but only to the extent that
the option would have been exercisable at the time of termination as a result of
disability.
NONTRANSFERABILITY. An option is nontransferable by the optionee, other
than by will or the laws of descent and distribution, and is exercisable only by
the optionee or the optionee's qualified representative during his or her
lifetime, or in the event of death, by the optionee's legal representative or
any person who acquires the right to exercise the option by reason of the death
of the optionee.
ADJUSTMENTS OF AND CHANGES IN SHARES. Adjustments may be made to the
number of shares authorized for issuance under the 1995 Plan, to those which are
covered by each outstanding option, and to the price per share, due to changes
in capitalization, dissolution, liquidation, sale or merger.
Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares covered by each outstanding
option, the number of shares authorized for issuance under the Plan, and the
price per share covered by each outstanding option, shall be proportionately
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<PAGE> 15
adjusted for any change in the number of outstanding shares of the Common Stock
of the Company resulting from a stock split, reverse stock split, stock
dividend, recapitalization, combination or reclassification or any other change
affecting the outstanding shares of Common Stock as a class effected without
receipt of consideration by the Company.
Dissolution or Liquidation. In the event of a proposed dissolution or
liquidation of the Company, options outstanding under the 1995 Plan shall
terminate immediately before consummation of such proposed action. The Board in
such cases is required to provide written notice to optionees of the expected
dates of termination of outstanding options and consummation of the proposed
dissolution or liquidition.
Sale or Merger. In the event of a proposed sale of all or substantially
all of the assets of the Company, or the merger of the Company with or into
another corporation in a transaction in which the Company is not the surviving
corporation, outstanding options may be assumed or equivalent options may be
substituted by the successor corporation unless the successor corporation does
not agree to assume the options or to substitute equivalent options. If
outstanding options are not assumed or substituted by equivalent options, all
outstanding options will terminate immediately before the consummation of such
sale or merger.
AMENDMENT OR TERMINATION OF PLAN. The Board of Directors has the power
and authority to terminate or amend the 1995 Plan, subject to shareholder
approval of any amendment for which shareholder approval is required for
continued compliance under the Exchange Act and other specified laws and
regulations. No termination, modification or amendment may adversely affect any
stock options then outstanding without the optionee's prior consent.
Federal Tax Consequences
Options granted under the 1995 Plan may be either Incentive Options
which satisfy the requirements of Section 422 of the Internal Revenue Code, or
Nonstatutory Options which do not meet such requirements. The federal income tax
treatment for the two types of options differs as follows:
Incentive Options. No taxable income is recognized by an optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. However, the excess of the fair market value
of the Company Common Stock received upon the exercise of an Incentive Option
over the exercise price is includable in the employee's alternative minimum
taxable income and may be subject to the alternative minimum tax ("AMT"). For
AMT purposes only, the basis of the Company Common Stock received upon exercise
of an Incentive Option is increased by the amount of such excess.
An optionee will recognize taxable income in the year in which the
purchased shares acquired upon exercise of an Incentive Option are sold or
otherwise disposed of. For federal tax purposes, dispositions are divided into
two categories: (i) qualifying and (ii) disqualifying. An optionee will make a
qualifying disposition of the purchased shares if the sale or disposition is
made more than two years after the grant date of the option and more than one
year after the exercise date. If an optionee fails to satisfy either of these
two holding periods prior to sale or disposition, then a disqualifying
disposition of the
14
<PAGE> 16
purchased shares will result. An exercise procedure involving the withholding of
shares otherwise due upon exercise of an Incentive Option or an immediate sale
of acquired shares in a broker sale and remittance procedure will be a
disqualifying disposition of such shares, while the exercise method involving
the delivery of previously owned shares will not (provided that if the shares
being delivered were acquired upon the exercise of incentive stock options, they
satisfy the holding periods mentioned above).
Upon a quaifying disposition, an optionee will recognize long-term
capital gain or loss in an amount equal to the difference between the amount
realized upon the sale or other disposition of the purchased shares and the
exercise price paid for the shares except that for AMT purposes, the gain or
loss would be the difference between the amount realized upon the sale or other
disposition of the purchased shares and the employee's basis increased as
described above. If there is a disqualifying disposition of the shares, then the
optionee will generally recognize ordinary income to the extent of the lesser of
the difference between the exercise price and (i) the fair market value of the
Company Common Stock on the date of exercise, or (ii) the amount realized on
such disqualifying disposition. Any additional gain recognized upon the
disposition will be capital gain. If the amount realized is less than the
exercise price, the optionee will, in general, recognize a capital loss. If the
optionee makes a disqualifying disposition of the purchased shares, then the
Company will be entitled to an income tax deduction, for the taxable year in
which such disposition occurs, to the extent the optionee recognizes ordinary
income. In no other instance will the Company be allowed a deduction with
respect to the optionee's disposition of the purchased shares.
Nonstatutory Options. No taxable income is recognized by an optionee
upon the grant of a Nonstatutory Option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the date of exercise
over the exercise price paid for such shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income. Upon a
subsequent sale of the purchased shares, the optionee will generally recognize
either a capital gain or a capital loss depending on whether the amount realized
is more or less than the exercise price plus the difference between the exercise
price and fair market value on the date of exercise.
The Company will be entitled to a business expense deduction equal to
the amount of ordinary income recognized by the optionee with respect to an
exercised Nonstatutory Option. The deduction will generally be allowed for the
taxable year of the Company in which ordinary income is recognized by the
optionee in connection with the acquisition of the option shares.
THE FOREGOING DISCUSSION OF THE MATERIAL PROVISIONS OF THE 1995 PLAN IS
SUBJECT TO THE SPECIFIC TERMS OF THE 1995 PLAN SET FORTH IN EXHIBIT "A".
SHAREHOLDERS SHOULD READ EXHIBIT "A" IN ITS ENTIRETY FOR A COMPLETE
UNDERSTANDING OF THE 1995 PLAN.
Vote Required
The affirmative vote of the holders of a majority of the shares of the
Company Common Stock present in person or represented by proxy and entitled to
vote at the Meeting is required to approve the 1995 Plan, provided that the
number of affirmative votes equals at least a majority of the shares
15
<PAGE> 17
constituting the required quorum. Abstentions will be counted for purposes of
determining the number of shares entitled to vote on the proposal and will have
the effect of a vote against the proposal. Although broker non-votes with
respect to this proposal will be counted to determine the presence or absence of
a quorum, broker non-votes with respect to this proposal, if any, will not be
counted in determining the number of shares entitled to vote on this proposal.
PROPOSAL NO. 3
INDEPENDENT AUDITORS
Audit services during 1995 were performed by Deloitte & Touche LLP,
Certified Public Accountants, and consisted of examining financial statements,
preparing management letters, meeting with the Audit Committee of the Board of
Directors and consulting with the Company and the Bank on accounting matters.
The Company's Audit Committee has completed its evaluation for the
selection and recommendation of independent auditors for the fiscal year 1996
and The Board of Directors recommends shareholders vote FOR selection of
Deloitte & Touche LLP as the Company's independent auditors.
Deloitte & Touche LLP has advised the Company that one or more of its
representatives will be present at the meeting to make a statement if they so
desire and to respond to appropriate questions.
ANNUAL REPORT TO SHAREHOLDERS
The Company's Annual Report to Shareholders, including audited
consolidated financial statements for the Company and the Bank for the fiscal
year ended December 31, 1995, is being mailed concurrently with this Proxy
Statement to shareholders.
FORM 10-K
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED, ARE AVAILABLE TO SHAREHOLDERS WITHOUT CHARGE UPON WRITTEN REQUEST
ADDRESSED TO RICHARD L. CONNIFF, SENIOR VICE PRESIDENT & CFO, SOUTH VALLEY
BANCORPORATION, 8000 SANTA TERESA BLVD., GILROY, CA 95020.
SHAREHOLDER PROPOSALS
The 1997 Annual Meeting of Shareholders is currently scheduled for May
15, 1997. Any shareholder may submit a proposal to be acted upon at the 1997
Annual Meeting if submitted in writing to Richard L. Conniff, South Valley
Bancorporation, 8000 Santa Teresa Blvd., Gilroy, CA 95020 and received not later
than December 28, 1996.
16
<PAGE> 18
OTHER MATTERS
If any other matters not referred to in the Proxy Statement and
enclosed Proxy come before the meeting, including matters incident to the
conduct of the meeting, the Proxy Holders will vote the shares represented by
the Proxies in accordance with their best judgment. The Board of Directors is
not aware of any other business to come before the meeting, and as of the date
of this Proxy Statement, no shareholder has submitted any proposal to be acted
upon at the Meeting.
SOUTH VALLEY BANCORPORATION
Morgan Hill, California By: Sandra L. Ogle, Secretary
April 22, 1996
17
<PAGE> 19
SOUTH VALLEY BANCORPORATION
1995 STOCK OPTION PLAN
<PAGE> 20
TABLE OF CONTENTS
Page
----
1. PURPOSE .......................................................... 1
2. ADMINISTRATION
(a) Administration by Board or Committee ........................ 1
(b) Grants to Officers; Disinterested Person Requirement ........ 1
(c) Grants to Outside Directors ................................. 2
(d) Subsequent Reference ........................................ 2
(e) Authority of Committee ...................................... 2
3. ELIGIBILITY ...................................................... 2
4. THE SHARES ....................................................... 3
5. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS ............................ 3
(a) Initial Grants .............................................. 3
(b) Limitation .................................................. 3
(d) Terms of Outside Director Options ........................... 3
(i) Nonstatutory Options ......................... 3
(ii) Option Price ................................. 3
(iii) Duration and Vesting of Options .............. 4
(iv) Termination of Tenure on the Board ........... 4
(v) Non-Discretion ............................... 4
6. GRANTS TO EMPLOYEES .............................................. 4
(a) Grant of Options ............................................ 5
(b) Option Price ................................................ 5
(c) Duration of Options ......................................... 5
(d) Termination of Employment ................................... 5
7. TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS ................... 6
(a) Exercise of Options ......................................... 6
(b) Transferability of Option and Shares ........................ 7
(c) Withholding ................................................. 7
(d) Other Terms and Conditions .................................. 7
8. ADJUSTMENT OF, AND CHANGES IN, THE SHARES ........................ 8
(a) Changes in Capitalization ................................... 8
(b) Dissolution, Liquidation, Sale or Merger .................... 8
(c) Notice of Adjustments; Fractional Shares .................... 8
(d) No Other Adjustments; Rights of Company Unaffected .......... 9
i
<PAGE> 21
TABLE OF CONTENTS
(continued)
Page
----
9. AMENDMENT AND TERMINATION OF THE PLAN .......................... 9
10. EFFECTIVENESS OF THE PLAN ...................................... 9
11. INFORMATION TO OPTIONEES ....................................... 9
12. PRIVILEGES OF STOCK OWNERSHIP, SECURITIES LAW COMPLIANCE ....... 10
13. NOTICE OF SALE ................................................. 10
14. INDEMNIFICATION ................................................ 10
ii
<PAGE> 22
SOUTH VALLEY BANCORPORATION
1995 STOCK OPTION PLAN
1. PURPOSE
The purpose of this South Valley Bancorporation 1995 Stock Option Plan
(the "Plan") is to provide a method whereby those key employees and nonemployee
directors of South Valley Bancorporation and its affiliates (hereinafter
collectively referred to as the "Company"), who are primarily responsible for
the management and growth of the Company's business and who are presently
making and are expected to make substantial contributions to the Company's
future management and growth, may be offered incentives in addition to those
presently available, and may be stimulated by increased personal involvement in
the fortunes and success of the Company to continue in its service, thereby
advancing the interests of the Company and its shareholders.
The word "affiliate," as used in the Plan, means any bank or
corporation in any unbroken chain of banks or corporations beginning or ending
with the Company, if at the time of the granting of an option, each such bank
or corporation other than the last in that chain owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other banks or corporations in the chain.
2. ADMINISTRATION
The following provisions shall govern the administration of the Plan:
(a) Administration by Board or Committee. Subject to
paragraphs (b) and (c) below, the Plan shall be administered by the Board of
Directors or a duly appointed committee of the Board. The Board of Directors
may from time to time remove members from or add members to the committee.
Vacancies on the committee, however caused, shall be filled by the Board of
Directors. The Board of Directors may designate a Chairman and Vice-Chairman of
the committee from among the committee members. Acts of the committee (i) at a
meeting, held at a time and place and in accordance with rules adopted by the
committee, at which a quorum of the committee is present and acting, or (ii)
reduced to and approved in writing by all members of the committee, shall be
the valid acts of the committee.
(b) Grants to Officers; Disinterested Person Requirement.
Discretionary grants of options to officers of the Company, including officers
who are also directors of the Company, shall be made by and all discretion with
respect to the material terms of such options shall be exercised by (i) the
Board of Directors when all members of the Board are Disinterested Persons, or
(ii) a duly appointed committee of the Board composed solely of Disinterested
Persons having full authority to act in the matter. The term "Disinterested
Person" as used in the Plan shall have
1
<PAGE> 23
the meaning set forth in Rule 16b-3 as promulgated by the Securities and
Exchange Commission ("SEC") under Section 16(b) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), as such rule may be amended from time
to time, and as interpreted by the SEC ("Rule 16b-3"). The committee required
by this paragraph shall consist of not less than the minimum number of
Disinterested Persons from time to time required by Rule 16b-3.
(c) Grants to Outside Directors. The full Board of Directors shall
administer the Plan with respect to the automatic grant of options to Outside
Directors pursuant to Section 5 of the Plan.
(d) Subsequent Reference. The Board and any such committee(s) referred
to in Section 2(a) or 2(b) is referred to hereinafter as the "Committee,"
except where otherwise expressly provided or where the context requires
otherwise.
(e) Authority of Committee. The Committee shall effect the grant of
options under the Plan by execution of instruments in writing in a form
approved by the Committee. Subject to the express terms and conditions of the
Plan and except with respect to the automatic grant of options to Outside
Directors pursuant to Section 5, the Committee shall have full power to
construe the Plan and the terms of any option granted under the Plan, to
prescribe, amend and rescind rules and regulations relating to the Plan or such
options and to make all other determinations necessary or advisable for the
Plan's administration, including, without limitation, the power to (i)
determine which persons meet the requirements of Section 3 hereof for selection
as participants in the Plan; (ii) determine to whom of the eligible persons, if
any, options shall be granted under the Plan; (iii) establish the terms and
conditions required or permitted to be included in every option agreement or any
amendments thereto, including whether options to be granted thereunder shall be
"incentive stock options," as defined in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") or nonstatutory stock options not
described in Sections 422(b) or 423(a) of the Code; (iv) specify the number of
shares to be covered by each option; (v) determine the fair market value of
shares of the Company's common stock for any purpose under this Plan; (vi) take
appropriate action to amend any option hereunder, provided that no such action
may be taken without the written consent of the affected optionee; (vii) cancel
outstanding options and issue replacement options therefor with the consent of
the affected optionee, and (viii) make all other determinations deemed necessary
or advisable for administering the Plan. The Committee's determination on the
foregoing matters shall be conclusive.
3. ELIGIBILITY
The persons who shall be eligible to receive the discretionary grant of
options under this Plan shall be those key employees and officers of the
Company (including officers who may also be directors of the Company) selected
for participation by the Committee. Directors of the Company who are not also
employees of the Company or any of its affiliates ("Outside Directors") are not
eligible for the discretionary grant of options under this Plan. Outside
Directors are eligible only for the nondiscretionary grant of options pursuant
to Section 5 of this Plan. Notwithstanding any other provision of this Plan no
person shall be granted options to purchase more than an aggregate
2
<PAGE> 24
of one hundred fifty thousand (150,000) shares of the Company's common stock
under this Plan, as adjusted pursuant to Section 8.
4. THE SHARES
The shares of stock subject to options authorized to be granted under
the Plan shall consist of three hundred thirty-two (332,000) shares of the
Company's no par value common stock (the "Shares"), or the number and kind of
shares of stock or other securities which shall be substituted for such Shares
or to which such Shares shall be adjusted as provided in Section 8 hereof.
Upon the expiration or termination for any reason of an outstanding option
under the Plan which has not been exercised in full, all unissued Shares
thereunder shall again become available for the grant of options under the
Plan. Shares of the Company's common stock which are (i) delivered by an
optionee in payment of the exercise price of an option, or (ii) delivered by an
optionee, or withheld by the Company from the shares otherwise due upon exercise
of an option, in satisfaction of applicable withholding taxes shall again
become available for the grant of options under the Plan only to those eligible
participants who are not subject to Section 16 of the Exchange Act.
5. AUTOMATIC GRANTS TO OUTSIDE DIRECTORS
(a) Initial Grants. Subject to the limitation of paragraph (c) below,
immediately following the issuance of a permit from the California Department of
Corporations for the grant of options under the Plan and the issuance of shares
pursuant to the exercise of such options (if, in the opinion of counsel for the
Company, such a permit is required to be obtained), each person who is then an
Outside Director shall be granted an option to purchase Seven Thousand Five
Hundred (7,500) Shares (an "Initial Grant"). Each other person who is thereafter
first elected or appointed as an Outside Director shall receive an Initial
Grant on the date of such election or appointment; provided, however, that if
an Outside Director who received an Initial Grant ceases to serve on the Board
and is subsequently re-elected or appointed to the Board such director shall
not be entitled to an additional Initial Grant.
(b) Limitation. The aggregate amount of the Shares (as adjusted
pursuant to Section 8) subject to options granted to all Outside Directors as a
group shall not at any time exceed thirty-six percent (36%) of the Shares
(including Shares underlying expired or terminated options which are added back
to the number of Shares available under the Plan pursuant to Section 4.
(c) Terms of Outside Director Options. All options granted to Outside
Directors shall be subject to the following terms and conditions:
(i) Nonstatutory Options. All stock options granted to Outside
Directors pursuant to the following Plan shall be nonstatutory stock options.
(ii) Option Price. The purchase price under each option granted
to an Outside Director shall be one hundred percent of the fair market value of
the Shares subject thereto
3
<PAGE> 25
on the date the option is granted; provided, however, that the purchase price of
an option granted to an Outside Director who owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company shall not be less than one hundred ten percent of the fair market value
of the Shares subject thereto on the date the option is granted.
(iii) Duration and Vesting of Options. Each option granted to an
Outside Director shall be for a ten-year term and shall be vested for exercise
in annual increments of thirty-three and one-third percent (33-1/3%) of the
Shares subject to the option with the first increment vesting on the first
anniversary of the date of grant.
(iv) Termination of Tenure on the Board. Upon the termination of an
Outside Director's status as a member of the Board, his or her rights to
exercise any options then held shall be only as follows:
DEATH OR DISABILITY: If an Outside Director's tenure on the Board is
terminated by death or disability, his or her qualified representative (in
the event of the Outside Director's mental disability) or estate (in the
event of the Outside Director's death) shall have the right for a period of
twelve months following the date of such termination to exercise the option
to the extent the Outside Director was entitled to exercise such option on
the date of such termination; provided the actual date of exercise is in no
event after the expiration of the term of the option. An Outside Director's
"estate" shall mean his or her legal representative or any person who
acquires the right to exercise an option by reason of the Outside
Director's death. To the extent the option is not exercised within such
period the option will terminate.
OTHER REASONS: If an Outside Director's tenure on the Board is
terminated for any reason other than those mentioned above under "Death or
Disability," he or she may, within three months following such termination,
exercise the option to the extent such option was exercisable by the
Director on the date of such termination; provided the date of exercise is
in no event after the expiration of the term of the option. To the extent
the option is not exercised within such period the option will terminate.
(v) Non-Discretion. The automatic grants to Outside Directors
pursuant to this Section 5 shall not be subject to the discretion of any person.
6. GRANTS TO EMPLOYEES
Options, in the discretion of the Committee, may be granted at any time
prior to the termination of the Plan to persons who are employees of the
Company, including employees who are also directors of the Company. Options
granted by the Committee to employees pursuant to the Plan shall be subject to
the following terms and conditions:
4
<PAGE> 26
(a) Grant of Options. Options granted to employees pursuant to the
Plan may be either incentive stock options or nonstatutory stock options. If the
aggregate fair market value of the shares issuable upon exercise of incentive
stock options which are exercisable for the first time during any one calendar
year under all incentive stock options held by an optionee exceeds $100,000
(determined at the time of the grant of the options), such options shall be
treated as nonstatutory stock options to the extent of such excess.
(b) Option Price. The purchase price under each option shall not be
less than one hundred percent of the fair market value of the Shares subject
thereto on the date the option is granted; provided, however, that the purchase
price of an option granted to an individual who owns stock possessing more than
ten percent of the total combined voting power of all classes of stock of the
Company shall not be less than one hundred ten percent of the fair market
value of the Shares subject thereto on the date the option is granted. For any
purposes under this Plan, fair market value per share shall mean, where there
is a public market for the Company's common stock, the mean of the bid and
asked prices (or the closing price if listed on a stock exchange or The Nasdaq
National Market) of the Company's common stock for the date of grant, as
reported in the Wall Street Journal (or, if not so reported, as otherwise
reported by The Nasdaq Stock Market or the National Quotation Bureau or the
Company's primary market maker.) If such information is not available for the
date of grant, then such information for the last preceding date for which such
information is available shall be considered as the fair market value. If there
is no public market for the Company's common stock, the fair market value
thereof shall be determined by the Committee using any reasonable valuation
method.
(c) Duration of Options. Each option shall be for a term determined by
the Committee; provided, however, that the term of any option may not exceed
ten years and, provided further, that the term of any incentive stock option
granted to an individual who owns stock possessing more than ten percent of the
total combined voting power of all classes of stock of the Company shall not
exceed five years. Each option shall vest in such manner and at such time as
the Committee shall determine; provided, however, that no option shall vest for
exercise at a rate of less than twenty percent per year during the five year
period following the date of grant of an option.
(d) Termination of Employment. Upon the termination of an optionee's
status as an employee of the Company, his or her rights to exercise an option
then held shall be only as follows:
DEATH OR DISABILITY: If an optionee's employment is
terminated by death or disability, such optionee or such
optionee's qualified representative (in the event of the
optionee's mental disability) or the optionee's estate
(in the event of optionee's death) shall have the right
for a period of twelve (12) months (or such longer
period as the Committee may determine at the date of
grant or during the term of the option) following the
date of such termination to exercise the option to the
extent the optionee was entitled to exercise such option
on the date of such termination; provided the actual
date of exercise is in no event after the expiration of
the term of the option. To the extent the option is not
exercised within such
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<PAGE> 27
period the option will terminate. An optionee's "estate" shall mean the
optionee's legal representative or any person who acquires the right to
exercise an option by reason of the optionee's death.
CAUSE: If an optionee's employment is terminated because such optionee
is determined by the Board to have committed an act of embezzlement, fraud,
dishonesty, breach of fiduciary duty to the Company, or to have
deliberately disregarded the rules of the Company which resulted in loss,
damage or injury to the Company, or if an optionee makes any unauthorized
disclosure of any of the secrets or confidential information of the
Company, induces any client or customer of the Company to break any
contract with the Company or induces any principal for whom the company
acts as agent to terminate such agency relations, or engages in any conduct
which constitutes unfair competition with the Company, or if an optionee is
removed from any office of the Company by any bank regulatory agency, the
optionee shall have the right for a period of thirty days to exercise the
option to the extent the option was exercisable on the date of termination;
provided that the date of exercise is in no event after the expiration of
the term of the option. To the extent the option is not exercised within
such period the option will terminate. For the purpose of this paragraph,
termination of employment shall be deemed to occur when the Company
dispatches notice or advice to the optionee that the optionee's employment
is terminated, and not at the time of optionee's receipt thereof.
OTHER REASONS: If an optionee's employment is terminated for any
reason other than those mentioned above under "Death or Disability" and
"Cause," the optionee may, within three months (or such longer period as
the Committee may determine at the date of grant or during the term of the
option) following such termination, exercise the option to the extent such
option was exercisable on the date of termination of the optionee's
employment; provided the date of exercise is in no event after the
expiration of the term of the option and provided further that any option
which is exercised more than three months following termination shall be
treated as a nonstatutory option whether or not it was designated as such
at the time it was granted. To the extent the option is not exercised
within such period the option will terminate.
7. TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS
The following terms and conditions shall apply to all options granted
pursuant to the Plan:
(a) Exercise of Options. To the extent the right to purchase Shares has
vested under an optionee's stock option agreement, options may be exercised from
time to time by delivering payment therefor in cash, certified check, official
bank check, or the equivalent thereof acceptable to the Company, together with
written notice to the Secretary of the Company, identifying the
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<PAGE> 28
option or part thereof being exercised and specifying the number of Shares for
which payment is being tendered. An optionee may also exercise an option by the
delivery and surrender of shares of Company common stock which (a) have been
owned by the optionee for at least six months or such other period as the
Committee may require; and (b) have an aggregate fair market value on the date
of surrender equal to the exercise price. In addition, an option may be
exercised by delivering to the Company (i) an exercise notice instructing the
Company to deliver the certificates for the Shares purchased to a designated
brokerage firm and (ii) a copy of irrevocable instructions delivered to the
brokerage firm to sell the Shares acquired upon exercise of the option and to
deliver to the Company from the sale proceeds sufficient cash to pay the
exercise price and applicable withholding taxes arising as a result of the
exercise.
The Company shall deliver to the optionee, which delivery shall be not
less than fifteen (15) days and not more than thirty (30) days after the giving
of such notice unless an earlier or later date shall be mutually agreed upon,
without transfer or issue tax to the optionee (or other person entitled to
exercise the option), at the principal office of the Company, or such other
place as shall be mutually acceptable, a certificate or certificates for such
Shares dated the date the options were validly exercised; provided, however,
that the time of such delivery may be postponed by the Company for such period
as may be required for it with reasonable diligence to comply with any
requirements of law.
(b) Transferability of Option and Shares. Each option shall be
transferrable only by will or the laws of descent and distribution and shall be
exercisable during the optionee's lifetime only by the optionee, or in the
event of disability, the optionee's qualified representative. In addition, in
order for Shares acquired upon exercise of incentive stock options to receive
the tax treatment afforded such Shares, the Shares may not be disposed of
within two years from the date of the option grant nor within one year after
the date of transfer of such Shares to the optionee.
(c) Withholding. The Company shall have the right to condition the
issuance of Shares upon exercise of an option upon payment by the optionee of
any applicable taxes required to be withheld under federal, state or local tax
laws or regulations in connection with such exercise. An optionee may elect to
pay such tax by (i) requesting the Company to withhold a sufficient number of
Shares from the total number of Shares issuable upon exercise of the option or
(ii) delivering a sufficient number of shares of Company common stock (which
have been held by the optionee for such period as the Committee may require) to
the Company. The value of shares withheld or delivered shall be the fair market
value of such shares on the date the exercise becomes taxable as determined by
the Committee. Such an election is subject to approval or disapproval by the
Committee, and if the optionee is subject to Section 16 of the Exchange Act,
the timing of the election must satisfy the requirements of Rule 16b-3.
(d) Other Terms and Conditions. Options may also contain such other
provisions, which shall not be inconsistent with any of the foregoing terms, as
the Committee shall deem appropriate. No option, however, nor anything
contained in the Plan, shall confer upon any optionee
7
<PAGE> 29
any right to continue in the employ or in the status as a director of the
Company, nor limit in any way the right of the Company to terminate an
optionee's employment at any time.
8. ADJUSTMENT OF, AND CHANGES IN, THE SHARES
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the number of Shares covered by each
outstanding option, and the number of Shares which have been authorized for
issuance under the Plan but as to which no options have yet been granted, as
well as the price per share of common stock covered by each such outstanding
option, shall be proportionately adjusted for any change in the outstanding
shares of common stock resulting from a stock split, reverse stock split, stock
dividend, recapitalization, combination or reclassification of the common
stock, or any other change affecting the outstanding shares of common stock as
a class effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board of Directors, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares of common stock subject to an option.
(b) Dissolution, Liquidation, Sale or Merger. In the event of
a proposed dissolution or liquidation of the Company, options outstanding under
the Plan shall terminate immediately before the consummation of such proposed
action. The Board will, in such circumstances, provide written notice to the
optionees of the expected dates of termination of outstanding options and
consummation of the proposed dissolution or liquidation.
In the event of a proposed sale of all or substantially all of the
assets of the Company, or the merger of the Company with or into another
corporation in a transaction in which the Company is not the surviving
corporation, outstanding options may be assumed or equivalent options may be
substituted by the successor corporation (or a parent or subsidiary of the
successor corporation), unless the successor corporation does not agree to
assume the options or to substitute equivalent options. If outstanding options
are not assumed or substituted by equivalent options, all outstanding options
shall terminate immediately before the consummation of such sale or merger
(subject to the actual consummation of the sale or merger) and the Company
shall provide written notice to the optionees of the expected dates of
termination of the options and consummation of such transaction. If the
transaction is not consummated, unexercised options shall continue in
accordance with their original terms.
(c) Notice of Adjustments; Fractional Shares. To the extent
the foregoing adjustments relate to stock or securities of the Company, such
adjustments shall be made by the Committee, whose determinations in that
respect shall be final, binding and conclusive. No right to purchase
fractional shares shall result from any adjustment in options pursuant to this
Section 8. In case of any such adjustment, the shares subject to the option
shall be rounded down to the
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<PAGE> 30
nearest whole share. Notice of any adjustment shall be given by the Company to
each holder of an option which was in fact so adjusted and such adjustment
(whether or not such notice is given) shall be effective and binding for all
purposes of the Plan.
(d) No Other Adjustments; Rights of Company Unaffected. Except as provided
by paragraph (a) above, no issue by the Company of shares of stock of any class,
or securities convertible into shares of any class, shall affect the number or
price of shares of common stock subject to the option, and no adjustment by
reason thereof shall be made. The grant of an option pursuant to the Plan shall
not affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all or any part of its business or assets.
9. AMENDMENT AND TERMINATION OF THE PLAN
The Board shall have complete power and authority to terminate or amend the
Plan; provided, however, that the Board shall not, without the approval of the
shareholders of the Company, amend the Plan in a manner that requires
shareholder approval for continued compliance with the terms of Rule 16b-3, as
promulgated under the Exchange Act, Section 422 of the Code, any successor
rules, or other regulatory authority; and provided further that the provisions
of Section 5 shall not be amended more than once every six months, other than to
comport with changes in the Code, or the rules thereunder. Except as provided in
Section 8, no termination, modification or amendment of the Plan may, without
the consent of the optionee to whom an option was previously granted under the
Plan, adversely affect the rights of such optionee. Any consent required by the
preceding sentence may be obtained in any manner deemed appropriate by the
Committee.
The Plan, unless sooner terminated, shall terminate on October 19, 2005,
ten years from the date the Plan was originally adopted by the Board. An option
may not be granted under the Plan after the Plan is terminated.
10. EFFECTIVENESS OF THE PLAN
The Plan will become effective upon adoption by the Board; provided,
however, that unless the Plan is approved by the Company's shareholders within
twelve months of the date the Plan was adopted by the Board, the Plan shall
terminate.
11. INFORMATION TO OPTIONEES
The Company shall provide copies of its annual financial statements to each
optionee during any period in which the optionee holds one or more outstanding
options under the Plan.
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<PAGE> 31
12. PRIVILEGES OF STOCK OWNERSHIP: SECURITIES LAW COMPLIANCE
No optionee shall be entitled to the privileges of stock ownership as
to any Shares not actually issued and delivered to the optionee. The grant of
options and the issuance of Shares pursuant to the exercise of options granted
under the Plan shall be conditioned upon the registration of the Shares with
the SEC and qualification of the options and underlying Shares under the
California securities laws, unless in the opinion of counsel to the Company
such registration or qualification is not necessary. The Company shall
diligently endeavor to comply with all applicable securities laws before any
options are granted under the Plan and before any Shares are issued pursuant to
the exercise of such options.
13. NOTICE OF SALE
The optionee shall give the Company notice of any sale or other
disposition of any Shares acquired upon exercise of an incentive stock option
not more than five days after such sale or disposition.
14. INDEMNIFICATION
To the extent permitted by applicable law in effect from time to time,
no member of the Board or the Committee shall be liable for any action or
omission in connection with the Plan by any other member of the Board or
Committee nor for any such action or omission on the member's own part,
excepting only the member's own willful misconduct or gross negligence. The
Company shall pay expenses incurred by, and satisfy a judgment or fine rendered
or levied against, a present or former director or member of the Committee in
any action against such person (whether or not the Company is joined as a party
defendant) to impose liability or a penalty on such person for an act alleged
to have been committed by such person while a director or member of the
Committee arising with respect to the Plan or administration thereof or out of
membership on the Committee, or all or any combination of the preceding;
provided the director or Committee member was acting in good faith, within what
such director or Committee member reasonably believed to have been the scope of
his or her employment or authority and for a purpose which he or she
reasonably believed to be in the best interests of the Company or its
shareholders. Payments authorized hereunder include amounts paid and expenses
incurred in settling any such action or threatened action. This section does
not apply to any action instituted or maintained in the right of the Company by
a shareholder or holder of a voting trust certificate representing shares of
the Company. The provisions of this section shall apply to the estate,
executor, administrator, heirs, legatees or devisees of a director or Committee
member, and the term "person" as used in this section shall include the estate,
executor, administrator, heirs, legatees or devisees of such person.
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SOUTH VALLEY BANCORPORATION
NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
THURSDAY, MAY 16, 1996
3:00 P.M.
TO THE SHAREHOLDERS:
The 1996 Annual Meeting of Shareholders (the "Meeting") of South Valley
Bancorporation (the "Company"), a California corporation, will be held at the
Golden Oak Restaurant, 16695 Condit Road, Morgan Hill, California 95037 on
Thursday, May 16, 1996 at 3:00 p.m. for the purpose of considering and voting
upon the following matters:
(1) To elect directors.
(2) To approve the 1995 Stock Option Plan.
(3) To approve the selection of Independent Auditors.
(4) To consider such other business as may properly come before
the Meeting.
The names of the Board of Directors' nominees to be directors of the
Company are set forth in the accompanying Proxy Statement and are incorporated
herein by reference.
Section 2.3 of the Company's Bylaws provides for the nomination of
directors in the following manner:
"Nominations for election of members of the Board of Directors may be
made by the Board of Directors or by any shareholder of any outstanding
class of voting stock of the Company entitled to vote for the election
of directors. Notice of intention to make any nominations, other than
by the Board of Directors, shall be made in writing and shall be
received by the President of the Company no more than sixty (60) days
prior to any meeting of shareholders called for the election of
directors, nor more than ten (10) days after the date the notice of
such meeting is sent to shareholders pursuant to Section 2.2 of these
Bylaws; provided, however, that if ten (10) days' notice of the meeting
is given to shareholders, such notice of intention to nominate shall be
received by the President of the Company not later than the time fixed
in the notice of the meeting for the opening of the meeting. Such
notification shall contain the following information to the extent
known to the notifying shareholder: (a) the name and address of each
proposed nominee; (b) the principal occupation of each proposed
nominee; (d) the name and residence address of the notifying
shareholder; and (e) the number of shares of voting stock of the
Company
<PAGE> 33
owned by the notifying shareholder. Nominations not made in accordance
herewith shall be disregarded by the then chairman of the meeting, and
the inspector of the election shall then disregard all votes cast for
such nominee."
Only those shareholders of record at the close of business on April 12,
1996 (the "Record Date") are entitled to notice of and to vote at the Meeting
and any postponement(s) or adjournment(s) thereof.
SOUTH VALLEY BANCORPORATION
Morgan Hill, California By: Sandra L. Ogle, Secretary
April 22, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE SIGN AND RETURN
THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE PAID
ENVELOPE.
