Those valleys are a nice feature if you can keep 'em, but if you need to reduce the sapwood thickness you may not feel like following a ring into a valley.
It's the knot that's the problem. If you can lay the bow out so its near the grip an keep the grip a bit stiffer then it should be ok.
Personally I like to excavate knots as there can be hidden rot inside and they can be bigger and deeper than you realise.
If it's near the tip you may be able to go to one side of it or shorten the bow.
Mid limb is tricky and IMO you'd need to excavate and fill it before you try and lay out the bow*, it may give you the chance to have it off to one side as it may be too big to leave it central. E.G Obviously it can't go the full width of the bow so you'd have to keep sound wood either side. (Or at least to one side.
I think the discontinuity in the sapwood is the main problem with knots like that, some people leave 'em big and proud but there is still discontinuity in the sapwood. If it's in a working portion of the limb and is more than about 1/4 to 1/3 the width of the bow I'd be tempted to flatten the area for a length of say 4" or so and overlay a slip of sapwood to help hold the tension.
The knot looks sound but it's the thin black line of old bark around it that is weak which is why I excavate. You could dig it out, fill and then clean up the valley and fill in a slip of sapwood, you'd prob need to chisel it out to a shallow square side groove feathering out to no depth at all at either end. A bit like this but wider...
http://bowyersdiary.blogspot.co.uk/2012/08/splinter-repair.htmlLets have a pic of the whole stave.
Hope that gives you some ideas.
Del
* That gives you sound wood to work with, any trace of rot or dead wood can be the start of a crack. On the belly or side you want good solid wood to take the compression.
I like to excavate rather than drill. I try to leave the flow of the wood grain where possible and then fill with yew dust/epoxy mix jammed in tight. Finally I'll drill and peg again trying not to drill into the flow of the grain too much.