SCHEDULE 14A - INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] 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 ss. 240.14a-12
Temecula Valley Bancorp Inc.
- --------------------------------------------------------------------------------
(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] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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B-3
April 14, 2004
Dear Shareholder:
I am pleased to invite you to the Annual Meeting of Shareholders of
Temecula Valley Bancorp Inc. ("Company"). We will hold the meeting at 6:00 p.m.
on Tuesday, May 25, 2004 at our main office located at 27710 Jefferson Avenue,
Suite A100, Temecula, California 92590.
This booklet contains the Notice of Annual Meeting and the Proxy Statement
and is accompanied by a proxy card. The Proxy Statement describes the business
that we will conduct at the meeting and provides information about Temecula
Valley Bancorp Inc. and its principal subsidiary, Temecula Valley Bank.
I hope that you can join us on the 25th of May. Whether or not you plan to
attend, please sign and return your proxy card as soon as possible. Your opinion
and your vote are important to us. Voting by proxy will not prevent you from
voting in person if you attend the meeting, but it will ensure that your vote is
counted if you are unable to attend. You may be eligible to vote electronically
over the Internet or by telephone by following the instructions on the proxy
card.
Sincerely,
/s/ Stephen H. Wacknitz
-----------------------
Stephen H. Wacknitz
President and Chief Executive Officer
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 25, 2004
The 2004 Annual Meeting of Shareholders of Temecula Valley Bancorp Inc.
will be held at 27710 Jefferson Avenue, Suite A100, Temecula, California 92590
at 6:00 p.m. on Tuesday, May 25, 2004 for the following purposes:
1. To elect six directors to serve on our Board of Directors until the
2005 Annual Meeting of Shareholders or until their successors have
been duly elected and qualified.
2. To ratify and approve the Temecula Valley Bancorp Inc. 2004 Stock
Incentive Plan.
3. To transact any other business that properly comes before the meeting
or any adjournment of the meeting.
Shareholders of record of our common stock at the close of business on
April 2, 2004 are entitled to vote at the meeting.
Section 3.3 of the bylaws of the Company governs nominations for election
of members of the Board of Directors, as follows:
SECTION 3.3. NOMINATIONS OF DIRECTORS. Nominations for election
of members of the board may be made by the board or by any
holder of any outstanding class of capital stock of the
corporation entitled to vote for the election of directors.
Notice of intention to make any nominations (other than for
persons named in the notice of the meeting called for the
election of directors) shall be made in writing and shall be
delivered or mailed to the president of the corporation by
the later of: (i) the close of business twenty-one (21) days
prior to any meeting of shareholders called for the election
of directors; or (ii) ten (10) days after the date of
mailing of notice of the meeting to shareholders. Such
notification shall contain the following information to the
extent known to the notifying shareholder: (a) the name and
address of each proposed nominee; (b) the principal
occupation of each proposed nominee; (c) the number of
shares of capital stock of the corporation owned by each
proposed nominee; (d) the name and residence address of the
notifying shareholder; (e) the number of shares of capital
stock of the corporation owned by the notifying shareholder;
(f) the number of shares of capital stock of any bank, bank
holding company, savings and loan association or other
depository institution owned beneficially by the nominee or
by the notifying shareholder and the identities and
locations of any such institutions; and (g) whether the
proposed nominee has ever been convicted of or pleaded nolo
contendere to any criminal offense involving dishonesty or
breach of trust, filed a petition in bankruptcy or been
adjudged bankrupt. The notification shall be signed by the
nominating shareholder and by each nominee, and shall be
accompanied by a written consent to be named as a nominee
for election as a director from each proposed nominee.
Nominations not made in accordance with these procedures
shall be disregarded by the chairperson of the meeting, and
upon his or her instructions, the inspectors of election
shall disregard all votes cast for each such nominee. The
foregoing requirements do not apply to the nomination of a
person to replace a proposed nominee who has become unable
to serve as a director between the last day for giving
notice in accordance with this paragraph and the date of
election of directors if the procedure called for in this
paragraph was followed with respect to the nomination of the
proposed nominee.
You are urged to sign and return the enclosed proxy card as promptly as
possible, whether or not you attend the meeting in person. The enclosed proxy
card is solicited by our Board of Directors. Any shareholder giving a proxy may
revoke it prior to the time it is voted by filing a written revocation or duly
executed proxy card bearing a later date with our Secretary, or revoking all
previously signed and filed proxies and attending the meeting and voting in
person.
A list of shareholders entitled to vote at the meeting will be available
for inspection at our executive offices. Shareholders attending the meeting
whose shares are held in the name of a broker or other nominee should bring with
them a proxy or other letter from that firm confirming their ownership of shares
as of the record date.
A copy of our Annual Report is enclosed with this notice. Additional copies
may be obtained, without charge, by contacting Donald A. Pitcher, Chief
Financial Officer, 27710 Jefferson Avenue, Suite A100, Temecula, California
92590, (909) 694-9940.
By Order of the Board of Directors:
/s/ Donald A. Pitcher
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Temecula, California Donald A. Pitcher
April 14, 2004 Secretary
TABLE OF CONTENTS
INTRODUCTION 1
ABOUT THE MEETING 1
STOCK OWNERSHIP 5
PROPOSAL 1 - ELECTION OF DIRECTORS 7
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS 8
COMMON STOCK PERFORMANCE CHART 13
EXECUTIVE OFFICERS AND COMPENSATION 15
SUMMARY COMPENSATION TABLE 16
EQUITY COMPENSATION PLAN INFORMATION AS OF DECEMBER 31, 2003 18
CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS 20
PROPOSAL 2 - APPROVAL OF TEMECULA VALLEY BANCORP INC. 20
2004 STOCK INCENTIVE PLAN 20
SELECTION OF INDEPENDENT AUDITORS 25
COMPLIANCE WITH SECTION 16 OF THE 1934 ACT 26
ADDITIONAL INFORMATION 26
OTHER MATTERS 26
ANNUAL REPORT 26
APPENDIX A: CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
OF TEMECULA VALLEY BANCORP INC. A-1
APPENDIX B: TEMECULA VALLEY BANCORP INC. 2004 STOCK INCENTIVE PLAN B-1
TEMECULA VALLEY BANCORP INC.
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 25, 2004
INTRODUCTION
Our Board of Directors is soliciting proxies for this year's Annual Meeting
of Shareholders. This proxy statement contains important information for you to
consider when deciding how to vote on the matters brought before the meeting.
Please read it carefully.
Our Board of Directors set April 2, 2004 as the record date for the
meeting. Shareholders who were the record holders of owned Temecula Valley
Bancorp Inc. common stock on that date are entitled to vote at the meeting, with
each share entitled to one vote. There were approximately 8,314,896 shares of
our common stock outstanding on April 2, 2004, held of record by approximately
455 holders.
Voting materials, which include this proxy statement, a proxy card and the
2003 Annual Report, are being mailed to shareholders on or about April 14, 2004.
ABOUT THE MEETING
Why am I receiving this proxy statement and proxy card?
You are receiving this proxy statement and proxy card because you owned
shares of our common stock as of the close of business on April 2, 2004. This
proxy statement describes issues on which we would like you to vote.
When you sign the proxy card you appoint Dr. Steven W. Aichle and Mr.
Richard W. Wright as your representatives at the meeting. Dr. Aichle and Mr.
Wright, or their substitute, will vote your shares at the meeting as you have
instructed on the proxy card. This way, your shares will be voted even if you
cannot attend the meeting.
Who is soliciting my proxy and who is paying the cost of solicitation?
Our Board of Directors is sending you this proxy statement in connection
with its solicitation of proxies for use at our 2004 Annual Meeting. Certain
directors, officers and employees of our Company may solicit proxies by mail,
telephone, facsimile or in person.
Temecula Valley Bancorp Inc. will pay for the costs of solicitation. We do
not expect to pay any compensation for the solicitation of proxies, except to
brokers, nominees and similar record holders for reasonable expenses in mailing
proxy materials to beneficial owners of our common stock. However, we reserve
the right to hire special employees or paid solicitors to assist us in obtaining
proxies if we believe it is necessary to secure a quorum.
1
What am I voting on?
At the Annual Meeting you will be asked to vote on two proposals. The first
is the re-election of our existing six directors to serve on our Board of
Directors until the 2005 Annual Meeting of Shareholders or until their
successors have been duly qualified and elected. The second proposal is to
ratify and approve the Temecula Valley Bancorp Inc. 2004 Stock Incentive Plan.
Who is entitled to vote?
Only shareholders who were owners of record of our common stock as of the
close of business on April 2, 2004 are entitled to receive notice of the Annual
Meeting and to vote the shares that they held on that date at the meeting, or
any postponement or adjournment of the meeting.
How many votes do I have?
Each share of common stock entitles the holder of record to one vote on any
matter coming before the Annual Meeting. In voting for directors, however,
shares may be voted cumulatively as described below. On any matter other than
the election of directors, any shareholder may vote part of the shares in favor
of the proposal and refrain from voting the remaining shares or vote them
against the proposal, but if the shareholder fails to specify the number of
shares that the shareholder is voting affirmatively, then it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares that the shareholder is entitled to vote.
How do I vote?
You may vote your shares either in person at the Annual Meeting or by
proxy. At the Annual Meeting, you can obtain a ballot. To vote by proxy, you
should mark, date, sign and mail the enclosed proxy card in the prepaid envelope
provided. If your shares are registered in your own name and you attend the
meeting, you may deliver your completed proxy card in person. "Street name"
shareholders, that is, those shareholders whose shares are held in the name of
and through a broker or nominee, who wish to vote at the meeting will need to
obtain proxy materials from the institution that holds their shares or instruct
their broker or nominee how to vote.
You may be eligible to vote your shares electronically over the Internet or
by telephone. Please refer to the enclosed proxy card for additional information
and instructions.
Can I change my vote after I return my proxy card?
Yes. You may revoke your proxy and change your vote at any time before the
proxy is exercised at the meeting by filing with our Secretary either a notice
of revocation or another signed proxy card or ballot bearing a later date. The
powers of the proxy holders will be suspended if you attend the meeting in
person and so request, although attendance at the meeting will not by itself
revoke a previously granted proxy.
What are the Board of Directors' recommendations?
Unless you give other instructions on your proxy card, Dr. Aichle and Mr.
Wright, as the persons named as proxy holders on the proxy card, will vote as
2
recommended by our Board of Directors. Our Board of Directors recommends a vote
FOR the election of the nominated directors listed in this proxy statement and
FOR approval of the Temecula Valley Bancorp Inc. 2004 Stock Incentive Plan.
If any other matters are considered at the meeting, Dr. Aichle and Mr.
Wright will vote as recommended by the Board of Directors. If the Board of
Directors does not give a recommendation, Dr. Aichle and Mr. Wright will have
discretion to vote as they think best.
Will my shares be voted if I do not sign and return my proxy card?
If your shares are registered in your name and you do not return your proxy
card or do not vote in person at the Annual Meeting, your shares will not be
voted.
If your shares are held in street name and you do not submit voting
instructions to your broker, your broker may vote your shares at this meeting on
the election of directors but likely will not vote on the proposal to adopt the
2004 Stock Incentive Plan.
How many shares must be present to hold the Annual Meeting?
A majority of our outstanding shares of common stock as of April 2, 2004 (a
quorum) must be present at the Annual Meeting in order to hold the meeting and
conduct business. Shares are counted as present at the meeting if a shareholder
is present and votes in person at the meeting or has properly submitted a proxy
card. As of April 2, 2004, the record date for the Annual Meeting, approximately
8,314,896 shares of our common stock were outstanding and eligible to vote.
What vote is required to elect directors?
The six director nominees who receive the highest number of FOR votes will
be elected. You may vote FOR all or some of the nominees or WITHHOLD AUTHORITY
for all or some of the nominees.
Each shareholder may be entitled to exercise cumulative voting rights in
connection with the election of directors. In such case, each shareholder would
be entitled to as many votes as equals the number of shares of common stock held
by such shareholder multiplied by the number of directors to be elected, and
such shareholder could cast all of such votes for a single nominee or could
distribute them among two or more nominees. For example, if you own 10 shares of
common stock of the Company and 11 directors are being elected, you have 110
votes - you can cast all of them for one nominee, or split them among two or
more nominees if you so choose. No shareholder, however, shall be entitled to
cumulate votes (i.e., cast for any one or more nominees a number of votes
greater than the number of shares of common stock of the Company held by such
shareholder) unless the name(s) of the nominee(s) has (have) been placed in
nomination prior to the commencement of the voting and a shareholder has given
notice at the meeting prior to the voting of the intention to cumulate votes.
If any shareholder has given notice to cumulate votes, all shareholders may
cumulate their votes for nominees, in which event votes represented by proxies
delivered pursuant to this proxy statement may be cumulated, in the discretion
of the proxy holders, in accordance with the recommendation of the Board of
Directors. Discretionary authority to cumulate votes in that event is,
3
therefore, solicited in this proxy statement. The person or persons holding the
proxies solicited by our Board of Directors will exercise their cumulative
voting rights, at their discretion, to vote the shares covered by the proxies
they hold in such a way as to ensure the election of as many of the six nominees
of the Board of Directors as they deem possible. This discretion and authority
of the proxy holders may be withheld by checking the box on the proxy card
marked "withhold authority for all nominees." However, such an instruction will
also deny the proxy holders the authority to vote for any or all of the nominees
of the Board of Directors, even if cumulative voting is not called for at the
Annual Meeting.
You may choose to withhold from the proxy holders the authority to vote for
any of the individual candidates nominated by our Board of Directors by marking
the appropriate box on the proxy card and striking out the names or filling in
the circle next to the names of the disfavored candidates as they appear on the
proxy card. In that event, the proxy holders will not cast any of your votes for
candidates whose names have been crossed out or otherwise indicated by filling
in the circle, whether or not cumulative voting is called for at the Annual
Meeting. However, the proxy holders will retain the authority to vote for the
candidates nominated by the Board of Directors whose names have not been struck
out or otherwise indicated as disfavored by filling in the circle and for any
candidates who may be properly nominated at the Annual Meeting. If you wish to
specify the manner in which your votes are allocated in the event of cumulative
voting, you must appear and vote in person at the Annual Meeting. Ballots will
be available at the Annual Meeting for shareholders who desire to vote in
person.
How can I make a nomination?
Nominations made other than by the Board of Directors may be made by
notification in writing delivered or mailed to the principal offices of the
Company in accordance with Section 3.3 of our Bylaws, as specified in the Notice
of our Annual Meeting we distributed with this proxy statement.
What vote is required for ratification and approval of the Temecula Valley
Bancorp Inc. 2004 Stock Incentive Plan?
After a majority of the outstanding shares of our common stock are present
(a quorum), the affirmative vote of a majority of shares present in person and
by proxy will constitute approval and ratification of the 2004 Plan. Abstentions
and "broker non-votes" are not counted either "for" or "against" any proposals.
Can I vote on other matters?
We have not received timely notice of any shareholder proposals to be
considered at the Annual Meeting, and our Board of Directors does not know of
any other matters to be brought before the Annual Meeting. However, subject to
the provisions of applicable law, any proper matter may be presented at the
meeting for action. The proxy holders will use their discretion in voting on any
such matters. You may vote on such matters only by attending the Annual Meeting
and voting in person.
When are proposals for the 2005 Annual Meeting due?
Proposals by our shareholders to transact business at the Company's 2005
Annual Meeting must be delivered to our Secretary no later than December 15,
2004. In addition to these advance notice requirements, there are other
requirements that a shareholder must meet in order to have a proposal included
in our proxy statement under the rules of the Securities and Exchange Commission
("SEC").
4
In addition, in the event a shareholder proposal to be raised at the 2005
Annual Meeting (as opposed to proposals submitted to be included in our proxy
statement for that meeting) is not submitted to us prior to February 28, 2005,
the proxy to be solicited by the Board of Directors for the 2004 Annual Meeting
of Shareholders will confer authority on the holders of the proxy to vote the
shares in accordance with their best judgment and discretion if the proposal is
presented at the 2005 Annual Meeting of Shareholders without any discussion of
the proposal in the proxy statement for such meeting.
Notice of intention to make nominations for the Board of Directors must be
made in writing pursuant to the requirements of Section 3.3 of our bylaws and
delivered or mailed to the President of the Company by the later of the close of
business 21 days prior to any meeting of shareholders called for the election of
directors or 10 days after the date of mailing of notice of the meeting to
shareholders.
STOCK OWNERSHIP
Are there any beneficial owners of more than 5% of the Company's stock?
Currently, to the Company's knowledge, two shareholders beneficially own
more than 5% of outstanding shares of the Company's common stock. They are
listed in the following table.
How much stock do the directors and executive officers of the Company own?
The following table shows, as of April 2, 2004, the amount of our common
stock beneficially owned (unless otherwise indicated) by (a) each director and
director nominee; (b) each of the current executive officers of Company and
Temecula Valley Bank, N.A. ("Bank") named in the Summary Compensation Table
below; (c) each person known to the Company to be the beneficial owner of more
than 5% of the Company's common stock; and (d) all of the Company's
5
and the Bank's directors, director nominees, and executive officers(1) as a
group. Except as otherwise noted, the Company believes that the beneficial
owners of the shares listed below, based on information furnished by such
owners, have or share with a spouse voting and investment power with respect to
the shares.
Company
Shares Owned Percent
Name & Position(2) Beneficially (3) of Class
- ------------------ --------------- --------
Dr. Steven W. Aichle, Nominee/Director, Company/Bank 318,202 (4) 3.76%
Dr. Robert P. Beck, Nominee/Director, Company/Bank 242,576 (5) 2.88%
Brian D. Carlson, EVP/SBA Mgr., Bank 104,000 (6) 1.25%
Neil M. Cleveland, Nominee/Director, Company/Bank 163,150 (7) 1.93%
Luther J. Mohr, Nominee/Vice COB/COO/ Company/Bank; 454,848 (8) 5.30%
5% Shareholder, Company
Thomas P. Ivory, EVP/East County Reg. Mgr., Bank 66,000 (9) 0.79%
Scott J. Word, EVP/SLO, Bank 74,264 (10) 0.89%
Stephen H. Wacknitz, Nominee/Pres./CEO/COB/ 719,770 (11) 8.26%
Bank/Company; 5% Shareholder, Company
Richard W. Wright, Nominee/Director, Company/Bank 193,020 (12) 2.29%
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ALL DIRECTORS AND
EXECUTIVE OFFICERS (13 in number) 2,483,942 25.48%
=========
(1) As used throughout the proxy statement, the term "Executive Officer" means
the Bank's President/Chief Executive Officer, Chief Operating Officer,
Chief Credit Officer, Senior Loan Officer, Executive Vice Presidents, SBA
Department Manager, East County Regional Manager and Chief Financial
Officer. An officer who does not participate in major policy-making
functions is not included in the definition of the term "Executive
Officer."
(2) The business address for each listed person is 27710 Jefferson Avenue,
Suite A100, Temecula, CA 92590.
(3) For purposes of this table, a person is deemed to be the "beneficial owner"
of any shares that such person has the right to acquire within 60 days. For
purposes of computing the percentage of outstanding shares held by each
person named above on a given date, any security that such person has the
right to acquire within 60 days is deemed to be outstanding, but is not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
(4) Includes as outstanding stock options with 153,714 underlying shares that
are exercisable within 60 days of the Record Date.
(5) Includes as outstanding stock options with 101,846 underlying shares that
are exercisable within 60 days of the Record Date.
(6) Includes as outstanding stock options with 26,668 underlying shares that
are exercisable within 60 days of the Record Date.
(7) Includes as outstanding stock options with 134,000 underlying shares that
are exercisable within 60 days of the record date.
(8) Includes as outstanding stock options with 272,100 underlying shares that
are exercisable within 60 days of the Record Date.
(9) Includes as outstanding stock options with 40,000 underlying shares that
are exercisable within 60 days of the Record Date.
(10) Includes as outstanding stock options with 65,664 underlying shares that
are exercisable within 60 days of the Record Date..
(11) Includes as outstanding stock options with 398,770 underlying shares that
are exercisable within 60 days of the Record Date.
(12) Includes as outstanding stock options with 125,000 underlying shares that
are exercisable within 60 days after the Record Date.
6
PROPOSAL 1 - ELECTION OF DIRECTORS
How many directors are nominated?
Our Bylaws provide that the number of directors to be elected by the
shareholders will be at least five and not more than nine. Under our Bylaws, our
Board of Directors has authority to decide the exact number of directors to be
elected within these limits. Our Board has fixed the number of directors to be
elected at the Annual Meeting at six and has nominated the persons listed on the
following page for election as directors to serve until the 2005 Annual Meeting
or until their successors are elected.
What happens if a nominee refuses or is unable to stand for election?
The Board of Directors may reduce the number of seats on the Board or
designate a replacement nominee. If the Board of Directors designates a
substitute, shares represented by proxy will be voted FOR the substitute nominee
unless the proxy withholds authority to vote for all nominees listed. The Board
of Directors presently has no knowledge that any of the nominees will refuse or
be unable to serve.
Who are the nominees?
Information regarding each of the nominees is provided below, including
each nominee's name and age, principal occupation during the past five years,
and the year first elected as a director of the Bank and the Company. All of the
nominees are presently directors of the Company and the Bank.
7
Year First
Elected to
Bank/Com-
Name / Age pany Board Business Experience During Past Five Years and Other Information
--------- ---------- ----------------------------------------------------------------
Steven W. Aichle 1996/2002 Business and civic leader in the community and surrounding communities
60 of the Bank for the last 23 years; Founded Avocado Animal Hospital,
Fallbrook, 1974 and continues as owner/veterinarian; Owner/Founder of
Fallbrook Fine Art Gallery since 1985.
Robert P. Beck 1996/2002 Opened his practice in 1970 as the first dentist in Temecula, California;
59 Has been involved in the Chamber of Commerce and civic affairs throughout
his years in Temecula.
Neil M. Cleveland 1996/2002 Involved in the brokerage, development, management and consulting
52 business relative to commercial and industrial real estate; Co-owner of
Rancho Land Associates since 1980.
Luther J. Mohr 1996/2002 Chief Operating Officer of the Bank since 1996; Senior Vice President and
68 Administrative Officer at Fallbrook National Bank, Fallbrook, California
from May 1990 to December 1995; at various times Senior Vice President,
Area Administrator, and Corporate Services Manager for Torrey Pines Bank,
Solana Beach, California from January 1981 to April 1990; Vice
President/Manager of the Fallbrook office from September 1977 to December
1980, with Rancho Santa Fe Savings and Loan.
Stephen H. Wacknitz 1996/2002 President/Chief Executive Officer of the Bank since 1996; President/Chief
64 Executive Officer at Fallbrook National Bank, Fallbrook, California, from
April 1984 to October 1995; Senior Vice President and the Senior Loan
Officer from April 1982 to March 1984 at Rancho Vista National Bank; Vice
President and Manager from September 1977 to April 1982, employed by
Grossmont Bank.
Richard W. Wright 1996/2002 Since 1994, self-employed manager of real estate investments. From 1989
75 to 1994, insurance inspector for P.E. McKinney, Inc., Reseda,
California. From 1987 to 1989, an insurance agent with Glen-Fed
Insurance. From 1986 to 1987, insurance agent for Western Financial
Savings Bank and Great American Wilshire Federal Savings and Loan. From
1964 to 1986, Vice President of Los Angeles Federal Savings and President
of the Insurance Brokerage of Los Angeles Federal Savings.
INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors
The Board oversees our business and monitors the performance of management.
In accordance with corporate governance principles, the Board does not involve
itself in day-to-day operations. The directors keep themselves informed through,
among other things, discussions with the Chief Executive Officer (who is also a
Board member) other key executives and our principal advisors (legal counsel,
outside auditors and other consultants), by reading reports and other materials
that we send them and by participating in Board and committee meetings. The
Board of Directors met 12 times during 2003. Each director attended at least 75%
of the total number of meetings of the Board of Directors and committees on
which he served.
Our shareholders can communicate with the Board of Directors by mailing or
delivering any such communication to our Board in care of our Chairman of the
Board as follows: Board of Directors, Attn: Stephen H. Wacknitz, Temecula Valley
Bancorp Inc., 27710 Jefferson Avenue, Suite A100, Temecula, California 92590.
8
It is our policy to have all our Board members attend our shareholders
meetings. Last year, all our directors attended the shareholders Annual Meeting.
Committees
The Board has appointed an executive committee, a stock option committee
and an audit committee, among others. The full Board performs the nomination and
compensation functions as well as the stock option tasks that committees might
otherwise perform.
Functions of a Nomination Committee Performed by the Board
The Board does not have a standing nominating committee or a committee
performing similar functions because the Board has historically performed these
functions and the Board has been effective in managing the Company. All Board
members participate in the nominating process and they include: Steven W.
Aichle, Robert P. Beck, Neil M. Cleveland, Luther J. Mohr, Stephen H. Wacknitz
and Richard W. Wright. Of the foregoing directors, all of the members meet the
independence standards in accordance with the NASD's listing standards, except
Mr. Wacknitz and Mr. Mohr. The Board in the capacity of the nomination function
has not adopted a charter. The Board has not adopted a policy with regard to the
consideration of any director candidates recommended by our shareholders and
believes it is appropriate to address each such situation on a case-by-case
basis. The Board will always consider candidates recommended by our
shareholders, and will do so as soon as practical, generally at the next
scheduled Board meeting, upon a written submission of a name, along with the
background information about the person with a description of why the person
would be beneficial to the Company and its shareholders. The minimum
qualifications, qualities and skills that the Board believes must be met for any
director candidate (including those that may be nominated by the board) are as
follows: 1) community banking board experience or comparable experience; 2)
understanding of financial matters including the capability of reading and
understanding a financial statement; and 3) an ability to support the Company
through expertise, business development or as otherwise determined. The Board
has not established a process for identifying and evaluating nominees for
director, including nominees recommended by our shareholders. It is anticipated
that any nominee, whether suggested by one of our shareholders or by a member of
our Board, will receive the same consideration.
Executive Committee
The Executive Committee may exercise all of the authority of the Board of
Directors during the intervals between meetings of the Bank's Board of
Directors, except that the Committee does not have the authority to: (1) approve
any action which, under law, the Articles of Association or Bylaws also requires
shareholder approval; (2) fill vacancies on the Board of Directors or any
committee of the Board of Directors; (3) fix director compensation for serving
on the Board of Directors or any committee; (4) adopt, amend or repeal the
Bylaws of Bank; (5) amend or repeal any resolution of the Board of Directors
that by its express terms is not so amendable or repealable; (6) make a
distribution to shareholders of Bank, except at a rate or amount or within a
range determined by the Board of Directors; (7) appoint any other committees of
the Board of Directors or members of such committees; (8) authorize or approve
9
the issuance or sale or contract for sale of shares; or (9) determine rights and
preferences with regard to any class or series of shares. Current members of the
Executive Committee are: Steven W. Aichle, Neil M. Cleveland, Luther J. Mohr and
Stephen H. Wacknitz (Chairman). There were no meetings of the Executive
Committee in 2003.
Stock Option Committee
The Stock Option Committee would be responsible for administering the
Company's stock option plans, according to the terms of the plans, including but
not limited to, identification of stock option recipients and specification of
stock option terms. The Stock Option Committee members are Neil M. Cleveland
(Chairman) and Richard W. Wright. The Stock Option Committee did not meet in
2003. All matters that normally would come before that committee were performed
by the full Board of Directors of the Company.
Audit Committee
The responsibilities of the Audit Committee are described in the Report of
the Audit Committee set forth below. Current members of the Audit Committee,
none of whom are officers or employees of the Bank or the Company, are: Steven
W. Aichle, Robert P. Beck (Chairman) and Richard W. Wright. An audit committee
"financial expert," as that term is defined in the SEC regulations issued
pursuant to the Sarbanes-Oxley Act of 2002, does not serve on the Audit
Committee. A "financial expert" has not been designated because: (i) all of the
audit committee members are businessmen with significant financial matters
experience that have guided the Company in audit matters historically; and (ii)
the independent accountants as well as other independent review teams for
compliance and lending assist the Audit Committee, as needed. There were nine
meetings of the Audit Committee during 2003.
Report of the Audit Committee
The Audit Committee is composed of three members of the Board of Directors
who meet the independence standards in accordance with the NASD's listing
standards and the rules and regulations of the SEC. The Audit Committee
recommends to the Board the selection and retention of our Company's independent
auditors, and assists the Board in its oversight of the integrity of the
Company's financial statements. The Audit Committee oversees the performance of
the independent auditors in their conduct of the audit. The Audit Committee
operates under a written charter prepared by the Audit Committee and adopted by
the Board. The Audit Committee reviews and assesses the adequacy of its charter
on an annual basis. A copy of the Audit Committee's charter is attached to this
proxy statement as Appendix A.
The Audit Committee has met with representatives of management, legal
counsel and the independent auditors to further its understanding of the
provisions of the Act. It also reviewed processes that are already in place as
well as those that will be required to comply with the requirements of the Act
as they become effective.
The Audit Committee members are not professional auditors, and their
functions are not intended to duplicate or to certify the activities of
management or the independent auditors. In performing its functions, the Audit
Committee acts only in an oversight capacity and necessarily relies on the work
and assurances of the Company's management, which has the primary responsibility
for financial statements and reports, and of the independent auditors, who, in
10
their report, express an opinion on the conformity of the Company's annual
financial statements to generally accepted accounting principles. In fulfilling
its oversight responsibilities, the Audit Committee reviewed the audited
consolidated financial statements and discussed such statements with management
and the independent auditors.
Management represented to the Audit Committee that the Company's
consolidated financial statements were prepared in accordance with generally
accepted accounting principles. The Audit Committee discussed with the
independent auditor matters required to be discussed by Statement on Auditing
Standards No. 61 (Communication with Audit Committees) as amended, including the
auditor's judgment about the quality as well as the acceptability of the
Company's accounting principles, as applied in its financial reporting.
The Company's independent auditors also provided to the Audit Committee the
written disclosures and the letter from the independent auditors required by the
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees). The Audit Committee discussed with the independent auditors the
firm's independence.
Based on the Audit Committee's above review of the audited financial
statements and discussion with management and the independent auditors, the
Audit Committee's review of the representations of management and the report of
the independent auditors to the Audit Committee, the Audit Committee recommended
that the Board of Directors include the audited consolidated financial
statements in the Company's Annual Report on Form 10-K for the year ended
December 31, 2003, for filing with the SEC. The Audit Committee also has
approved the selection of the Company's independent auditors.
Respectfully submitted by the members of the Audit Committee:
Robert P. Beck (Chairman) Steven W. Aichle Richard W. Wright
Board's Report on Executive Compensation
Set forth below is a report of our Board of Directors addressing the
compensation policies for 2003 applicable to our executive officers.
The Report
Decisions regarding the compensation of the Company's executive officers,
including those related to stock options, are considered by the full Board of
Directors. Since the Board of Directors is responsible for setting the
compensation of the Company's executive officers, including that of the Chief
Executive Officer/ President and Chief Operating Officer, Mr. Wacknitz and Mr.
Mohr do not participate in discussions of the Board relating to their
performance or compensation.
Compensation Policies. The Company's executive compensation policies and
specific executive compensation programs are adopted and administered in
accordance with the principal goal of maximizing return on shareholders' equity.
The Board believes that this performance goal, and the long-term interests of
our shareholders, are best achieved by attracting and retaining management of
high quality, and that such management will require commensurate compensation.
The Board believes that our executive officer compensation policies are
consistent with this policy.
11
In addition, the Board believes that, while our compensation programs
should reflect the philosophy that executive compensation levels be linked to
the Company's performance, such compensation programs should also be competitive
and consistent with those provided to others holding positions of similar
responsibility in the banking and financial services industry. Our compensation
plans are designed to assist the Company in attracting and retaining qualified
executive officers critical to our long-term success, while enhancing their
incentives to perform to their maximum capability of increasing profitability
and maximizing shareholder value.
In setting annual compensation levels for executive officers, the Board
reviewed and analyzed the following factors:
o the responsibilities of the position,
o the performance of the individual and his or her general experience and
qualifications,
o the overall financial performance (including return on equity, return on
assets and achievement of the profit plan) of the Company for the previous
year and the contributions to such performance by the individual or his or
her department,
o the officer's total compensation during the previous year,
o compensation levels paid by comparable companies in the financial services
industry,
o the officer's length of service with the Company, and
o the officer's effectiveness in dealing with external and internal
relationships.
The Board believes that the base compensation of the executive officers is
competitive with compensation levels paid by comparable companies in the
financial services industry.
Long-Term Compensation Programs. While the Board establishes salary and
bonus levels based on the above described criteria, the Board also believes that
encouraging equity ownership by executive officers further aligns the interests
of the officers with the performance objectives of our shareholders and enhances
our ability to attract and retain highly qualified personnel on a basis
competitive with industry practices. Stock options granted by the Company
pursuant to the Company's two existing stock option plans help achieve this
objective and provide additional compensation to the officers to the extent that
the price of our common stock increases over its fair market value on the date
of option grant. Stock options have been granted to each of the executive
officers and to other officers and key employees. Through such plans, there will
be an additional direct relationship between the Company's performance and
benefits to plan participants.
Through these various compensation programs, the Board believes that the
Company furthers its objectives of attracting, retaining and motivating the best
qualified executive officers, and ultimately will serve to increase our
profitability and maximize shareholder value.
12
Compensation of Chief Executive Officer. The base salary of our Chief
Executive Officer was determined primarily by the terms of his employment
agreement dated October 1, 2003 that became effective January 1, 2003 (see
"Executive Employment Agreements"). The agreement provides for a base salary,
subject to annual adjustments by the Board of Directors, and for a 7.5% annual
bonus based upon the pre-tax income of the Company. In addition, the Chief
Executive Officer's compensation for 2003 was based on his progress in achieving
the Company's strategic objectives and demonstrated leadership ability.
Respectfully submitted by the members of the Board of Directors:
Steven W. Aichle Robert P. Beck Neil M. Cleveland
Luther J. Mohr Stephen H. Wacknitz Richard W. Wright
Compensation Committee Interlocks and Insider Participation
Messrs. Wacknitz and Mohr are members of the Board of Directors and also
serve as officers of the Company. As noted above, Messrs. Wacknitz and Mohr do
not participate in discussions of the Board relating to their performance or
compensation. None of the other members of the Board serves or has served as an
officer or employee of the Company or the Bank.
COMMON STOCK PERFORMANCE CHART
The following graph shows the cumulative return experienced by the
Company's shareholders during the last five years compared to the hypothetical
cumulative total return on NASDAQ Stock Market Index (U.S. companies) and the
NASDAQ Bank Stock Index. The graph assumes the investment of $100 on December
31, 1999 in the Company's common stock and in each index and the reinvestment of
all dividends paid during the five-year period.
Comparison of 5 Year total Return
Among Temecula Valley Bancorp Inc.,
NASDAQ Stock Market (U.S.), and
NASDAQ Bank Stocks
TMCV NASDAQ NASDAQ BANK
1999 $100 $100 $100
2000 $67 $61 $114
2001 $109 $48 $124
2002 $145 $33 $127
2003 $309 $50 $163
13
Trading in the Company's common stock is solely through the
Over-the-Counter Bulletin Board and, until the last two to three quarters, was
not consistent or extensive. Consequently, sales price information consists
largely of quotations by dealers making a market in the Company's common stock
and may not represent actual transactions. As such, sales price information for
the Company's common stock reflects inter-dealer prices without any adjustments
for mark-ups, mark-downs or commissions. Moreover, during periods of light
volume, the sales price may not be a reliable indication of market value. The
prices presented for the Company are not necessarily indicative of future
performance.
Lack of Incorporation of Certain Information
The Report of the Audit Committee, the Board's Report on Executive
Compensation, the Common Stock Performance Chart and the assertion of
independence of audit committee members, previously reported to you in this
Proxy Statement, are not deemed incorporated by reference by any general
statement incorporating by reference this Proxy Statement into any filing under
the Securities Act of 1933 or under the Securities Exchange Act of 1934, except
to the extent that our Company specifically incorporates that information by
reference, and are not otherwise deemed filed under those acts.
How are directors compensated?
Prior to 2003, the Company did not pay directors compensation for their
service as directors. In January 2003, each director of the Bank was paid a
one-time payment of $10,000. Starting in February 2003, each Bank director began
receiving $1,000 per regular meeting, with one excused absence per year. Each
director of the Company was granted non-qualified stock options to purchase
shares (as adjusted for applicable stock dividends and splits) of the Company's
common stock over the last three years as follows:
Exercise Price
Per Share (85%
Each of Market Value
Year # of Shares on Date of Grant)
---- ----------- ----------------
All Directors 2001 20,000 $2.61
All Directors 2002 0 $0.00
All Directors 2003 20,000 $9.35
These options vest (i.e. become exercisable) at the date of grant. The
options may be exercised for a period of ten years after they vest.
14
EXECUTIVE OFFICERS AND COMPENSATION
Who are the executive officers of the Bank and the Company that are not
also directors of the Bank and the Company?
First Year
Name / Age Employed Business Experience During Past Five Years and Other Information
---------- -------- ----------------------------------------------------------------
James W. Andrews 2002 Executive Vice President, Real Estate Manager of the Bank since 2002;
54 Business Bank of California, San Bernardino, California as Executive Vice
President/Chief Credit Officer from 1996 to 2002; Executive Vice
President/Chief Credit Officer at International Savings Bank from 1992 to
1995. From 1987 to 1991 was Vice President/Assistant Portfolio Quality
Manager, Senior Vice President/Chief Internal Asset Review Officer and
Executive Vice President/Chief Credit Officer at Great American Bank.
Various other banking positions from 1972 to 1987.
Brian D. Carlson 2001 Executive Vice President/SBA Department
45 Manager at the Bank since
January 2001; Senior Vice President/SBA General Manager at Imperial Bank,
Los Angeles, California from 1999 to 2001; Senior Vice President/SBA
Manager at Sierra West Bank, Truckee, California from 1995 to 1999; Vice
President/SBA Division Manager at Regency Bank, Fresno, California from
1991 to 1995; with other banks beginning in 1983 in various positions,
principally in SBA related capacities.
Thomas P. Ivory 2001 Executive Vice President/East County Regional Manager at the Bank since
50 January 2001; Senior Vice President/Regional Manager at Scripps Bank, El
Cajon, California from 1992 to 2001; Senior Vice President at Grossmont
Bank, El Cajon, California from 1983 to 1991; various other banking
positions beginning in 1974.
Donald A. Pitcher 1996 Chief Financial Officer/Secretary of the Bank since 1996; Vice
54 President/Controller and Acting Chief Financial Officer/Secretary at
Fallbrook National Bank, Fallbrook, California from May 1990 to March 1996;
Vice President/Controller from October 1988 to May 1990 at Torrey Pines
Bank, Solana Beach, California; Various other banking positions beginning
in 1972.
Thomas M. Shepherd 1998 Chief Credit Officer of the Bank since 1998, Senior Vice President-Branch
49 Manager at California State Bank, Newport Beach, California from August
1994 to September 1998; Senior Vice President-Loan Administrator at
Commerce Bank, Newport Beach, California from 1993 to 1994; Senior Vice
President at Preferred Bank, Los Angeles, California from 1992 to 1993;
Corporate Senior Vice President at Metrobank, Torrance, California from
1984 to 1991.
Gerald W. Van Dyke 2003 Executive Vice President /North County Regional Manager of the Bank since
61 March 2003; Senior Vice President/Regional Manager at Rancho Santa Fe
National Bank, Escondido, Californian from 1991 to 2003; Senior Vice
President/Manager at First National Bank, San Diego, California from 1983
to 1991. Various other banking positions, up to Vice President, at Security
Pacific Bank in San Diego County, California from 1966 to 1983.
Scott J. Word 1996 Senior Loan Officer of the Bank since 1996; North County Bank,
49 Escondido, California as Senior Vice President/Riverside County Business
Banking Manager from 1994 to September 1996, Senior Vice
President/Riverside County Regional Manager from 1992 to 1994, Vice
President and Manager from 1985 to 1992, and Vice President and Manager
from 1980 to 1984.
15
Are there any family relationships between any directors and any executive
officers of the Company or the Bank?
No.
SUMMARY COMPENSATION TABLE
The following section describes the compensation that Bank pays its Chief
Executive Officer and the next four most highly compensated executive officers
who received an annual salary and bonus of more than $100,000 during 2003 (the
"Named Executives"). This section includes a detailed table showing compensation
of the Named Executives for the last three years and information about stock
options and other benefits.
- ----------------------------------------------------------------------------------------------------------------------------
Long Term Compensation
Annual Compensation
----------------------------------
============================================================================
Awards Payouts
============================================================================
- -------------------------------------------------------------------------------------- ---------
Restricted Securities All
Name and Other Annual Stock Underlying LTIP Other
Principal Salary Bonus Compensation Award(s) Options/SARs Payouts Compensation
Position Year ($) ($) ($)(1) ($) (#) ($) ($)
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------- ----------
Stephen H. Wacknitz, 2003 $230,000 $608,200 (1) $21,016 (6) $0 20,000 $0 $ 23,076 (9)
Chief Executive 2002 205,000 244,902 (1) 28,317 (6) $0 0 $0 13,803 (9)
Officer 2001 185,000 110,021 (1) 20,456 (6) $0 110,000 $0 23,429 (9)
And President
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Brian D. Carlson 2003 $166,667 $846,516 (2) $4,684 (7) $0 20,000 $0 $ 0
EVP/SBA Manager 2002 150,878 563,232 (2) 4,668 (7) $0 0 $0 0
2001 129,909 224,210 (2) 3,316 (7) $0 80,000 $0 0
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Luther J. Mohr 2003 $99,750 $304,100 (3) $7,553 (8) $0 20,000 $0 $ 7,403 (10)
Chief Operating 2002 92,250 122,451 (3) 8,153 (8) $0 0 $0 7,655 (10)
Officer 2001 82,500 53,701 (3) 5,350 (8) $0 67,900 $0 0
- ----------------------------------------------------------------------------------------------------------------------------
Thomas P. Ivory 2003 $144,167 $72,146 (4) $2,264 (7) $0 10,000 $0 $ 0
EVP/East County 2002 102,492 32,881 (4) 3,445 (7) $0 6,000 $0 0
Regional Manager 2001 101,661 8,698 (4) 2,717 (7) $0 40,000 $0 0
- ----------------------------------------------------------------------------------------------------------------------------
Scott J. Word 2003 $153,000 $ 35,000 (5) $ 1,592 (7) $0 10,000 $0 $ 0
EVP/Senior Lending 2002 138,500 20,000 (5) 2,162 (7) $0 0 $0 0
Officer 2001 127,500 17,090 (5) 2,285 (7) $0 10,000 $0 0
============================================================================================================================
(1) $110,021 bonus accrued in 2000, paid in 2001; $244,902 bonus accrued in
2001, paid in 2002; $608,200 bonus accrued in 2002; paid in 2003;
$1,172,000 bonus accrued in 2003, paid in 2004.
(2) $224,210 commission paid in 2001; $563,232 commission paid in 2002;
$846,516 commission paid in 2003.
(3) $53,701 bonus accrued in 2000, paid in 2001; $122,451 bonus accrued in
2001, paid in 2002; $304,100 bonus accrued in 2002, paid in 2003; $586,000
bonus accrued in 2003, paid in 2004.
(4) $8,698 commission paid in 2001; $32,881 commission paid in 2002; $72,146
commission paid in 2003.
(5) $17,090 bonus accrued in 2000, paid in 2001; $20,000 bonus accrued in 2001,
paid in 2002; $30,000 bonus accrued in 2002, paid in 2003; $50,000 bonus
accrued in 2003, paid in 2004.
(6) For 2001, includes non-cash compensation of $4,323 for bank car usage,
$8,383 for long term disability premium and $7,750 for life insurance
premiums. For 2002, includes non-cash compensation of $8,827 for bank car
usage, $11,740 for long term disability premiums and $7,750 for life
insurance premiums. For 2003, includes non-cash compensation of $4,386 for
bank car usage, $8,820 for long term disability premiums and $7,750 for
life insurance premiums.
(7) Non-cash compensation for bank car usage.
(8) For 2001, includes non-cash compensation of $1,383 for bank car usage and
$3,967 for life insurance premiums. For 2002, includes non-cash
compensation of $4,186 for bank car usage and $3,967 for life insurance
premiums. For 2003, includes non-cash compensation of $3,586 for bank car
usage and $3,967 for life insurance premiums.
(9) $7,853 unused vacation pay accrued in 2000, paid in 2001; $15,576 unused
vacation pay for 2001, paid in 2001; $13,803 unused vacation pay for 2002,
paid in 2002; $23,076 unused vacation pay for 2003, paid in 2003.
(10) $7,655 unused vacation pay for 2002, paid in 2002; $7,403 unused vacation
pay for 2003, paid in 2003.
16
Option Grants and Exercises in 2003
The following two tables summarize grants to and exercises of options to
purchase common stock of the Company during 2003 by the Named Executives, and
with respect to option grants, the per share exercise price, the expiration date
of the options and the grant date value of options held by such persons at
December 31, 2003. The second table also provides information concerning the
total number of securities underlying unexercised options and the aggregate
dollar value of in-the-money unexercised options. An option is in-the-money if
the fair market value for the underlying securities exceeds the exercise price
of the option. The Company did not reprice any options during 2003 or any prior
year, and did not provide to executive's stock appreciation rights.
INDIVIDUAL OPTION GRANTS IN THE LAST FISCAL YEAR (2003)*
- -------------- -------------- --------------- ------------- ----------- ---------- ---------- ---------- --------------
% of Total % of Total
Options Options
Number Granted Under Granted
of Securities Employee Plan Under Exercise Market
Underlying in Fiscal Director or Base Price on
Option Year 2002 Plan in Price Date of
Granted (#) Fiscal Year ($/Sh) Grant 5% 10% Expiration
Name 2002 $ ($) ($)** ($)*** Date
- -------------- -------------- --------------- ------------- ----------- ---------- ---------- ---------- --------------
Stephen H. 20,000 --- 16.67% $9.35 $11.00 $171,357 $383,623 11/17/2013
Wacknitz
- -------------- -------------- --------------- ------------- ----------- ---------- ---------- ---------- --------------
- -------------- -------------- --------------- ------------- ----------- ---------- ---------- ---------- --------------
Luther J. 20,000 --- 16.67% $9.35 $11.00 $171,357 $383,623 11/17/2013
Mohr
- -------------- -------------- --------------- ------------- ----------- ---------- ---------- ---------- --------------
- -------------- -------------- --------------- ------------- ----------- ---------- ---------- ---------- --------------
Brian D. 20,000 15.04% --- $11.00 $11.00 $138,357 $350,623 11/17/2013
Carlson
- -------------- -------------- --------------- ------------- ----------- ---------- ---------- ---------- --------------
- -------------- -------------- --------------- ------------- ----------- ---------- ---------- ---------- --------------
Thomas P. 10,000 7.52% --- $11.00 $11.00 $69,178 $175,312 11/17/2013
Ivory
- -------------- -------------- --------------- ------------- ----------- ---------- ---------- ---------- --------------
- -------------- -------------- --------------- ------------- ----------- ---------- ---------- ---------- --------------
Scott J. Word 10,000 7.52% --- $11.00 $11.00 $69,178 $175,312 11/17/2013
============== ============== =============== ============= =========== ========== ========== ========== ==============
* Based on options to purchase 120,000 shares of common stock issued under
the director plan during 2003 and 133,000 shares issued under the employee
plan during 2003.
** Presents the potential realizable value of option, assuming the market
price of the underlying security appreciates in value from the date of
grant to the end of the option at the annualized rate of 5%.
*** Presents the potential realizable value of option, assuming the market
price of the underlying security appreciates in value from the date of
grant to the end of the option at the annualized rate of 10%.
17
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES (2003)
========================== ============================ =====================================================================
Exercised Shares Unexercised Shares
- -------------------------- ---------------------------- ---------------------------------------------------------------------
Shares Value # of # of Value Value
Name Acquired on Realized Securities Securities of of
Exercise (#) ($000) Underlying Underlying In-the-Money In-the-Money
Options at FYE Options at Options at FYE Options at FYE
Exercisable FYE Exercisable (1) Unexercisable
Unexercisable (1)
- -------------------------- --------------- ------------ ---------------- --------------- ------------------ -----------------
- -------------------------- --------------- ------------ ---------------- --------------- ------------------ -----------------
Brian D. Carlson 53,332 573,319 - 46,668 $ 0 $336,681
- -------------------------- --------------- ------------ ---------------- --------------- ------------------ -----------------
- -------------------------- --------------- ------------ ---------------- --------------- ------------------ -----------------
Luther J. Mohr - - 272,100 0 $2,808,982 $ 0
- -------------------------- --------------- ------------ ---------------- --------------- ------------------ -----------------
- -------------------------- --------------- ------------ ---------------- --------------- ------------------ -----------------
Thomas P. Ivory - - 28,664 27,336 $ 303,788 $202,662
- -------------------------- --------------- ------------ ---------------- --------------- ------------------ -----------------
- -------------------------- --------------- ------------ ---------------- --------------- ------------------ -----------------
Scott J. Word 8,000 98,000 65,664 13,336 $ 762,806 $ 58,443
- -------------------------- --------------- ------------ ---------------- --------------- ------------------ -----------------
Stephen H. Wacknitz - - 398,770 21,230 $4,175,119 $212,831
========================== =============== ============ ================ =============== ================== =================
(1) Calculated based on the excess of the fair market value on December 31,
2003 of the common stock ($13.50) as reported in the OTC Bulletin Board
over the option exercise price.
EQUITY COMPENSATION PLAN INFORMATION AS OF DECEMBER 31, 2003
Number of securities to be Weighted average exercise
issued upon exercise of price of outstanding Number of securities
outstanding options, options, warrants and remaining available for
Plan Category warrants and rights rights future issuance
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
(a) (b) (c)
Equity compensation plans 1,912,674 $3.74 27,984
approved by security holders
Equity compensation plans not 0 0 0
approved by security holders
Total 1,912,674 $3.74 27,984
========= ======
Retirement Benefits
The Board of Directors approved Salary Continuation Agreements
("Agreements") for certain executives of the Bank. The Agreements are intended
to encourage key employees of the Bank to continue their employment with the
Bank and to encourage other qualified key employees to join and/or remain in the
employ of the Bank, when entering such Agreements is deemed appropriate for the
Bank. The Agreements in effect at December 31, 2003 for the Named Executives are
as follows:
Estimated Cash
Age Retire- Benefit Duration Estimated SCP SCP Single Surrender
Executive on ment Age per of Benefit Total Accrual Accrual Premium Value Death
Officers Record ------- year (yrs) Benefit 2003 Balance Aggregate 12/31/03 Benefits
-------- Date ----- --------- -------- ------ -------- -------- -------- --------
------
Brian D. Carlson 45 65 $ 60,000 15 $ 900,000 $ 3,381 $ 6,744 $ 430,000 $ 450,167 $ 729,146
Luther J. Mohr 68 70 $ 80,000 10 $ 800,000$145,050 $343,707 $1,080,000 $1,251,524 $1,954,873
Stephen H. Wacknitz 64 65 $125,000 20 $2,500,000$376,466 $829,282 $1,935,000 $2,242,708 $3,862,383
Scott J. Word 49 65 $ 60,000 15 $ 900,000 $ 4,343 $ 15,368 $ 385,000 $ 408,113 $ 611,412
Total All Participants (6) $6,900,000$531,240 $1,262,406 $5,065,000 $5,740,729 $9,971,960
18
Executive Employment Agreements
The Bank entered into an employment agreement with Mr. Wacknitz ("Wacknitz
Agreement") on October 1, 2003 that became effective January 1, 2003. Under the
evergreen Wacknitz Agreement, the initial annual base salary is $210,000, which
may be increased in the discretion of the Board of Directors. In addition, the
Wacknitz Agreement provides for six weeks of vacation, the use of a Bank-owned
and maintained automobile, group medical benefits, term life insurance benefits
equal to at least $250,000, long-term disability benefits equal to at least
$120,000 per year before age 65 and $10,000 per month paid by the Bank in the
event disability payments are not made by an insurer. After age 65, in the event
of disability, Mr. Wacknitz will receive from the Bank the difference between
the amount received from the insurer and $15,000. Further, Mr. Wacknitz is
entitled to receive a bonus of 7.5% of profits before taxes and bonus accrual of
the Bank if certain performance standards are met. If terminated without cause,
or if Mr. Wacknitz terminates for good reason, Mr. Wacknitz will be entitled to
receive the greater of one year of salary plus bonus as though a full year had
lapsed or two years of salary.
The Bank entered into an employment agreement with Mr. Mohr ("Mohr
Agreement") on October 1, 2003 that became effective January 1, 2003. Under the
evergreen Mohr Agreement, the initial annual base salary is $94,500, which may
be increased in the discretion of the Board of Directors. In addition, the Mohr
Agreement provides for 1.5 vacation days for each month in which Mr. Mohr works,
the use of a Bank-owned and maintained automobile, group medical benefits, term
life insurance benefits equal to at least $150,000. In the event of disability,
Mr. Mohr will receive from the Bank the difference between the amounts received
from the insurer and $10,000. Further, Mr. Mohr is entitled to receive a bonus
of 3.75% of profits before taxes and bonus accrual of the Bank if certain
performance standards are met. If terminated without cause, or Mr. Mohr
terminates for good reason, Mr. Mohr will be entitled to receive the greater of
one year of salary plus bonus as though a full year had lapsed or two years of
salary.
The Bank entered into an employment agreement with Mr. Carlson ("Carlson
Agreement") effective on December 1, 2003. Under the evergreen Carlson
Agreement, the initial annual base salary is $180,000. In addition, Mr. Carlson
can earn a bonus equal to thirty basis points of the total original principal
amount of funded 7A and 504 SBA loans as well as construction, conventional and
business & industry loans processed through Bank's SBA Department, as reasonably
determined by the Bank. Also, the Carlson Agreement provides for four weeks of
vacation, the use of a Bank-owned and maintained automobile and group medical
benefits. Under the Carlson Agreement, Mr. Carlson is entitled to participate in
the Bank's 401(K) Plan, is eligible to participate in the Bank's Senior
Management Retirement Program and may be afforded a salary deferment plan
acceptable to the Bank and to Mr. Carlson. Mr. Carlson will receive an option to
purchase 15,000 shares of the Company's common stock if such plan is approved by
the Company's shareholders at the Annual Meeting. If terminated without cause,
Mr. Carlson is entitled to receive twelve months' base salary.
The Bank entered into an employment agreement with Mr. Word ("Word
Agreement") effective on April 1, 2003. Under the evergreen Word Agreement, the
initial annual base salary is $150,000. In addition, the Word Agreement provides
for four weeks of vacation, the use of a Bank-owned and maintained automobile,
group medical benefits, participation in the Bank's 401(K) Plan and eligibility
to participate in the Bank's Senior Management Retirement Program. Discretionary
bonuses may be awarded by the Board of Directors. If terminated without cause,
Mr. Word is entitled to receive three months' salary.
The Bank entered into an employment agreement with Mr. Ivory ("Ivory
Agreement") effective on January 24, 2003. Under the evergreen Ivory Agreement,
the initial annual base salary is $160,000, which may be increased in the
discretion of the Board of Directors. In addition, the Ivory Agreement provides
for four weeks of vacation, the use of a Bank-owned and maintained automobile,
group medical benefits, participation in the Bank's 401(K) Plan and eligibility
to participate in the Bank's Senior Management Retirement Program. Further, Mr.
Ivory is entitled to receive 7.5 basis points of total loan production generated
out of the El Cajon office (excluding lines of credit), plus 2.5% of annual
after-tax profits of the El Cajon office. If terminated without cause, Mr. Ivory
is entitled to receive three months' salary.
19
CERTAIN RELATIONSHIPS AND OTHER TRANSACTIONS
Transactions with Management and Others
There have been no transactions, or series of similar transactions, during
2003, or any currently proposed transaction, or series of similar transactions,
to which the Company or the Bank was or is to be a party, in which the amount
involved exceeded or will exceed $60,000 and in which any director (or nominee
for director) of the Company, executive officer of the Company or the Bank, any
shareholder owning of record or beneficially 5% or more of the Company's common
stock, or any member of the immediate family of any of the foregoing persons,
had, or will have, a direct or indirect material interest except as described
above under the headings "INFORMATION ABOUT DIRECTORS AND EXECUTIVE OFFICERS,"
"EXECUTIVE OFFICERS AND COMPENSATION" AND "Summary Compensation Table."
Indebtedness of Management
The Company and the Bank have had, and expect in the future to have banking
transactions in the ordinary course of its business with many of the Bank's and
Company's directors and officers and their associates, including transactions
with corporations of which such persons are directors, officers or controlling
shareholders, on substantially the same terms (including interest rates and
collateral) as those prevailing for comparable transactions with others.
Management believes that in 2003 such banking transactions did not involve more
than the normal risk of collectibility or present other unfavorable features.
Loans to executive officers of the Bank and the Company are subject to
limitations as to amount and purposes prescribed in part by the Federal Reserve
Act, as amended, and other federal laws and regulations.
PROPOSAL 2 - APPROVAL OF TEMECULA VALLEY BANCORP INC.
2004 STOCK INCENTIVE PLAN
Introduction and Purpose
On March 24, 2004, our Board of Directors approved a proposal to adopt the
Temecula Valley Bancorp Inc. 2004 Stock Incentive Plan (the "2004 Plan"),
subject to the approval of the Company's shareholders. Our Board believes the
2004 Plan will promote the success of the Company by providing a means to
attract, motivate and retain key employees, directors and consultants of the
Company through grants of stock options and therefore recommends adoption of the
Proposal. As of March 24, 2004, approximately 85 persons would have been
eligible to participate in the 2004 Plan if shareholder approval of the 2004
Plan had been obtained as of that date.
20
The material features of the 2004 Plan are described below. However, this
summary is subject to, and qualified in its entirety by, the full text of the
2004 Plan, a copy of which is attached hereto as Annex B.
Background
As of the close of business on March 24, 2004, there were outstanding and
unexercised stock options on a total of 1,758,191 shares and only .3% of the
Company common stock (or 25,485 shares) remained available for future grants of
stock options under the Company's two existing plans: the 1996 Incentive and
Nonqualified Stock Option Plan (Employees) and the other the 1997 Nonqualified
Stock Option Plan (Directors) (collectively, the "Prior Plans"). The adoption of
the 2004 Plan does not affect any of the stock options granted under the Prior
Plans.
Administration and Eligibility
The Company currently intends that the 2004 Plan will be administered by
the Stock Option Committee of the Board of Directors or the full Board of
Directors (the "Administrator"). Employees of the Company and its subsidiaries,
and directors of the Company are eligible to participate. Options may also be
granted to consultants or advisors who perform or agree to perform bona fide
services for the Company, except that options intended to qualify as incentive
stock options ("ISOs") within the meaning of Section 422 of the Internal Revenue
Code ("Code"), may only be granted to employees. The Administrator will
determine which eligible participants will receive Options, the nature, price,
number of shares and other terms of such Options, and the form and terms of
Option agreements. The Administrator is authorized to construe and interpret the
2004 Plan and all decisions, determinations and interpretations of the
Administrator are final and binding on all participants and any other holder of
Options.
Maximum Shares
Under the 2004 Plan, the total number of shares of common stock subject to
Options may not exceed 700,000. This limitation is subject to adjustment in the
event of certain changes in the capitalization of the Company. See "Adjustments
and Extraordinary Events" below. Upon termination, cancellation, forfeiture or
expiration of any unexercised Option under the 2004 Plan, the number of shares
with respect to which Options may be granted under the 2004 Plan will be
increased by the number of shares to which such unexercised Option pertained.
Terms of Options and Transferability
The Administrator will determine the vesting and the expiration date of
Options, but Options may not remain outstanding more than 10 years after the
grant date (or, as discussed below, 5 years in the case of certain employee
ISOs).
Generally, Options may not be sold, pledged, assigned, hypothecated,
transferred or disposed of in any manner other than by will or by the laws of
descent and distribution and may be exercised, during the lifetime of the
participant, only by the participant. However, the Administrator may permit a
participant to transfer any of such participant's Options, other than ISOs, to
21
one or more of the participant's immediate family members or to trusts
established in whole or in part for the benefit of the participant and/or one or
more of such immediate family members, to the extent that neither the transfer
of such Option to the immediate family member or trust, nor the ability of a
participant to make such a transfer, shall have adverse consequences to the
Company or the participant by reason of Section 162(m) of the Code. See
"Termination of Employment, Death or Disability" below.
Term of 2004 Plan
The 2004 Plan will terminate on March 24, 2014 unless terminated earlier by
the Board of Directors.
Stock Options
Under the 2004 Plan, the Administrator may from time to time grant stock
options, either ISOs or non-qualified stock options, to acquire shares of the
Company's common stock to eligible participants. As required by the Code and
applicable regulations, ISOs are subject to certain limitations not applicable
to non-qualified stock options. The exercise price of all stock options will be
determined by the Administrator, but for ISO's may not be less than the fair
market value of a share of the Company's common stock on the date of grant and
for non-qualified stock options may not be less than 85% of the fair market
value of a share of the Company's common stock on the date of grant. The
exercise price for any ISO granted to any eligible employee owning more than 10%
of the total combined voting power of all classes of the Company's stock may not
be less than 110% of the fair market value of a share of the Company's common
stock on the date of grant. In addition, the term of such option may not exceed
five years from the date of grant. The exercise price may be adjusted in the
event of changes in the capitalization of the Company. See "Adjustments and
Extraordinary Events" below. The aggregate fair market value (determined at the
date of grant) of common stock subject to all ISOs held by an employee that vest
in any single calendar year cannot exceed $100,000.
Termination of Employment, Death or Disability
Termination of Service. Upon termination of service other than due to
death, disability or cause, the participant may exercise his or her Option on or
prior to the date that is three months following the date of termination to the
extent that such participant was entitled to exercise such Option on the date of
termination (but in no event later than the expiration of the term of such
Option).
Disability of Participant. Upon termination of service due to disability,
the participant may exercise his or her Option on or prior to the date that is
twelve months following the date of termination to the extent that such
participant was entitled to exercise such Option on the date of termination (but
in no event later than the expiration of the term of such Option).
Death of Participant. In the event that a participant should die while in
service, the participant's Option may be exercised by the participant's estate
or by a person who has acquired the right to exercise the Option by bequest or
inheritance, but only on or prior to the date that is twelve months following
the date of death, and only to the extent that the participant was entitled to
exercise the Option at the date of death (but in no event later than the
expiration date of the term of such Option).
22
Cause. In the event of termination of a participant's service due to cause,
the participant's Option shall terminate on the date of termination.
Adjustments and Extraordinary Events
The 2004 Plan provides that if there is any increase or decrease in the
number of issued and outstanding shares of common stock resulting from a stock
split, reverse stock split, stock dividend, recapitalization, combination or
reclassification of the Company's common stock, then the limitations on the
number of shares reserved for delivery under the 2004 Plan, the limitations on
the number of stock options which may be granted in any one calendar year, the
number of shares that pertain to each outstanding Option and the exercise price
of each Option will be proportionately adjusted.
In the event of a transaction in which the Company is not the surviving
entity, Optionees will be provided an opportunity to exercise vested Options or
they will receive replacement Options.
The Board of Directors of the Company may at any time amend, alter, suspend
or discontinue the 2004 Plan in its discretion, but no amendment, alteration,
suspension or discontinuation may be made which would impair the rights of any
participant under any grants made without his or her consent. In addition, to
the extent necessary and desirable to comply with Section 422 of the Code (or
any other applicable law or regulation, including the requirements of any stock
exchange or national market system upon which the Company's common stock is then
listed), the Company will obtain shareholder approval of any amendment to the
2004 Plan in such a manner and to such a degree as is required.
Cancellation and Regrant of Options
The Administrator shall have the authority to effect, at any time and from
time to time, with the consent of the affected participant, the cancellation of
any or all outstanding Options and to grant in substitution new Options covering
the same or a different number of shares of common stock but with an exercise
price based on the fair market value on the new date of grant of the Option.
Federal Income Tax Consequences
Incentive Stock Options. For federal income tax purposes, the holder of an
ISO will not be subject to tax upon the grant or exercise of the ISO. Under
certain circumstances, the exercise of an ISO may be subject to alternative
minimum tax. If a participant retains the stock for a period ending on or after
the later of two years after the Option is granted and one year after the Option
is exercised, any gain upon the subsequent sale of the stock will be taxed as a
long-term capital gain. A participant who disposes of shares acquired upon the
exercise of an ISO prior to the expiration of two years after the Option is
granted or one year after the Option is exercised, generally, will realize
ordinary income as of the date of exercise equal to the difference between the
exercise price and fair market value of the stock on the date of exercise. To
the extent ordinary income is recognized by the participant because the
participant's disposition of the ISO shares does not meet the holding period
requirements, the Company may deduct a like amount as compensation.
23
Non-Qualified Stock Options. Generally, a holder of a non-qualified stock
option will not realize taxable income on the grant of the Option (unless the
exercise price is below fair market value at the time of the grant), but will
realize ordinary income at the time of exercise of the Option equal to the
difference between the Option exercise price and the fair market value of the
stock on the date of exercise. The Company will be eligible to take a
corresponding deduction equal to the income realized by the holder of the
Option.
Payment of Withholding Taxes. To the extent permitted under Section 402 of
the Sarbanes-Oxley Act of 2002 and applicable regulations, the Board may, in its
discretion, allow any holder of non-qualified stock options or unvested shares
to satisfy all or part of the withholding taxes incurred by the participant in
connection with the exercise of their Options or the vesting of their shares
through the surrender or withholding of vested shares of common stock.
New Plan Benefits
As stated above, the Administrator has the authority to determine the
amounts, terms and grant dates of Options to be granted in the future to
eligible participants under the 2004 Plan. To date, no such determinations have
been made and, as a result, it is not possible to state such information except
that Mr. Brian Carlson, pursuant to his Employment Agreement with the Bank, is
entitled to receive an option to purchase 15,000 shares of common stock upon
shareholder approval of the 2004 Plan. The terms of Mr. Carlson's Option will be
determined on the date of grant.
If all 1,783,676 Options available for grant and Options granted and
unexercised under the Prior Plans as of March 24, 2004 were granted and
exercised, the shares thus purchased pursuant to the exercise of such Options
would constitute 17.7% of the then outstanding shares of common stock of the
Company. If those same Options were exercised, and Options covering all the
proposed additional 700,000 shares were also exercised, the shares purchased
pursuant to such Options would constitute 23% of the then outstanding shares of
common stock of the Company.
Possible Anti-Takeover Effects
Although not intended as an anti-takeover measure by our Board of
Directors, one of the possible effects of the 2004 Plan could be to place
additional shares, and to increase the percentage of the total number of shares
outstanding, in the hands of our directors and key employees. These persons may
be viewed as part of, or friendly to, incumbent management and may, therefore,
under certain circumstances be expected to make investment and voting decisions
in response to a hostile takeover attempt that may serve to discourage or render
more difficult the accomplishment of such an attempt.
For more complete information concerning the 2004 Plan, please refer to
Appendix B.
Necessary Approval
The affirmative vote in person or by proxy of the holders of a majority of
the outstanding shares of common stock entitled to vote at the Annual Meeting
will constitute ratification and approval of the 2004 Plan.
24
Recommendation of the Board of Directors
The Board of Directors recommends a vote FOR Proposal 2 to ratify and
approve the 2004 Plan.
SELECTION OF INDEPENDENT AUDITORS
The Audit Committee has selected and the Board of Directors affirmed the
firm of Vavrinek, Trine, Day & Co., LLP ("Vavrinek") as the Company's
independent auditors for the 2004 fiscal year. The firm of Vavrinek and its
predecessor has audited the accounts of the Bank since 1996 and the Company
since its creation in mid-2002. Vavrinek is considered well qualified by the
Audit Committee. Audit services include the annual audit examination, limited
reviews of unaudited quarterly financial data and assistance in filings with
various regulatory authorities and aid with the Annual Report to Shareholders
and discussions regarding accounting principles and practices followed by the
Bank and the Company in preparing its financial statements.
Audit Fees
The aggregate fees billed by Vavrinek for professional services rendered
for the audit of the Company's annual financial statements for fiscal years 2003
and 2002, the reviews of the financial statements included in the Company's Form
10-Qs for such fiscal years and tax return preparation fees were $48,000 and
$41,000, respectively.
Audit-Related Fees and Tax Fees
There were no fees billed by Vavrinek for professional services rendered
for assurance and related service or for tax compliance, advice or planning for
fiscal years 2003 and 2002 except that tax preparation fees are included within
the amount of the audit fees above and, for 2002, review fees were $500 in
connection with the formation of the Company as a bank holding company.
All Other Fees
There were no fees for services rendered to the Company for 2003 and 2002
other than the services described above under the captions "Audit Fees" and
"Audit-Related Fees and Tax Fees."
In evaluating whether to appoint Vavrinek to perform the audit of the
Company's financial statements for the year ending December 31, 2003, the Audit
Committee considered whether the provision of non-audit services by Vavrinek in
2003 was compatible with their independence from the Company. None of the time
devoted by Vavrinek on its engagement to audit our financial statements for the
year ended December 31, 2003 is attributable to work performed by persons other
than Vavrinek employees.
A representative of Vavrinek, Trine, Day & Co., LLP is expected to attend
the Annual Meeting and will be available to answer questions posed by our
shareholders.
25
COMPLIANCE WITH SECTION 16 OF THE 1934 ACT
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and holders of more than 10% of a registered class of the
Company's equity securities to file with the SEC reports of ownership and
changes in ownership of any equity securities of the Bank. Officers, directors
and greater than 10% shareholders are required by SEC regulation to furnish the
Bank with copies of all Section 16(a) forms they file. Based solely on its
review of the copies of such forms received by it, or written representations
from certain reporting persons that all required forms were filed, the Company
believes that, during 2003, all Section 16 filing requirements were followed.
ADDITIONAL INFORMATION
Under the Exchange Act Sections 13 and 15(d), periodic and current reports
must be filed with the SEC. The Company electronically files the following
reports with the SEC: Form 10-K (Annual Report), Form 10-Q (Quarterly Report),
Form 8-K (Report of Unscheduled Material Events) and Form DEF 14A (Proxy
Statement). We may file additional forms. The public may read and copy any
materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth
Street, N.W., Washington D.C. 20549 and may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site, www.sec.gov, in which all forms filed electronically
may be accessed. All forms filed with the SEC are accessible through the
hyperlink on our website to the SEC website. Additional shareholder information
is available free of charge on our website: www.temvalbank.com. None of the
information on or hyperlinked from the Company's website is incorporated into
this proxy statement.
OTHER MATTERS
The Board of Directors has no knowledge of any other matter that may come
before the meeting, and does not intend to present any other matters. However,
if any other matters shall come before the meeting or any adjournment or
postponement thereof (including the election of any one or more substitutes for
any of the foregoing nominees who are unable to, or for good reason will not,
serve on the Board of Directors), the persons named as proxies will have the
discretion and authority to vote the shares represented by a Proxy in accordance
with their best judgment.
ANNUAL REPORT
The Company has enclosed with this proxy statement its Annual Report for
the fiscal year ended 2003 along with the opinion of Vavrinek, Trine, Day & Co.,
LLP, the independent auditors engaged by the Company.
26
Upon written request by any person entitled to vote at the meeting,
addressed to Donald A. Pitcher, Secretary of the Company, at 27710 Jefferson
Avenue, Suite A100, Temecula, CA 92590, we will provide, without charge, a copy
of the Company's 2003 Annual Report on Form 10-K, including the financial
statements and the schedule thereto filed with the SEC pursuant to the Exchange
Act.
By Order of the Board of Directors
/s/ Donald A. Pitcher
---------------------
Donald A. Pitcher
Secretary
Temecula, California
April 14, 2004
27
APPENDIX A
CHARTER OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
OF TEMECULA VALLEY BANCORP INC.
Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors of Temecula
Valley Bancorp Inc. (the "Company") to assist the Board in fulfilling its
oversight responsibilities. The Audit Committee's primary duties and
responsibilities are to:
1. Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, account and legal
compliance.
2. Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, account and legal
compliance.
3. Monitor the independence and performance of the Company's independent
auditors and internal auditing function (including an outsource
service provider).
4. Provide an avenue of communication among the independent auditors,
management, the internal audit department (including an outsource
service provider) and the Board of Directors.
The Company's Audit Committee will serve as the audit committee for the
Company and Temecula Valley Bank and may have joint meetings serving the audit
requirements of both the Company and Temecula Valley Bank.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access to the
independent auditors as well as anyone in the Company and Temecula Valley Bank.
The Audit Committee must obtain full Board approval prior to retaining, at the
Company's expense, special legal, accounting, or other consultants or experts,
it deems necessary in the performance of its duties.
Audit Committee Composition and Meetings
The members of the Audit Committee will be appointed by, and will serve at
the discretion of, the Board. The Audit Committee will consist of at least three
members of the Board. Members of the Audit Committee shall be independent
non-executive directors, free from any relationship that would interfere with
the exercise of his or her independent judgment, as provided under otherwise
applicable NASD rules relative to companies whose securities are quoted on NASD
and under the rules of the SEC. Additionally, each member will be able to read
and understand fundamental financial statements as provided under the applicable
NASD rules relative to companies whose securities are quoted on NASD and under
the rules of the SEC.
A-1
If an Audit Committee Chair is not designated or present, the members of
the Audit Committee may designate a Chair by majority vote of the Audit
Committee membership.
The Audit Committee shall meet at least four times annually separately or
combined with the entire Board, subject to the majority of the independent
directors present, or more frequently as circumstances dictate. The Audit
Committee Chair shall prepare and/or approve an agenda in advance of each
meeting. The Audit Committee should meet privately in executive session at least
annually with management, the independent auditor, and as a committee to discuss
any matters that the Audit Committee or each of these groups believes should be
discussed.
Audit Committee Responsibilities and Duties
Review Procedures
1. Review and reassess the adequacy of this Charter at least annually and
have the Charter published at least every three years in the Company's
proxy statement.
2. Review the Company's annual audited financial statements prior to
filing or distribution. Review should include discussion with
management and independent auditors of significant issues regarding
accounting principles, practices and judgments.
3. In consultation with the management, the independent auditors, and any
internal auditors, consider the integrity of the Company's reporting
processes and controls. Discuss significant financial risk exposures
and the steps management has taken to monitor, control, and report
such exposures. Review significant findings prepared by the
independent and internal auditing department together with
management's responses.
4. Review with management and the independent auditors the Company's
quarterly financial results prior to the release of earnings and/or
the Company's quarterly financial statements prior to filing or
distribution. Discuss any significant changes to the Company's
accounting principles and any items required to be communicated by the
independent auditors in accordance with the Statement on Accounting
Standards 61, as amended from time to time. The Chair of the Audit
Committee or a member of the Audit Committee acting as Chair, may
represent the entire Audit Committee for purposes of this review.
A-2
5. The independent auditors are ultimately accountable to the Audit
Committee and the Board. The Audit Committee shall review the
independence and performance of the auditors and annually recommend to
the Board the appointment of the independent auditors or approve any
discharge of auditors when circumstances warrant.
Independent Auditors
6. Approve the fees and other significant compensation to be paid to the
independent auditors.
7. The Audit Committee shall annually review the performance
(effectiveness, objectivity and independence) of the external
auditors. The Audit Committee shall ensure receipt of a formal written
statement from the external auditors consistent with standards set by
the Independence Standards Board. Additionally, the Audit Committee
shall discuss with the auditor any relationships or services that may
affect auditor objectivity or independence. If the Audit Committee is
not satisfied with the auditors' assurances of independence, it shall
take or recommend to the full Board appropriate action to ensure the
independence of the external auditor.
8. Review the independent auditors' audit plan - discuss scope, staffing,
locations, reliance upon management, and internal audit and general
audit approach.
9. Prior to releasing the year-end earnings, discuss the results of the
audit with the independent auditors. Discuss certain matters required
to be communicated to audit committees in accordance with Independence
Standards Board Standard No. 1, as amended from time to time, and any
other required discussions.
10. Consider the independent auditors' judgments about the quality and
appropriateness of the Company's accounting principles as applied in
its financial reporting.
Internal Audit and Legal Compliance
11. Review the qualifications of the internal audit department and/or
outsource service provider, as needed.
12. Review the appointment, performance and replacement of the senior
internal audit executive and/or outsource service provider.
13. Review significant reports prepared by the outsourced internal audit
service provider together with management's response and follow-up to
these reports.
A-3
14. On at least an annual basis, review with the Company's counsel, any
legal matters that could have a significant impact on the
organization's financial statements, the Company's compliance with
applicable laws and regulations, and inquiries received from
regulators or governmental agencies.
Other Audit Committee Responsibilities
15. Annually prepare a report to the shareholders as required by the SEC.
The report should be included in the Company's annual proxy statement.
16. Perform any other activities consistent with this Charter, the
Company's bylaws, and governing law, as the Audit Committee or the
Board deems necessary or appropriate.
17. Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
A-4
APPENDIX B
TEMECULA VALLEY BANCORP INC.
2004 STOCK INCENTIVE PLAN
1. Purpose of the Plan. The purpose of this Temecula Valley Bancorp Inc.
Stock Incentive Plan is to offer certain Employees, Directors and Consultants
the opportunity to acquire a proprietary interest in the Company. Through the
Plan, the Company and its subsidiaries seek to attract, motivate and retain
highly competent persons. The success of the Company and its affiliates is
dependent upon the efforts of these persons. The Plan provides for the grant of
Options to purchase common stock. An Option granted under the Plan may be a
Non-Statutory Stock Option or an Incentive Stock Option, as determined by the
Administrator.
2. Definitions. As used herein, the following definitions shall apply.
"2004 Plan" or "Plan" shall mean the Temecula Valley Bancorp Inc. 2004
Stock Incentive Plan, adopted as of March 24, 2004 by the Board of Directors,
and as may be amended and restated from time to time.
"Act" shall mean the Securities Act of 1933, as amended.
"Administrator" shall mean the Board or any one of the Committees.
"Affiliate" shall mean any parent or subsidiary (as defined in Sections
424(e) and (f) of the Code) of the Company.
"APB 25" shall mean Opinion 25 of the Accounting Principles Board, as
amended, and any successor thereof.
"Board" shall mean the Board of Directors of the Company.
"Cause" shall have the meaning given to it under the Participant's
employment agreement with the Company or Affiliate, or a policy of the Company
or an Affiliate. If the Participant does not have an employment agreement or the
employment agreement does not define this term, or if the Company or an
Affiliate does not have a policy that defines this term, then Cause shall
include malfeasance or gross misfeasance in the performance of duties or
conviction of illegal activity in connection therewith or any conduct
detrimental to the interests of the Company or an Affiliate which results in
termination of the Participant's service with the Company or an Affiliate, as
determined by the Administrator.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
B-1
"Committee" shall mean a committee appointed by the Board in accordance
with Section 3 below.
"Common Stock" shall mean the common stock of the Company, no par value.
"Company" shall mean Temecula Valley Bancorp Inc., a California
corporation.
"Consultant" shall mean any natural person who performs bona fide Services
for the Company or an Affiliate as a consultant or advisor, excluding Employees
and Non-Employee Directors and provided that the Services are not in connection
with the offer or sale of securities in a capital raising transaction and do not
directly or indirectly promote or maintain a market for the Company securities.
"Date of Grant" shall mean the effective date as of which the Administrator
grants an Option to an Optionee.
"Director" shall mean a member of the Board.
"Disability" shall mean total and permanent disability as defined in
Section 22(e)(3) of the Code.
"Employee" shall mean any individual who is a common-law employee of the
Company or an Affiliate.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exercise Price" shall mean the exercise price of a share of Optioned
Stock.
"Fair Market Value" shall mean, as of any date, the value of Common Stock
determined as follows:
(i) If the Common Stock is listed on any established stock exchange or a
national market system or an electronic bulletin board, including without
limitation, The Nasdaq National Market, The Nasdaq SmallCap Market of The Nasdaq
Stock Market or the Over-the-Counter Bulletin Board, its Fair Market Value shall
be the closing sales price for such stock (or the closing representative bid, if
no sales were reported) as quoted on such exchange or system for the last market
trading day prior to the time of determination, as reported in The Wall Street
Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized securities
dealer but selling prices are not reported, its Fair Market Value shall be the
mean between the high bid and low asked prices for the Common Stock quoted by
such recognized securities dealer on the last market trading day prior to the
day of determination; or
B-2
(iii) In the absence of an established market for the Common Stock, its
Fair Market Value shall be determined, in good faith, by the Administrator.
"FASB" shall mean the Financial Accounting Standards Board.
"Grantee" shall mean any person who is granted an Option.
"Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law or sister-in-law, and also includes
adoptive relationships.
"Incentive Stock Option" shall mean an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code.
"Mature Shares" shall mean Shares that had been held by the Participant for
a meaningful period of time such as six months or such other period of time that
is consistent with FASB's interpretation of APB 25.
"Non-Employee Director" shall mean a non-employee member of the Board.
"Non-Statutory Stock Option" shall mean an Option not intended to qualify
as an Incentive Stock Option.
"Notice of Stock Option Grant" shall mean the notice delivered by the
Company to the Optionee evidencing the grant of an Option.
"Option" shall mean a stock option granted pursuant to the Plan.
"Option Agreement" shall mean a written agreement that evidences an Option
in such form as the Administrator shall approve from time to time.
"Optioned Stock" shall mean the Common Stock subject to an Option.
"Optionee" shall mean any person who receives an Option.
"Participant" shall mean an Optionee or a Grantee.
"Rule 16b-3" shall mean Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3.
"Service" shall mean the performance of services for the Company (or any
Affiliate) by an Employee, Director or Consultant, as determined by the
Administrator in its sole discretion. Service shall not be considered
interrupted in the case of: (i) a change of status (i.e., from Employee to
Consultant, Non-Employee Director to Consultant, or any other combination); (ii)
transfers between locations of the Company or between the Company and any
Affiliate; or (iii) a leave of absence approved by the Company or an Affiliate.
A leave of absence approved by the Company or an Affiliate shall include sick
leave, military leave, or any other personal leave approved by an authorized
representative of the Company or an Affiliate.
B-3
"Service Provider" shall mean an Employee, Director or Consultant.
"Share" shall mean a share of Common Stock.
"Tax" or "Taxes" shall mean the federal, state, and local income,
employment and excise tax liabilities incurred by the Participant in connection
with his/her Options.
"10% Shareholder" shall mean the owner of stock (as determined under
Section 424(d) of the Code) possessing more than 10% of the total combined
voting power of all classes of stock of the Company (or any Affiliate) on the
Date of Grant, as applicable.
"Termination Date" shall mean the date on which a Participant's Service
terminates, as determined by the Administrator in its sole discretion.
3. Administration of the Plan.
(a) Except as otherwise provided for below, the Plan shall be administered
by (i) the Board or (ii) a Committee, which Committee shall be constituted to
satisfy applicable laws. To the extent desirable to qualify transactions
hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder
shall be structured to satisfy the requirements for exemption under Rule 16b-3.
(b) Powers of the Administrator. Subject to the provisions of the Plan and
in the case of specific duties delegated by the Administrator, and subject to
the approval of relevant authorities, including the approval, if required, of
any stock exchange or national market system upon which the Common Stock is then
listed, the Administrator shall have the authority, in its sole discretion:
(i) to determine the Fair Market Value of the Common Stock;
(ii) to select the Service Providers to whom Options may, from time to
time, be granted under the Plan;
(iii) to determine whether and to what extent Options are granted under the
Plan;
(iv) to determine the number of Shares that pertain to each Option;
B-4
(v) to approve the terms of the Option Agreements;
(vi) to determine the terms and conditions, not inconsistent with the terms
of the Plan, of any Option. Such terms and conditions may include, but are not
limited to, the Exercise Price, the status of an Option (Non-Statutory Stock
Option or Incentive Stock Option), the time or times when Options may be
exercised, any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the Shares relating
thereto, based in each case on such factors as the Administrator, in its sole
discretion, shall determine;
(vii) to determine the method of payment of the Exercise Price;
(viii) with the prior approval of a majority of the Non-Employee Directors
of the Administrator, reduce the Exercise Price of any Option to the then
current Fair Market Value if the Fair Market Value of the Optioned Stock has
declined since the Date of Grant of such Option;
(ix) to delegate to others responsibilities to assist in administering the
Plan;
(x) to construe and interpret the terms of the Plan, Option Agreements and
any other documents related to the Options; and
(xi) to interpret and administer the terms of the Plan to comply with all
Tax rules and regulations.
(c) Effect of Administrator's Decision. All decisions, determinations, and
interpretations of the Administrator shall be final and binding on all
Participants and any other holders of any Options. The Administrator's decisions
and determinations under the Plan need not be uniform and may be made
selectively among Participants whether or not such Participants are similarly
situated.
(d) Liability. No member of the Administrator shall be personally liable by
reason of any mistake of judgment made in good faith while acting in such
capacity if he or she was acting within her/his authority as a member of the
Administrator at the time of the mistake, and the Company shall indemnify and
hold harmless each member of the Administrator and each other employee, officer
or director of the Company to whom any duty or power relating to the
administration or interpretation of the Plan may be allocated or delegated,
against any cost or expense (including counsel fees) or liability (including any
sum paid in settlement of a claim) arising out of any act or omission to act in
connection with the Plan unless arising out of such person's own fraud or bad
faith. The foregoing right of indemnification shall not be exclusive of any
other rights of indemnification to which such persons may be entitled under the
Company's Articles of Incorporation or Bylaws, as a matter of law, or otherwise,
or any power the Company may have to indemnify them or hold them harmless. The
Board shall make the determination if any such person shall be entitled to
indemnification and such decision by the Board shall be made in good faith,
final and binding.
B-5
4. Stock Subject To The Plan.
(a) Basic Limitation. The total number of Options under the Plan may not
exceed 2,250,000, subject to the adjustments provided for in Section 8 of the
Plan.
(b) Additional Shares. In the event that any outstanding Option expires or
is canceled or otherwise terminated, the Shares that pertain to the unexercised
Option shall again be available for the purposes of the Plan.
5. Eligibility. The persons eligible to participate in the Plan shall be
limited to Employees, Directors and Consultants who have the potential to impact
the long-term success of the Company and/or its Affiliates and who have been
selected by the Administrator to participate in the Plan.
6. Option Terms. Each Option shall be evidenced by an Option Agreement, in
the form approved by the Administrator and may contain such provisions as the
Administrator deems appropriate; provided, however, that each Option Agreement
shall comply with the terms specified below and shall be subject to all of the
other provisions of the Plan. Each Option Agreement evidencing an Incentive
Stock Option shall be subject to the following applicable provisions (except
ISOs if in conflict with Section 7) as well as Section 7 below.
(a) Exercise Price.
(i) The Exercise Price of an Incentive Stock Option shall be determined by
the Administrator but shall not be less than 100% of the Fair Market Value of a
Share on the Date of Grant of such Option, and the exercise price of a
Non-Statutory Stock Option shall not be less than 85% of the Fair Market Value
of a Share on the Date of Grant of such Option.
(ii) The consideration to be paid for the Shares to be issued upon exercise
of an Option, including the method of payment, shall be determined by the
Administrator and may consist entirely of (A) cash, (B) check, (C) Mature
Shares, or (D) any combination of the foregoing methods of payment. The
Administrator may also permit Optionees, either on a selective or aggregate
basis, to simultaneously exercise Options and sell the shares of Common Stock
thereby acquired, pursuant to a brokerage or similar arrangement, approved in
advance by the Administrator, and use the proceeds from such sale as payment of
part or all of the exercise price of such shares. Notwithstanding the foregoing,
a method of payment may not be used if it causes the Company to: (x) recognize
compensation expense for financial reporting purposes; (y) violate Section 402
of the Sarbanes-Oxley Act of 2002 or any regulations adopted pursuant thereto;
or (z) violate Regulation O, promulgated by the Board of Governors of the
Federal Reserve System, as determined by the Administrator in its sole
discretion.
B-6
(b) Vesting. Any Option granted hereunder shall be exercisable and shall
vest at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement, but in any event all Options granted to
an Optionee who is not an officer, Director or Consultant of the Company shall
vest at a rate of at least 20% per year over five years from the Date of Grant
of the Option subject to reasonable conditions such as continued employment. An
Option may not be exercised for a fraction of a Share and the Optionee shall
receive cash in lieu thereof equal to the Fair Market Value of such fraction on
the date of exercise.
(c) Term of Options. No Option shall have a term in excess of 10 years
measured from the Date of Grant of such Option.
(d) Procedure for Exercise. An Option shall be deemed to be exercised when
written notice of such exercise has been given to the Administrator in
accordance with the terms of the Option Agreement by the person entitled to
exercise the Option and full payment of the applicable Exercise Price for the
Share being exercised has been received by the Administrator. Full payment may,
as authorized by the Administrator, consist of any consideration and method of
payment allowable under Section (a)(iii) above in this Section. In the event of
a cashless exercise, the broker shall not be deemed to be an agent of the
Administrator.
(e) Effect of Termination of Service.
(i) Termination of Service. Upon termination of an Optionee's Service,
other than due to death, Disability, or Cause, the Optionee may exercise his/her
Option, but only on or prior to the date that is three months following the
Optionee's Termination Date, and only to the extent that the Optionee was
entitled to exercise such Option on the Termination Date (but in no event later
than the expiration of the term of such Option, as set forth in the Notice of
Stock Option Grant to the Option Agreement). If, on the Termination Date, the
Optionee is not entitled to exercise the Optionee's entire Option, the Shares
covered by the unexercisable portion of the Option shall immediately revert to
the Plan. If, after termination of Service, the Optionee does not exercise
his/her Option within the time specified herein, the Option shall terminate, and
the Optioned Stock shall immediately revert to the Plan.
(ii) Disability of Optionee. In the event of termination of an Optionee's
Service due to his/her Disability, the Optionee may exercise his/her Option, but
only on or prior to the date that is twelve months following the Termination
Date, and only to the extent that the Optionee was entitled to exercise such
Option on the Termination Date (but in no event later than the expiration date
of the term of his/her Option, as set forth in the Notice of Stock Option Grant
to the Option Agreement). To the extent the Optionee is not entitled to exercise
the Option on the Termination Date, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after
Termination of Service due to Disability, the Optionee does not exercise the
Option to the extent so entitled within the time specified herein, the Option
shall terminate, and the Optioned Stock shall immediately revert to the Plan.
B-7
(iii) Death of Optionee. In the event that an Optionee should die while in
Service, the Optionee's Option may be exercised by the Optionee's estate or by a
person who has acquired the right to exercise the Option by bequest or
inheritance, but only on or prior to the date that is twelve months following
the date of death, and only to the extent that the Optionee was entitled to
exercise the Option at the date of death (but in no event later than the
expiration date of the term of his/her Option, as set forth in the Notice of
Stock Option Grant to the Option Agreement). If, at the time of death, the
Optionee was not entitled to exercise his/her entire Option, the Shares covered
by the unexercisable portion of the Option shall immediately revert to the Plan.
If after death, the Optionee's estate or a person who acquires the right to
exercise the Option by bequest or inheritance does not exercise the Option
within the time specified herein, the Option shall terminate, and the Optioned
Stock shall immediately revert to the Plan.
(iv) Cause. In the event of termination of an Optionee's Service due to
Cause, the Optionee's Options shall terminate on the Termination Date.
(v) To the extent that the Company does not violate Section 402 of the
Sarbanes-Oxley Act of 2002 or any regulations adopted pursuant thereto or
Regulation O, promulgated by the Board of Governors of the Federal Reserve
System (as determined by the Administrator in its sole discretion), the
Administrator shall have complete discretion, exercisable either at the time an
Option is granted or at any time while the Option remains outstanding, to:
(A) extend the period of time for which the Option is to remain exercisable
following the Optionee's cessation of Service from the limited exercise period
otherwise in effect for that Option to such greater period of time as the
Administrator shall deem appropriate, but in no event beyond the expiration of
the Option term; and/or
(B) permit the Option to be exercised, during the applicable post-Service
exercise period, not only with respect to the number of vested Shares for which
such Option is exercisable at the time of the Optionee's cessation of Service
but also with respect to one or more additional installments in which the
Optionee would have vested had the Optionee continued in Service.
B-8
(f) Shareholder Rights. Until the issuance (as evidenced by the appropriate
entry on the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Shares, no right to vote or
receive dividends or any other rights as a shareholder shall exist with respect
to the Optioned Stock, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such certificate promptly upon exercise of
the Option. No adjustment will be made for a dividend or other right for which
the record date is prior to the date the stock certificate is issued, except as
provided in Section 8 below.
(g) Non-transferability of Options. Options may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will, by the laws of descent and distribution, by instrument to an inter vivos
or testamentary trust in which Options are to be passed to beneficiaries upon
the death of the trustor (settler) or by gift to Immediate Family.
Notwithstanding the immediately preceding sentence, Incentive Stock Option
transfers may be limited by the Administrator in order to comply with the Code
and shall be further limited, if necessary, so that neither the transfer of an
Option other than an Incentive Stock Option to such Immediate Family, nor the
ability of a Optionee to make such a transfer shall have adverse consequences to
the Company or the Optionee by reason of Section 162(m) of the Code.
(h) 10% Shareholder. If any Grantee to whom an Option is granted is a 10%
Shareholder on the Date of Grant, then the Exercise Price shall not be less than
110% of the Fair Market Value of a Share on the Date of Grant of such Option.
7. Incentive Stock Options. The terms specified below shall be applicable
to all Incentive Stock Options, and these terms shall, as to such Incentive
Stock Options, supercede any conflicting terms in Section 6 above. Options which
are specifically designated as Non-Statutory Stock Options when issued under the
Plan shall not be subject to the terms of this Section.
(a) Eligibility. Incentive Stock Options may only be granted to Employees.
B-9
(b) Exercise Price. The Exercise Price of an Incentive Stock Option shall
not be less than 100% of the Fair Market Value of a Share on the Date of Grant
of such Option, except as otherwise provided for in Subsection (d) below.
(c) Dollar Limitation. In the case of an Incentive Stock Option, the
aggregate Fair Market Value of the Optioned Stock (determined as of the Date of
Grant of each Option) with respect to Options granted to any Employee under the
Plan (or any other option plan of the Company or any Affiliate) that may for the
first time become exercisable as Incentive Stock Options during any one calendar
year shall not exceed the sum of $100,000. To the extent the Employee holds two
or more such Options which become exercisable for the first time in the same
calendar year, the foregoing limitation on the exercisability of such Options as
Incentive Stock Options shall be applied on the basis of the order in which such
Options are granted. Any Options in excess of such limitation shall
automatically be treated as Non-Statutory Stock Options.
(d) Option Term for 10% Shareholder. The Option term of an Incentive Stock
Option granted to a 10% Shareholder shall not exceed five years measured from
the Date of Grant of such Option.
(e) Change in Status. In the event of an Optionee's change of status from
Employee to Consultant or to Non-Employee Director, an Incentive Stock Option
held by the Optionee shall cease to be treated as an Incentive Stock Option and
shall be treated for tax purposes as a Non-Statutory Stock Option three months
and one day following such change of status.
(f) Approved Leave of Absence. If an Optionee is on an approved leave of
absence, and the Optionee's reemployment upon expiration of such leave is not
guaranteed by statute or contract, including Company policies, then on the 91st
day of such leave any Incentive Stock Option held by the Optionee shall cease to
be treated as an Incentive Stock Option and shall be treated for tax purposes as
a Non-Statutory Stock Option.
8. Adjustments
(a) Recapitalization, Etc. If the outstanding Common Stock is hereafter
increased or decreased, or changed into or exchanged for a different number or
kind of shares or other securities of the Company or of another corporation, by
reason of a recapitalization, reclassification, reorganization, merger,
consolidation, share exchange or other business combination in which the Company
is the surviving parent corporation, stock split-up, combination of shares or
dividend or other distribution payable in capital stock or rights to acquire
capital stock, appropriate adjustment shall be made by the Administrator in the
number and kind of shares for which Options may be granted under the Plan. In
addition, the Administrator shall make appropriate adjustment in the number and
kind of shares as to which outstanding and unexercised Options shall be
exercisable, to the end that the proportionate interest of the holder of the
Option shall, to the extent practicable, be maintained as before the occurrence
of the event. The adjustment in outstanding Options shall be made without change
in the total price applicable to the unexercised portion of the Option but with
a corresponding adjustment in the exercise price per share.
B-10
(b) Reorganization. Upon a Reorganization (as hereinafter defined):
(i) If there is no plan or agreement with respect to the Reorganization
("Reorganization Agreement"), or if the Reorganization Agreement does not
specifically provide for the adjustment, change, conversion, or exchange of the
outstanding and unexercised Options for cash or other property or securities of
another corporation, then any outstanding and unexercised Options shall
terminate as of a future date to be fixed by the Administrator; or
(ii) If there is a Reorganization Agreement, and the Reorganization
Agreement specifically provides for the adjustment, change, conversion or
exchange of the outstanding and unexercised Options for cash or other property
or securities of another corporation, then the Administrator shall adjust the
shares under the outstanding and unexercised Options, and shall adjust the
shares remaining under the Plan which are then available for the issuance of
Options under the Plan if the Reorganization Agreement makes specific provisions
therefore, in a manner not inconsistent with the provisions of the
Reorganization Agreement for the adjustment, change, conversion, or exchange of
the Options and shares.
(c) Reorganization Defined. The term "Reorganization" as used in this
Section 8 means any reorganization, merger, consolidation, share exchange or
other business combination pursuant to which the Company is not the surviving
parent corporation after the effective date of the Reorganization, or any sale
or lease of all or substantially all of the assets of the Company. Nothing
herein shall require the Company to adopt a Reorganization Agreement, or to make
provision for the adjustment, change, conversion, or exchange of any Options or
the shares subject thereto, in any Reorganization Agreement that it does adopt.
(d) Notice to Optionees. The Administrator shall provide to each Optionee
then holding an outstanding and unexercised Option not less than 30 calendar
days' advanced written notice of any date fixed by the Administrator pursuant to
this Section 8 and of the terms of any Reorganization Agreement providing for
the adjustment, change, conversion, or exchange of outstanding and unexercised
Options. Except as the Administrator may otherwise provide, each Optionee shall
have the right during that period to exercise his or her Option only to the
extent that the Option was exercisable on the date the notice was provided to
the Optionee.
(e) Adjustment Must Conform. Any adjustment to any outstanding ISO pursuant
to this Section 8, if made by reason of a transaction described in Section
B-11
424(a) of the Code, shall be made so as to conform to the requirements of that
Section and the regulations thereunder. If any other transaction described in
Section 424(a) of the Code affects the Common Stock subject to any unexercised
ISO theretofore granted under the Plan ("old option"), the Board or the board of
directors of any surviving or acquiring corporation may take such action as it
deems appropriate, in conformity with the requirements of that Code Section and
the regulations thereunder, to substitute a new option for the old option, in
order to make the new option, as nearly as may be practicable, equivalent to the
old option, or to assume the old option.
(f) No Modification. No modification, extension, renewal, or other change
in any Option granted under the Plan may be made, after the grant of the Option,
without the Optionee's consent, unless it is permitted by the provisions of the
Plan and the option agreement. In the case of an ISO, Optionees are hereby
advised that certain changes may disqualify the ISO from being considered as
such under Section 422 of the Code, or constitute a modification, extension, or
renewal of the ISO under Section 424(h) of the Code.
(g) Good Faith of the Administrator. All adjustments and determinations
under this Section 8 shall be made by the Administrator in good faith in its
sole discretion.
(h) Dissolution or Liquidation. In the event of the proposed dissolution or
liquidation of the Company, the Administrator shall notify each Participant as
soon as practicable prior to the effective date of such proposed transaction. In
such event, the Administrator, in its discretion, may provide for a Participant
to fully vest in his/her Option. To the extent it has not been previously
exercised, an Option will terminate upon dissolution or liquidation of the
Company.
9. Cancellation and Regrant of Options. The Administrator shall have the
authority to effect, at any time and from time to time, with the consent of the
affected Optionee, the cancellation of any or all outstanding Options and to
grant in substitution new Options covering the same or a different number of
Shares but with an Exercise Price per Share based on the Fair Market Value per
Share on the new Date of Grant of the Option. For purposes of Section 4 hereof,
Shares underlying any Option cancelled by the Company in such exchange shall be
available for issuance under the Plan; furthermore, except with respect to a
Participant subject to Section 162(m) of the Code, a grant of any Option to a
Participant pursuant to such exchange shall be disregarded for purposes of
determining whether such Participant has exceeded any limitations hereunder
limiting the amount of any type of Option or aggregate amount of Options that
may be granted to a Participant (except to the extent the number of Shares
underlying such Options exceeds the number of Shares underlying the
Participant's cancelled Options).
10. Information to Holders of Options. The Company shall provide to each
Optionee, on an annual basis, the information required by Section 260.140.46,
Title 10 of the California Code of Regulations and any successor law or
regulation.
B-12
11. Tax Withholding.
(a) For corporate purposes, the Company's obligation to deliver Shares upon
the exercise of Options under the Plan shall be subject to the satisfaction of
all applicable federal, state and local income and employment tax withholding
requirements.
(b) To the extent permitted under Section 402 of the Sarbanes-Oxley Act of
2002 and the regulations adopted pursuant thereto, the Administrator may, in its
discretion, provide any or all holders of Non-Statutory Stock Options with the
right to use previously vested Shares in satisfaction of all or part of the
Taxes incurred by such holders in connection with the exercise of their
Non-Statutory Stock Options, provided, however, that this form of payment shall
be limited to the withholding amount calculated using the minimum statutory
rates. Such right may be provided to any such holder as follows: The election to
have the Company withhold, from the Shares otherwise issuable upon the exercise
of such Non-Statutory Stock Option, a portion of those Shares with an aggregate
Fair Market Value equal to the Taxes calculated using the minimum statutory
withholding rates interpreted in accordance with APB 25 and FASB Interpretation
No. 44.
12. Effective Date and Term of the Plan. The Plan was adopted by the Board
on March 24, 2004, and shall become effective on the date of its approval by the
Company's shareholders. Unless sooner terminated by the Administrator, the Plan
shall continue until March 24, 2014. When the Plan terminates, no Options shall
be granted under the Plan thereafter. The termination of the Plan shall not
affect any Option previously granted under the Plan.
13. Time of Granting Options. The Date of Grant of an Option shall, for all
purposes, be the date on which the Administrator makes the determination to
grant such Option, or such other date as determined by the Administrator;
provided, however, that any Option granted prior to the date on which the Plan
is approved by the Company's shareholders shall be subject to the shareholders'
approval of the Plan. Notice of the determination shall be given to each Service
Provider to whom an Option is so granted within a reasonable period of time
after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter,
suspend, or discontinue the Plan, but no amendment, alteration, suspension, or
discontinuation shall be made which would impair the rights of any Participant
under any grant theretofore made without his/her consent. In addition, to the
extent necessary and desirable to comply with Section 422 of the Code (or any
other applicable law or regulation, including the requirements of any stock
exchange or national market system upon which the Common Stock is then listed),
the Company shall obtain shareholder approval of any Plan amendment in such a
manner and to such a degree as required.
B-13
(b) Effect of Amendment and Termination. Any such amendment or termination
of the Plan shall not affect Options already granted, and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Participant and the
Board, which agreement must be in writing and signed by the Participant and the
Company.
15. Regulatory Approvals.
(a) The implementation of the Plan, the granting of any Options and the
issuance of any Shares upon the exercise of any granted Options shall be subject
to the Company's procurement of all approvals and permits required by regulatory
authorities having jurisdiction over the Plan, the Options granted under it, and
the Shares issued pursuant to it.
(b) No Shares or other assets shall be issued or delivered under the Plan
unless and until there shall have been compliance with all applicable
requirements of federal and state securities laws, including the filing and
effectiveness of the Form S-8 registration statement (if required) and under
state law (if required) for the Shares issuable under the Plan.
(c) The receipt of Shares upon the exercise of an Option shall be
conditioned upon the Optionee (or any other person who exercises the Option on
his or her behalf as permitted by this Plan) providing to the Administrator a
written representation that, at the time of such exercise, it is the intent of
that person(s) to acquire the shares for investment only and not with a view
toward distribution. The certificate for unregistered shares issued for
investment shall be restricted by the Company as to transfer unless the Company
receives an opinion of counsel satisfactory to the Company to the effect that
the restriction is not necessary under then pertaining law. The providing of the
representation and the restrictions on transfer shall not, however, be required
upon any person's receipt of Shares under the Plan if, at the time of grant of
the Option relating to receipt or upon receipt, whichever is the appropriate
measure under applicable federal or state securities laws, the Optioned Stock
is: (i) covered by an effective and current registration statement under the
Securities Act of 1933, as amended; and (ii) either qualified or exempt from
qualification under applicable state securities laws.
16. No Employment/Service Rights. Nothing in the Plan shall confer upon the
Participant any right to continue in Service for any period of specific duration
or interfere with or otherwise restrict in any way the rights of the Company (or
any Affiliate employing or retaining such person) or of the Participant, which
rights are hereby expressly reserved by each, to terminate such person's Service
at any time for any reason, with or without cause.
17. Governing Law. This Plan shall be governed by California law, applied
without regard to conflict of law principles.
B-14
18. Non-Exclusivity of the Plan. Nothing contained in the Plan is intended
to amend, modify or rescind any previously approved compensation plans, programs
or options entered into by the Company. This Plan shall be construed to be in
addition to and independent of any and all other arrangements. Neither the
adoption of the Plan by the Board nor the submission of the Plan to the
shareholders of the Company for approval shall be construed as creating any
limitations on the power or authority of the Board to adopt, with or without
shareholder approval, such additional or other compensation arrangements as the
Board may from time to time deem desirable. This page left intentionally blank.
B-15
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B-16
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B-17
Vote by Internet or Telephone or Mail
24 Hours a Day - 7 Days a Week
Your telephone or Internet vote authorizes the named proxies to vote your
shares
in the same manner as if you marked, signed and returned your proxy card.
INTERNET OR TELEPHONE OR MAIL
www.proxyvoting.com/tmcv 1-888-426-7035
Use the Internet to Vote your Use any touch-tone telephone Mark, sign and date
proxy. Have your proxy card to vote your proxy. Have your your proxy card
in hand when you access the proxy card in hand when you and
web site. You will be prompted call. You will be prompted to return it in the
to enter your control number, enter your control number enclosed
located in the box below, to located in the box below, and postage-paid
create and submit an electronic then follow the directions envelope
ballot. given.
If you vote your proxy by Internet or by telephone You do NOT need to mail
back your proxy card.
NOTE: Please sign exactly as your name or names appear on this Proxy. Joint
owners should each sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If the signer is a
corporation, please sign full corporate name by a duly authorized officer,
giving full title as such. If signer is a partnership, please sign in
partnership name by authorized person.
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS AND
"FOR" PROPOSAL 2.
PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE [x]
1. Election of Directors. To elect the following six (6) persons to the Board
of Directors of the Company to serve until the next annual meeting and
until their successors are elected and qualified:
[ ] FOR ALL NOMINEES NOMINEES:
O 01. Steven W. Aichle
[ ] WITHHOLD AUTHORITY FOR ALL NOMINEES O 02. Robert P. Beck
O 03. Neil M. Cleveland
[ ] FOR ALL EXCEPT (see instructions below) O 04. Luther J. Mohr
O 05. Stephen H. Wacknitz
O 06. Richard W. Wright
Instruction: To withhold authority to vote for any individual nominee(s),
mark "FOR ALL EXCEPT" and fill in the circle next to each nominee you wish to
withhold, as shown here: o
2. Adoption of the Temecula Valley Bancorp Inc. 2004 Stock Incentive Plan.
To ratify and approve the adoption of the Company's 2004 Stock
Incentive Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
3. To vote in his or her discretion on such other business as may properly
come before the meeting, or an adjournment or postponement thereof.
IF THE UNDERSIGNED SHAREHOLDER WISHES TO CUMULATE VOTES IN THE ELECTION OF
DIRECTORS, THE UNDERSIGNED MUST APPEAR AND VOTE IN PERSON AT THE 2004 ANNUAL
MEETING. IF ANY SHAREHOLDER GIVES PROPER NOTICE AT THE 2004 ANNUAL MEETING OF
HIS OR HER INTENTION TO CUMULATE VOTES IN THE ELECTION OF DIRECTORS, THE PROXY
HOLDER WILL HAVE THE FULL DISCRETION AND AUTHORITY TO VOTE CUNULATIVELY EXCEPT
TO THE EXTENT DESCRIBED IN THE PROXY STATEMENT.
Date:
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Signature(s)
I (We) will [ ] will not [ ]
attend the Annual Meeting in person
- --------------------------------------------------------------------------------
REVOCABLE PROXY--TEMECULA VALLEY BANCORP INC.
ANNUAL MEETING OF SHAREHOLDERS May 25, 2004
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Temecula Valley Bancorp Inc. (the "Company")
hereby constitutes and appoints Dr. Steven W. Aichle and Mr. Richard W. Wright ,
with power to appoint their respective substitutes, as attorney and proxy to
appear, attend and vote all shares of the Company which the undersigned is
entitled to vote at the Annual Meeting of Shareholders to be held at main
offices of the Company, 27710 Jefferson Avenue, Suite A100, Temecula.,
California on Tuesday, May 25, 2004 at 6:00 p.m. local time, and any
adjournments thereof, as fully and with the same force and effect as the
undersigned might or could do if personally present thereat. The Board of
Directors of the Company recommends a vote "FOR" each of the proposal herein.
HIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR THE PROPOSALS INDICATED AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY
HOLDER ON ANY OTHER BUSINESS. ALL PROXIES HERETOFORE GIVEN BY THE UNDERSIGNED IN
CONNECTION WITH THE ACTIONS PROPOSED ON THIS PROXY ARE HEREBY EXPRESSLY REVOKED.
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS VOTED BY WRITTEN NOTICE TO
THE SECRETARY OF THE COMPANY, BY ISSUANCE OF A SUBSEQENT PROXY OR BY VOTING AT
THE ANNUAL MEETING IN PERSON.
(CONTINUED AND TO BE SIGNED ON THE REVERSED SIDE)