<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 15, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CITY NATIONAL CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 6712 95-2568550
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
Incorporation or Organization)
</TABLE>
400 NORTH ROXBURY DRIVE
BEVERLY HILLS, CALIFORNIA 90210
(310) 888-6000
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
------------------------
RICHARD H. SHEEHAN, JR., ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
CITY NATIONAL CORPORATION
400 NORTH ROXBURY DRIVE
BEVERLY HILLS, CALIFORNIA 90210
(310) 888-6000
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent For Service)
COPIES TO:
William L. Cathey, Jr., Esq. William T. Quicksilver, Esq.
Judith T. Kitano, Esq. Manatt, Phelps & Phillips, LLP
Munger, Tolles & Olson 11355 West Olympic Boulevard
355 South Grand Avenue Los Angeles, California 90064-1614
Los Angeles, California 90071-1560 (310) 312-4210
(213) 683-9100
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE MAXIMUM OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER UNIT OFFERING PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, $1.00 par value......... 1,743,787 shares N/A $26,110,690 $7,913
</TABLE>
(1) The number of shares to be registered pursuant to this registration
statement is based on the maximum number of shares of Comon Stock of the
Registrant issuable to shareholders of Ventura County National Bancorp
("Ventura") in the proposed merger of Ventura with and into Registrant,
assuming the exchange ratio is .3214 (the maximum exchange ratio) and the
estimated maximum number of shares of Ventura to be acquired in the merger
for stock of the Registrant is 5,425,598.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended,
based on the product of the estimated maximum number of shares of Ventura to
be acquired in the merger for stock of the Registrant (5,425,598) multiplied
by the average of the bid and asked price of Ventura Common Stock on
November 8, 1996 (4.8125) as reported by the Nasdaq National Market System.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
500 ESPLANADE DRIVE
OXNARD, CALIFORNIA 93030
DECEMBER , 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of Ventura County National Bancorp ("Ventura") on ,
January , 1997, at .m., which will be held at Ventura's offices at
500 Esplanade Drive, Oxnard, California.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve the Agreement and Plan of Merger (the "Merger Agreement")
pursuant to which Ventura would be merged into City National Corporation ("City
National"). The enclosed Proxy Statement/Prospectus more fully describes the
proposed merger, including information about Ventura and City National.
Under the terms of the Merger Agreement, and subject to certain allocation
procedures designed to ensure that 55% of the outstanding common stock, no par
value, of Ventura ("Ventura Stock") is converted into common stock, $1.00 par
value, of City National ("City National Stock") and 45% of the outstanding
Ventura Stock is converted into cash, each outstanding share of Ventura Stock
would be converted into, at the election of the holder, cash, City National
Stock, or a combination of the two. Holders receiving cash will receive $5.03
for each share of Ventura Stock held by them. Holders receiving City National
Stock will receive for each share of Ventura Stock held by them, that fraction
of a share of City National Stock (the "Exchange Ratio") determined by dividing
$5.03 by the average closing price per share of City National Stock for the 20
consecutive trading days ending on the third trading day immediately prior to
consummation of the Merger (the "Final City National Stock Price"); provided, in
the event the Final City National Stock Price is more than $19.10, the Exchange
Ratio will be based upon a Final City National Stock Price of $19.10 and,
accordingly, will be fixed at .2634, and in the event the Final City National
Stock Price is less than $15.65, the Exchange Ratio will be based upon a Final
City National Stock Price of $15.65, and, accordingly, will be fixed at .3214.
The Board of Directors of Ventura has carefully considered the terms and
conditions of the Merger Agreement and the proposed merger with City National.
THE BOARD OF DIRECTORS BELIEVES THE PROPOSED MERGER IS IN THE BEST INTERESTS OF
VENTURA COUNTY NATIONAL BANCORP AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT YOU VOTE FOR ITS APPROVAL.
We urge you to read carefully the enclosed Notice of Special Meeting and
Proxy Statement/Prospectus which more fully describe the terms of the Merger
Agreement and the proposed merger.
It is important that your shares be represented at the Special Meeting,
whether or not you plan to attend in person. Therefore, you should complete,
sign and date the enclosed proxy card and return it as soon as possible in the
enclosed postage-paid envelope so that your shares will be represented at the
Special Meeting. If you attend the Special Meeting, you may vote in person if
you wish, even if you have previously returned a proxy card.
<PAGE>
If you have any questions regarding the Special Meeting or the proposed
merger, you are encouraged to call Georgeson & Company, Inc., which is acting as
proxy solicitor and information agent for this transaction, toll-free at
(800) .
We look forward to seeing you at this important Special Meeting.
<TABLE>
<S> <C>
/s/ JAMES HUSSEY /s/ RICHARD S. CUPP
James Hussey Richard S. Cupp
Chairman of the Board Chief Executive Officer
</TABLE>
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
500 ESPLANADE DRIVE
OXNARD, CALIFORNIA 93030
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY , 1997
TO THE SHAREHOLDERS OF VENTURA COUNTY NATIONAL BANCORP:
NOTICE IS HEREBY GIVEN that, pursuant to its Bylaws and the call of its
Board of Directors, a Special Meeting of Shareholders (the "Special Meeting") of
Ventura County National Bancorp ("Ventura") will be held at the offices of
Ventura at 500 Esplanade Drive, Oxnard, California, on January , 1997 at
.m., for the following purposes, as set forth in the attached Proxy
Statement/Prospectus:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger dated as of September 15, 1996 (the "Merger Agreement") between City
National Corporation ("City National") and Ventura as described in the
accompanying Proxy Statement/Prospectus, pursuant to which Ventura would be
merged into City National (the "Merger"). A copy of the Merger Agreement is
included in the Proxy Statement/Prospectus as Appendix A. Under the terms of the
Merger Agreement, and subject to certain allocation procedures, each outstanding
share of common stock, no par value of Ventura ("Ventura Stock"), would be
converted in the Merger into, at the election of the holder, the right to
receive cash, common stock, $1.00 par value, of City National ("City National
Stock"), or a combination of the two.
2. To transact any other business that properly may come before the Special
Meeting or any adjournments or postponements thereof.
Only those shareholders of record at the close of business on November 25,
1996 are entitled to notice of and to vote at the Special Meeting or any
adjournments or postponements thereof. The affirmative vote of a majority of the
outstanding shares of Ventura is required to approve the principal terms of the
Merger Agreement and the Merger.
If the Merger is consummated, holders of Ventura Stock who comply with the
requirements of Chapter 13 ("Chapter 13") of the California General Corporation
Law may have the right to receive from City National a cash payment of the fair
market value of their Ventura Stock determined in accordance with Chapter 13.
See "DISSENTERS' RIGHTS" in the attached Proxy Statement/Prospectus for a
discussion of the availability of dissenters' rights and a description of the
procedures which must be followed to enforce such rights under Chapter 13,
pertinent provisions of which are included as Appendix B to the Proxy
Statement/Prospectus and incorporated herein by this reference.
More detailed information about the proposal and other matters regarding the
Special Meeting is included in the attached Proxy Statement/Prospectus.
THE BOARD OF DIRECTORS OF VENTURA HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE MERGER, AND THE RELATED MATTERS AND THE TRANSACTIONS CONTEMPLATED
BY THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE TO
APPROVE THE MERGER AGREEMENT AND THE MERGER AT THE SPECIAL MEETING.
By order of the Board of Directors
/s/ RICHARD S. CUPP
Richard S. Cupp
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Ventura, California
December , 1996
<PAGE>
IT IS VERY IMPORTANT THAT EVERY SHAREHOLDER VOTE. WE URGE YOU TO SIGN AND
RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING IN PERSON. IF YOU DO ATTEND THE SPECIAL MEETING,
YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON AT THAT TIME. YOU MAY REVOKE YOUR
PROXY AT ANY TIME PRIOR TO ITS EXERCISE.
PLEASE INDICATE ON THE PROXY CARD WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING SO WE CAN PROVIDE ADEQUATE ACCOMMODATIONS.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, NOVEMBER 15, 1996
PROXY STATEMENT
VENTURA COUNTY NATIONAL BANCORP
SPECIAL MEETING TO BE HELD ON JANUARY , 1997
------------------------
PROSPECTUS
CITY NATIONAL CORPORATION
COMMON STOCK
(PAR VALUE $1.00 PER SHARE)
---------------------
This Proxy Statement/Prospectus is being furnished to the holders of common
stock, no par value ("Ventura Stock") of Ventura County National Bancorp, a
California corporation ("Ventura"), in connection with the solicitation of
proxies by the Board of Directors of Ventura for use at the special meeting of
Ventura's shareholders to be held at Ventura's offices at 500 Esplanade Drive,
Oxnard, California, on , January , 1997, at .m., Pacific Standard
Time, and at any adjournments or postponements thereof (the "Special Meeting").
At the Special Meeting, the shareholders of record of Ventura Stock as of
the close of business on November 25, 1996 will consider and vote upon a
proposal to approve that certain Agreement and Plan of Merger, dated as of
September 15, 1996 (the "Merger Agreement"), by and between City National
Corporation, a Delaware corporation ("City National"), and Ventura pursuant to
which Ventura will merge with and into City National (the "Merger"). See "THE
SPECIAL MEETING." Upon consummation of the Merger, each outstanding share of
Ventura Stock (except for shares held by Ventura shareholders properly
exercising dissenters' rights and shares held by CNC or VCNB) will be converted
into the right to receive either (1) $5.03 in cash; (2) shares of common stock
of City National, par value $1.00 per share ("City National Stock") calculated
as described in this Proxy Statement/Prospectus; or (3) a combination of cash
and City National Stock calculated as described in this Proxy
Statement/Prospectus, and holders of Ventura Stock will be given the opportunity
to indicate the form of consideration they prefer. See "THE
MERGER--Consideration Payable Upon Consummation of the Merger." Pursuant to the
Merger Agreement, 55% of the aggregate number of issued and outstanding shares
of Ventura Stock (the "Stock Amount") as of the Effective Time (as hereinafter
defined) will be converted into shares of City National Stock. In the event that
holders of Ventura Stock elect, in the aggregate, to convert more or less than
the Stock Amount into shares of City National Stock, certain holders of Ventura
Stock will receive a prorated number of shares of City National Stock and a
prorated amount of cash such that a number of shares of Ventura Stock
approximately equal to the Stock Amount is converted into shares of City
National Stock. The fraction of a share of City National Stock into which each
share of Ventura Stock for which an effective Stock Election or Combination
Election (each as hereinafter defined) is made will be converted in the Merger
cannot be determined until the Election Deadline. See "THE MERGER." The Merger
Agreement is included as Appendix A to this Proxy Statement/Prospectus. Subject
to regulatory approval, the shareholder approval being sought at the Special
Meeting and satisfaction or waiver of the other conditions described herein, the
Merger currently is expected to be consummated during the first quarter of 1997.
This Proxy Statement/Prospectus also constitutes a prospectus of City
National in respect of up to 1,743,787 shares of City National Stock to be
issued upon consummation of the Merger pursuant to the Merger Agreement.
The outstanding shares of City National Stock are listed on the New York
Stock Exchange ("NYSE"). The last reported sale price of City National Stock on
the NYSE Composite Transactions Tape on December , 1996 was $ per share.
This Proxy Statement/Prospectus, the attached Notice to Shareholders and the
accompanying proxy cards are first being mailed to shareholders of Ventura on or
about December , 1996.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
THE SHARES OF CITY NATIONAL STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS
ASSOCIATION AND
2
<PAGE>
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
------------------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS DECEMBER , 1996.
3
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Proxy Statement/Prospectus and the
documents incorporated herein by reference may constitute forward-looking
statements within the meaning of the Private Litigation Reform Act of 1995 and
as such may involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance, or achievements of City
National and/or Ventura to be materially different from any future results,
performance, or achievements expressed or implied by such forward-looking
statements.
AVAILABLE INFORMATION
City National and Ventura are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, each files reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements, and other information can be inspected and copied at the public
reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549; 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such material can be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates. The SEC maintains a website at http://www.sec.gov that also
contains such reports, proxy statements and other information concerning City
National and Ventura, each of which files information electronically with the
SEC. The City National Stock is listed on the NYSE, and such reports, proxy
statements and other information concerning City National should be available
for inspection and copying at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
This Proxy Statement/Prospectus constitutes a part of a registration
statement on Form S-4 (together with all amendments and exhibits, the
"Registration Statement") filed by City National with the SEC under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
shares of City National Stock to be issued in the Merger. This Proxy
Statement/Prospectus does not contain all of the information included in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. Statements contained herein concerning the
provisions of any document do not purport to be complete and, in each instance,
are qualified in all respects by reference to the copy of such document filed as
an exhibit to the Registration Statement or otherwise filed with the SEC. Each
such statement is subject to and qualified in its entirety by such reference.
Reference is made to such Registration Statement and to the exhibits relating
thereto for further information with respect to City National and the securities
offered hereby. Copies of all or any part of the Registration Statement,
including exhibits thereto, may be obtained, upon payment of the prescribed
fees, or inspected at the offices of the SEC and the NYSE as set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC by City National are hereby
incorporated by reference in this Proxy Statement/Prospectus and made a part
hereof: (1) Current Reports on Form 8-K, filed January 13, 1996, March 16, 1996
and September 27, 1996; (2) Annual Report on Form 10-K for the fiscal year ended
December 31, 1995; (3) Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996; and (4) Registration
Statement on Form 8-A dated April 16, 1990.
The following documents filed with the SEC by Ventura are hereby
incorporated by reference in this Proxy Statement/Prospectus and made a part
hereof: (1) Current Report on Form 8-K, filed September 25, 1996; (2) Annual
Report on Form 10-K for the fiscal year ended December 31, 1995; and (3)
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996, June 30,
1996 and September 30, 1996. This Proxy Statement/Prospectus is accompanied by
copies of Ventura's Annual Report on Form 10-K for the year ended December 31,
1995 which is attached hereto as Appendix F and Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996 which is attached hereto as Appendix G.
2
<PAGE>
All documents filed by City National or Ventura pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and prior to the Special Meeting shall be deemed
incorporated by reference in this Proxy Statement/Prospectus and a part hereof
from the date of filing of such documents. Any statement contained in a document
incorporated or deemed incorporated herein by reference will be deemed to be
modified or superseded for purpose of this Proxy Statement/ Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is, or is deemed to be, incorporated herein by reference,
modifies or supersedes such statement. Any such statement so modified or
superseded will not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS
RELATING TO CITY NATIONAL, OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS, ARE
AVAILABLE, WITHOUT CHARGE UPON WRITTEN OR ORAL REQUEST, FROM JAMES A. DUNNIGAN,
CITY NATIONAL CORPORATION, 400 NORTH ROXBURY DRIVE, BEVERLY HILLS, CALIFORNIA
90210, TELEPHONE (310) 888-6636. COPIES OF SUCH DOCUMENTS RELATING TO VENTURA,
OTHER THAN CERTAIN EXHIBITS TO SUCH DOCUMENTS, ARE AVAILABLE, WITHOUT CHARGE
UPON WRITTEN OR ORAL REQUEST, FROM SIMONE LAGOMARSINO, SENIOR VICE
PRESIDENT/CHIEF FINANCIAL OFFICER, VENTURA COUNTY NATIONAL BANCORP, 500
ESPLANADE DRIVE, OXNARD, CALIFORNIA 93031, TELEPHONE (805) 981-2765. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JANUARY
, 1997.
------------------------
All information contained in this Proxy Statement/Prospectus with respect to
City National and City National Bank and its subsidiaries has been supplied by
City National, and all information with respect to Ventura and Ventura County
National Bank ("Ventura Bank") and Frontier Bank, N.A. ("Frontier Bank") has
been supplied by Ventura.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN AS CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS DOCUMENT NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF CITY NATIONAL OR
VENTURA SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OF ANY SECURITY OTHER THAN THE CITY NATIONAL STOCK TO WHICH
IT RELATES.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS.......................................................... 2
AVAILABLE INFORMATION...................................................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 2
TABLE OF CONTENTS.......................................................................................... 4
INDEX OF CERTAIN DEFINED TERMS............................................................................. 7
SUMMARY.................................................................................................... 9
Parties to the Merger.................................................................................... 9
Special Meeting of Shareholders.......................................................................... 9
Vote Required; Record Date............................................................................... 9
Effect of the Merger..................................................................................... 9
Consideration Payable Upon Consummation of the Merger.................................................... 10
Reasons for the Merger; Recommendation of Board of Directors............................................. 10
Opinion of Financial Advisor............................................................................. 11
Effective Time........................................................................................... 11
Conditions; Regulatory Approvals......................................................................... 11
Conduct of Business Pending Merger....................................................................... 12
Termination of the Merger Agreement...................................................................... 12
Bank Merger.............................................................................................. 12
Riverside Merger......................................................................................... 12
Interests of Certain Persons in the Merger............................................................... 13
Certain Federal Income Tax Considerations................................................................ 13
Accounting Treatment..................................................................................... 14
Shareholders' Agreement.................................................................................. 14
Option Agreement......................................................................................... 14
Dissenters' Rights....................................................................................... 14
Certain Differences in Shareholders' Rights.............................................................. 14
Markets and Market Prices................................................................................ 14
Selected Consolidated Financial Data..................................................................... 15
Selected Pro Forma Condensed Combined Financial Information.............................................. 20
COMPARATIVE PER SHARE DATA (UNAUDITED)..................................................................... 23
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION......................................................... 26
Notes to the Unaudited Low Range Pro Forma Condensed Combined Financial Statements....................... 31
Notes to the Unaudited Medium Range Pro Forma Condensed Combined Financial Statements.................... 37
Notes to the Unaudited High Range Pro Forma Condensed Combined Financial Statements...................... 43
INTRODUCTION............................................................................................... 46
General.................................................................................................. 46
Parties to the Merger.................................................................................... 46
Riverside Merger......................................................................................... 47
Markets and Market Prices................................................................................ 47
THE SPECIAL MEETING........................................................................................ 48
Record Date.............................................................................................. 48
Proxies.................................................................................................. 48
Quorum................................................................................................... 48
Vote Required............................................................................................ 49
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PAGE
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Shareholdings of Certain Beneficial Owners and Ventura's Management...................................... 49
<S> <C>
THE MERGER................................................................................................. 51
Background of and Reasons for the Merger................................................................. 51
Recommendation of the Ventura Board of Directors......................................................... 53
Opinion of Financial Advisor to Ventura.................................................................. 53
Effect of the Merger..................................................................................... 58
Consideration Payable Upon Consummation of the Merger.................................................... 58
Effective Time........................................................................................... 60
Surrender of Ventura Stock Certificates.................................................................. 60
Conditions to Consummation of the Merger................................................................. 61
Regulatory Approvals..................................................................................... 63
Conduct of Business Pending the Merger................................................................... 64
No Solicitation.......................................................................................... 65
Amendment and Termination................................................................................ 65
Bank Mergers............................................................................................. 66
Interests of Certain Persons in the Merger............................................................... 66
Effect on Ventura Employee Benefit Plans................................................................. 67
Stock Options............................................................................................ 69
Certain Federal Income Tax Considerations................................................................ 69
Accounting Treatment..................................................................................... 74
Expenses................................................................................................. 74
CERTAIN RELATED AGREEMENTS................................................................................. 74
Shareholders' Agreement.................................................................................. 74
Option Agreement......................................................................................... 75
Resale of City National Stock............................................................................ 77
DESCRIPTION OF CAPITAL STOCK............................................................................... 77
Common Stock............................................................................................. 77
Preferred Stock.......................................................................................... 78
Section 203 of the Delaware General Corporation Law...................................................... 78
Charter and Bylaw Provisions............................................................................. 79
Limitation on Director's Liability....................................................................... 80
DISSENTERS' RIGHTS......................................................................................... 80
Rights of Dissenting Shareholders........................................................................ 80
Federal Income Tax Treatment of Dissenters............................................................... 82
COMPARISON OF RIGHTS OF HOLDERS OF CITY NATIONAL STOCK AND VENTURA STOCK................................... 82
Certain Voting Rights.................................................................................... 82
Dividends................................................................................................ 84
Election of Directors; Board of Directors................................................................ 84
Removal of Directors; Filling Vacancies on the Board of Directors........................................ 84
Special Meetings of Shareholders; Shareholder Action by Written Consent.................................. 85
Amendment of Bylaws...................................................................................... 85
Amendment of Charter..................................................................................... 86
Dissenters' Rights....................................................................................... 86
Certain Business Combinations and Reorganizations........................................................ 86
</TABLE>
5
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<TABLE>
<CAPTION>
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VALIDITY OF CITY NATIONAL STOCK............................................................................ 87
<S> <C>
EXPERTS.................................................................................................... 87
OTHER MATTERS.............................................................................................. 87
</TABLE>
<TABLE>
<S> <C>
APPENDIX A MERGER AGREEMENT
APPENDIX B CALIFORNIA GENERAL CORPORATION LAW
APPENDIX C TAX OPINION
APPENDIX D OPTION AGREEMENT
APPENDIX E FAIRNESS OPINION OF SANDLER O'NEILL & PARTNERS, L.P.
APPENDIX F VENTURA COUNTY NATIONAL BANCORP'S ANNUAL REPORT
ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995
APPENDIX G VENTURA COUNTY NATIONAL BANCORP'S QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996
</TABLE>
6
<PAGE>
INDEX OF CERTAIN DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
1995-96 California Transactions.......................................................................... 56
1996 California Transactions............................................................................. 56
401(k)/ESOP.............................................................................................. 67
APB No. 16............................................................................................... 31
Applicable Price......................................................................................... 77
Bank Merger.............................................................................................. 12
Basswood................................................................................................. 51
BHCA..................................................................................................... 63
California Code.......................................................................................... 14
Cancelled Shares......................................................................................... 10
Cash Election............................................................................................ 59
Chapter 13............................................................................................... 80
City National............................................................................................ 1
City National Certificate................................................................................ 13
City National Plan....................................................................................... 69
City National Stock...................................................................................... 1
Code..................................................................................................... 12
Combination Election..................................................................................... 59
Combined Company......................................................................................... 57
Constructive Ownership................................................................................... 73
Delaware Code............................................................................................ 60
Dissenting Shares........................................................................................ 10
Election................................................................................................. 59
Election Deadline........................................................................................ 59
Employment Agreements.................................................................................... 66
ESOP..................................................................................................... 68
Exchange Act............................................................................................. 2
Exchange Agent........................................................................................... 59
Exchange Ratio........................................................................................... 10, 58
Exercise Event........................................................................................... 75
Fairness Opinion......................................................................................... 53
Final City National Stock Price.......................................................................... 10, 58
Frontier Bank............................................................................................ 3
GAAP..................................................................................................... 64
High Range............................................................................................... 26
Highly Capitalized Transactions.......................................................................... 56
Highly Valued Bank Group................................................................................. 55
Highly Valued Group...................................................................................... 54
Hypothetical Redemption of City National Stock........................................................... 72
Interested Party......................................................................................... 87
Interested Party Proposal................................................................................ 86
Interested Stockholder................................................................................... 78
Letter of Transmittal.................................................................................... 59
Low Range................................................................................................ 26
Mailing Date............................................................................................. 59
Medium Range............................................................................................. 26
Merger................................................................................................... 1
Merger Agreement......................................................................................... 1
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
PAGE
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NYSE..................................................................................................... 1
<S> <C>
OCC...................................................................................................... 63
Option Agreement......................................................................................... 74
Option Plan.............................................................................................. 69
Plan..................................................................................................... 67
RAP...................................................................................................... 64
Record Date.............................................................................................. 9
Regional Bank Group...................................................................................... 55
Regional Group........................................................................................... 54
Registration Statement................................................................................... 2
Regulatory Approvals..................................................................................... 61
Repurchase Consideration................................................................................. 76
Repurchase Event......................................................................................... 76
Restricted Person........................................................................................ 79
Riverside................................................................................................ 12
Riverside Agreement...................................................................................... 12
Riverside Exchange Ratio................................................................................. 26
Riverside High Range..................................................................................... 26
Riverside Low Range...................................................................................... 27
Riverside Medium Range................................................................................... 27
Riverside Merger......................................................................................... 47
Sandler O'Neill.......................................................................................... 11
Sandler O'Neill Agreement................................................................................ 53
SEC...................................................................................................... 2
Section 203.............................................................................................. 78
Securities Act........................................................................................... 2
Shareholders' Agreement.................................................................................. 74
Special Meeting.......................................................................................... 1
Spread Value............................................................................................. 76
Stock Amount............................................................................................. 1
Stock Election........................................................................................... 59
Takeover Proposal........................................................................................ 65
Tax Counsel.............................................................................................. 13
Trust.................................................................................................... 68
Undesignated Shares...................................................................................... 59
Ventura.................................................................................................. 1
Ventura Articles......................................................................................... 14
Ventura Bank............................................................................................. 3
Ventura Stock............................................................................................ 1
</TABLE>
8
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY IS NOT INTENDED TO BE A COMPLETE DESCRIPTION OF ALL
MATERIAL FACTS REGARDING CITY NATIONAL, VENTURA AND THE MATTERS TO BE CONSIDERED
AT THE SPECIAL MEETING AND IS QUALIFIED IN ALL RESPECTS BY THE INFORMATION
APPEARING ELSEWHERE OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS, THE APPENDICES HERETO AND THE DOCUMENTS REFERRED TO
HEREIN.
Capitalized terms used but not defined in this Summary have the meanings
ascribed to such terms elsewhere in this Proxy Statement/Prospectus. See "Index
of Certain Defined Terms."
PARTIES TO THE MERGER
City National is a bank holding company incorporated under the laws of
Delaware, which conducts a commercial banking business through its wholly owned
subsidiary City National Bank.
The address of City National's principal executive offices is 400 North
Roxbury Drive, Beverly Hills, California 90210 and its telephone number at that
address is (310) 888-6000.
Ventura is a bank holding company incorporated under the laws of California,
which conducts a commercial banking business through its wholly owned subsidiary
banks, Ventura Bank and Frontier Bank.
The address of Ventura's principal executive offices is 500 Esplanade Drive,
Oxnard, California 93030 and its telephone number at that address (805)
981-2780.
See "INTRODUCTION--Parties to the Merger."
SPECIAL MEETING OF SHAREHOLDERS
The Special Meeting will be held at the offices of Ventura which are located
at 500 Esplanade Drive, Oxnard, California, on , January , 1997 at
.m., Pacific Standard Time. The purpose of the Special Meeting is to
consider and vote upon a proposal to approve the Merger Agreement. See "THE
SPECIAL MEETING."
VOTE REQUIRED; RECORD DATE
Only Ventura shareholders of record at the close of business on November 25,
1996 (the "Record Date") will be entitled to vote at the Special Meeting. See
"THE SPECIAL MEETING -- Record Date." The affirmative vote of the holders of a
majority of the outstanding shares of Ventura Stock on such date is required to
approve the Merger Agreement. See "THE SPECIAL MEETING--Vote Required." As of
the Record Date, there were shares of Ventura Stock outstanding.
As of the Record Date, directors, executive officers and affiliates of such
directors and executive officers of Ventura beneficially owned an aggregate of
shares of Ventura Stock (not including shares issuable upon exercise of
stock options) or approximately % of those outstanding as of the Record
Date. All of Ventura's directors have agreed to vote their approximately
1,225,666 shares (approximately 13%) in favor of the Merger Agreement and the
Merger. See "THE SPECIAL MEETING--Shareholdings of Certain Beneficial Owners and
Ventura's Management" and "CERTAIN RELATED AGREEMENTS--Shareholders' Agreement."
As of the Record Date, City National beneficially owned an aggregate of
shares of Ventura Stock.
EFFECT OF THE MERGER
Pursuant to the Merger Agreement, at the Effective Time (see "THE
MERGER--Effective Time"), Ventura will merge with and into City National, with
City National being the surviving corporation. See "THE MERGER--Effect of the
Merger." For information on how Ventura shareholders will be able to
9
<PAGE>
exchange certificates representing shares of Ventura Stock for new certificates
representing shares of City National Stock (and cash in lieu of fractional
shares), and/or cash to be issued to them, see "THE MERGER--Surrender of Ventura
Stock Certificates."
Immediately following the Merger, City National may cause Ventura Bank and
Frontier Bank to merge with and into City National Bank, a wholly owned
subsidiary of City National. See "THE MERGER--Bank Mergers."
CONSIDERATION PAYABLE UPON CONSUMMATION OF THE MERGER
In the aggregate, 55% of the shares of Ventura Stock issued and outstanding
immediately prior to the Effective Time (other than "Dissenting Shares" and
"Cancelled Shares" (each as defined below)) will be converted into the right to
receive City National Stock and 45% of such shares of Ventura Stock will be
converted into the right to receive cash. Holders of Ventura Stock will have the
opportunity to indicate their preference for receiving a different proportion of
cash and City National Stock in the Merger, and may indicate a preference for
receiving all cash or all City National Stock. Such elections will be honored to
the extent possible, provided that the Merger consideration in the aggregate
will remain 55% City National Stock and 45% cash. As used in this Proxy
Statement/Prospectus, (i) "Dissenting Shares" means shares which have not been
voted in favor of approval of the Merger Agreement and with respect to which
dissenters' rights have been perfected in accordance with California law and
(ii) "Cancelled Shares" means shares of Ventura Stock that may be owned by
Ventura (or any of its wholly owned subsidiaries) as treasury stock or owned by
City National (or any of its wholly owned subsidiaries) other than shares held
in a fiduciary capacity or in satisfaction of a debt previously contracted.
Each such share of Ventura Stock will, by virtue of the Merger, be converted
into the right to receive either: (i) a fraction of a share of City National
Stock equal to the quotient (such quotient, the "Exchange Ratio") of (a) $5.03,
divided by (b) the average of the daily closing prices of a share of City
National Stock on the NYSE as reported in the WALL STREET JOURNAL for the twenty
consecutive trading days ending on the third trading day immediately prior to
the Effective Time (such average, the "Final City National Stock Price");
provided, however, that if the Final City National Stock Price is more than
$19.10, the Exchange Ratio will be based upon a Final City National Stock Price
of $19.10 and, accordingly, will be fixed at 0.2634, and if the Final City
National Stock Price is less than $15.65, the Exchange Ratio will be based upon
a Final City National Stock Price of $15.65 and, accordingly, will be fixed at
0.3214; (ii) cash in the amount of $5.03; or (iii) a combination of City
National Stock (at the rate of the Exchange Ratio for a whole share of Ventura
Stock) and cash (at the rate of $5.03 for a whole share of Ventura Stock).
In the event that holders of Ventura Stock elect, in the aggregate, to
convert more or less than the Stock Amount into shares of City National Stock,
certain holders of Ventura Stock will receive a prorated number of shares of
City National Stock and a prorated amount of cash such that a number of shares
of Ventura Stock approximately equal to the Stock Amount is converted into
shares of City National Stock. The fraction of a share of City National Stock
into which each share of Ventura Stock for which an effective "Stock Election"
or "Combination Election" (each as hereinafter defined) is made will be
converted in the Merger cannot be determined until the Effective Time.
See "THE MERGER--Consideration Payable Upon Consummation of the Merger."
REASONS FOR THE MERGER; RECOMMENDATION OF BOARD OF DIRECTORS
VENTURA. The Ventura Board of Directors has unanimously concluded that the
Merger is in the best interests of Ventura and its shareholders and unanimously
recommends that shareholders vote for the Merger Agreement and the Merger. See
"THE MERGER--Background of and Reasons for the Merger-- Recommendation of the
Ventura Board of Directors." For information on the interests of certain
officers and directors of Ventura in the Merger, see "THE MERGER--Interests of
Certain Persons in the Merger."
10
<PAGE>
CITY NATIONAL. The City National Board of Directors has approved the Merger
Agreement and determined that the Merger and the issuance of the City National
Stock pursuant thereto are in the best interests of City National and its
shareholders. The approval of the Merger Agreement by the shareholders of City
National is not required.
See "THE MERGER--Background of and Reasons for the Merger--Recommendation of
the Ventura Board of Directors."
OPINION OF FINANCIAL ADVISOR
Sandler O'Neill & Partners, L.P. ("Sandler O'Neill") has served as financial
advisor to Ventura in connection with the Merger, and has delivered a written
opinion to the Ventura Board of Directors that, as of September 15, 1996, the
aggregate consideration to be paid to Ventura's shareholders as a result of the
Merger is fair from a financial point of view. Sandler O'Neill also delivered to
the Ventura Board of Directors on December , 1996 a written confirmation of
the September 15, 1996 written opinion. For additional information, see "THE
MERGER--Opinion of Financial Advisor to Ventura." The opinion of Sandler O'Neill
dated December , 1996, is attached as Appendix E to this Proxy
Statement/Prospectus. Shareholders are urged to read such opinion in its
entirety for descriptions of the procedures followed, matters considered and
limitations on the reviews undertaken, in connection therewith.
EFFECTIVE TIME
The Merger will become effective when certain filings are made with the
Secretary of State of the State of Delaware. Such filings will be made on the
first Friday (unless such date is a holiday, in which case it will be the
preceding business day) that is both (a) after satisfaction of each of
conditions set forth in Article VII of the Merger Agreement (see "THE MERGER --
Conditions to Consummation of the Merger") and (b) no less than four business
days after the occurrence of the Election Deadline (as hereinafter defined).
If the Merger is approved by the shareholders of Ventura, subject to certain
conditions described herein, the Effective Time is currently expected to occur
in the first quarter of 1997.
CONDITIONS; REGULATORY APPROVALS
Consummation of the Merger is subject to various conditions, including (i)
receipt of the shareholder approval solicited hereby, (ii) receipt of the
necessary regulatory approvals, (iii) that at the close of business on the last
day of the month preceding the Effective Time, the Book Value Per Share (as
defined in Section 7.2(e) of the Merger Agreement) of Ventura shall be not less
than $3.12; (iv) that at the close of business on the last day of the month
preceding the Effective Time, total deposits of Ventura and its subsidiaries
shall be not less than 85% of the average of total deposits for Ventura and its
subsidiaries for the six month period ending on the last day of the same month
in the preceding year; (v) receipt of certain opinions of counsel regarding,
among other matters, certain tax aspects of the Merger and (vi) satisfaction of
other closing conditions.
The Merger is subject to prior approval by the Federal Reserve Board, and
City National has submitted an application seeking such approval. There can be
no assurance that such approval will be obtained, and, if obtained, that it will
not contain a materially burdensome condition or requirement which would cause
such approval to fail to satisfy the conditions set forth in the Merger
Agreement.
See "THE MERGER--Conditions to Consummation of the Merger," "--Regulatory
Approvals," and "--Conduct of Business Pending the Merger."
11
<PAGE>
CONDUCT OF BUSINESS PENDING MERGER
VENTURA. The Merger Agreement contains certain restrictions on the conduct
of Ventura's business prior to the Effective Date. Certain purposes of these
restrictions are (1) to ensure that Ventura is in substantially the same
condition at the Effective Time as it was in on September 15, 1996, the date of
the Merger Agreement, (ii) to ensure that the Effective Time is not
unnecessarily delayed and (iii) to preserve the status of the Merger as a
reorganization within the meaning of Section 368(c) of the Internal Revenue Code
of 1986, as amended (the "Code").
CITY NATIONAL. The Merger Agreement also contains certain restrictions on
the conduct of City National's business prior to the Effective Time. Certain
purposes of these restrictions are to ensure (i) that City National does not
impair the value of City National Stock and (ii) that the Effective Date is not
unnecessarily delayed.
See "THE MERGER--Conduct of Business Pending the Merger."
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time, either before or after its approval by the shareholders of Ventura, (i) by
the mutual agreement of Ventura and City National, (ii) by Ventura if the Final
City National Stock Price is less than $13.90 or (iii) by either City National
or Ventura under certain specified circumstances, including the failure of the
Merger to be effective by May 31, 1997, unless such failure is due to the breach
of any covenant or obligation contained in the Merger Agreement by the party
seeking to terminate. See "THE MERGER--Amendment and Termination."
Following the Special Meeting, in the event the Final City National Stock
Price is less than $13.90 the Ventura Board of Directors will have the
discretion, without the necessity of a further vote of the Ventura shareholders,
to determine whether or not to proceed with the Merger. In exercising such
discretion, the Ventura Board of Directors anticipates that it would review
current information and consider a variety of factors including those which it
considered in making its initial decision to enter into the Merger Agreement.
Based thereon, the Board of Directors may determine not to exercise Ventura's
right to terminate the Merger Agreement. See "THE MERGER--Background of and
Reasons for the Merger."
BANK MERGER
After the Effective Time, City National expects to cause Ventura Bank and/or
Frontier Bank to merge with and into City National Bank, with City National Bank
as the surviving corporation (the "Bank Merger") subject to receipt of necessary
regulatory approvals. There can be no assurance that such approvals will be
obtained or that the Bank Merger will be consummated. Upon consummation of the
Bank Merger, the directors and officers of City National Bank immediately prior
to the Bank Merger will be the directors and officers, respectively, of the
surviving corporation. See "THE MERGER--Bank Mergers."
RIVERSIDE MERGER
City National and City National Bank are also parties to an Agreement and
Plan of Merger with Riverside National Bank ("Riverside"), dated as of October
15, 1996 (the "Riverside Agreement"), which contemplates the merger of Riverside
and City National Bank, and the issuance of City National Stock and/or cash to
shareholders of Riverside. Subject to the satisfaction of a number of
conditions, including regulatory and Riverside shareholder approval, the
Riverside Merger and the Merger are expected to be consummated within several
weeks of each other. While it is currently expected that the Merger is likely to
be consummated prior to the Riverside Merger, there is a possibility that the
Riverside Merger will be the
12
<PAGE>
first of the two transactions to close. As of September 30, 1996, Riverside had
total assets of $248.4 million and total deposits of $219.4 million.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Record Date, the directors and executive officers of Ventura
(including the executive officers of Ventura Bank and Frontier Bank)
beneficially owned 1,242,710 shares of Ventura Stock (not including shares such
persons may acquire through the exercise of vested stock options), which will be
converted into the right to receive cash or City National Stock or both at the
Effective Time in the same manner as will the shares of Ventura Stock held by
all other Ventura shareholders. In addition, directors and executive officers of
Ventura (including the executive officers of Ventura Bank and Frontier Bank)
held as of such date options to purchase 274,636 shares of Ventura Stock, which
will be exercised or canceled in exchange for certain cash payments in
connection with the Merger. Immediately after the Effective Time, former
directors and executive officers of Ventura as a group will own less than 1% of
the outstanding shares of City National Stock.
Pursuant to the terms of certain agreements for executive officers of
Ventura certain executive officers of Ventura are entitled to receive severance
payments in the event of termination of employment, as well as salary and
benefit continuation payments in the event of a termination of employment as a
result of a change in control, such as the Merger, which severance and
continuation payments aggregate approximately $1,300,000.
City National has requested each of Richard Cupp, Kathleen Kellogg, Carl
Raggio and Simone Lagomarsino to remain employees of City National (or one of
its subsidiaries) for a period of up to six months following the Effective Time.
City National and the four executive officers of Ventura are currently engaged
in discussions to determine whether they can reach mutually satisfactory terms
for any such employment relationship.
The Merger Agreement provides that all rights to indemnification now
existing in favor of the directors and officers of Ventura, Ventura Bank and
Frontier Bank in effect as of the date of the Merger Agreement will survive the
Merger and will continue in full force and effect. City National also agreed
that following the consummation of the Merger, to the fullest extent permitted
by Delaware law, the City National Certificate of Incorporation (the "City
National Certificate") and the City National Bylaws, it would indemnify, defend
and hold harmless individuals who were directors or officers of Ventura, Ventura
Bank or Frontier Bank for any claim or loss arising out of their actions while a
director or officer and shall pay the expenses, including attorneys' fees, of
such individual in advance of the final resolution of any claim, provided such
individual first executes an undertaking acceptable to City National to return
such advances in the event it is finally concluded that such indemnification is
not allowed under applicable law.
See "THE MERGER--Interests of Certain Persons in the Merger."
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
It is intended that the Merger will be treated as a tax-deferred
reorganization within the meaning of Section 368(a) of the Code and accordingly,
for federal income tax purposes, (i) no gain or loss will be recognized by
either Ventura or City National as a result of the Merger and (ii) in general,
holders of Ventura Stock will not recognize gain or loss to the extent that they
receive City National Stock in exchange for Ventura Stock, except to the extent
of any cash received in lieu of fractional shares. Ventura has received an
opinion from Manatt, Phelps & Phillips, LLP, special counsel to Ventura ("Tax
Counsel"), confirming the tax treatment of the Merger. Consummation of the
Merger is conditioned upon receipt by Ventura of an updated opinion from Tax
Counsel confirming the tax treatment of the Merger. See "THE MERGER--Certain
Federal Income Tax Considerations" and "--Conditions to Consummation of the
Merger."
13
<PAGE>
ACCOUNTING TREATMENT
The Merger will be accounted for by City National under the purchase method
of accounting. See "THE MERGER--Accounting Treatment."
SHAREHOLDERS' AGREEMENT
Each of the directors of Ventura have agreed, pursuant to a Shareholders'
Agreement, to vote all shares of Ventura Stock owned or acquired by them, in
favor of the Merger and the Merger Agreement and the other matters contemplated
by the Merger Agreement.
In addition, the directors have agreed to vote their shares of Ventura Stock
against any action that would constitute a breach by Ventura of the Merger
Agreement or that could interfere with or delay the contemplated economic
benefits to City National of the Merger or the Stock Option Agreement and
against extraordinary corporate transactions, changes in the majority of the
board of Ventura or other material changes.
See "CERTAIN RELATED AGREEMENTS--Shareholders' Agreement."
OPTION AGREEMENT
Concurrently with the execution and delivery of the Merger Agreement, and as
a condition and inducement thereto, City National and Ventura entered into the
Option Agreement, pursuant to which Ventura granted City National an option to
purchase up to 1,836,516 shares of the outstanding Ventura Stock (or such other
number of shares of Ventura Stock as shall represent 19.9% of the then
outstanding Ventura Stock) at a price per share of $3.93. The consummation of a
purchase or a repurchase pursuant to the Stock Option Agreement may be subject
to, among other things, obtaining any required regulatory approvals. See
"CERTAIN RELATED AGREEMENTS--Option Agreement."
DISSENTERS' RIGHTS
In the event that holders of five percent (5%) or more of Ventura Stock vote
against the Merger and make a written demand upon Ventura for the purchase of
dissenting shares in accordance with the provisions of Chapter 13 of the
California General Corporation Law ("California Code"), such holders will be
entitled to receive an amount equal to the fair market value of their shares as
of September 13, 1996, the last trading day before the public announcement of
the Merger. See "DISSENTER'S RIGHTS-- Rights of Dissenting Shareholders."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
Ventura shareholders' rights are currently governed by California law, the
Ventura Articles of Incorporation (the "Ventura Articles") and the Ventura
By-laws. Upon consummation of the Merger, shareholders of Ventura Stock
receiving City National Stock will become stockholders of City National and
their rights as such will be governed by Delaware law, the City National
Certificate and the City National By-laws. See "COMPARISON OF RIGHTS OF HOLDERS
OF CITY NATIONAL STOCK AND VENTURA STOCK."
MARKETS AND MARKET PRICES
The City National Stock is listed on the NYSE under the symbol "CYN" and the
Ventura Stock is quoted in the Nasdaq National Market System under the symbol
"VCNB." The closing price per share of City National Stock, as reported on the
NYSE Composite Tape, and the bid and asked price per share of Ventura Stock, as
reported on the Nasdaq National Market System as of September 13, 1996, the last
14
<PAGE>
trading day before the day on which City National and Ventura executed the
Merger Agreement, and as of December , 1996 were as follows:
<TABLE>
<CAPTION>
CITY NATIONAL STOCK
VENTURA STOCK
BID ASKED
--------- ---------
<S> <C> <C> <C>
September 13, 1996................................................. $ 17.25 $ 3.75 $ 3.50
December , 1996..................................................
</TABLE>
The shares of City National Stock issued in connection with the Merger will
be listed on the NYSE. See "INTRODUCTION--Markets and Market Prices."
SELECTED CONSOLIDATED FINANCIAL DATA
The following sets forth selected consolidated historical financial and
other data for City National and its consolidated subsidiaries and Ventura and
its consolidated subsidiaries as of, and for each of the five years ended,
December 31, 1995 and as of, and for the nine months ended, September 30, 1995
and 1996. Such data should be read in conjunction with, and is qualified in its
entirety by, the more detailed information, Management's Discussion and Analysis
of Financial Condition and Results of Operations and the consolidated financial
statements and notes thereto accompanying this Proxy Statement/Prospectus or in
the documents described under "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
CITY NATIONAL. The selected consolidated balance sheet data for the years
ended December 31, 1994 and 1995 and the consolidated statement of operations
data for the years ended December 31, 1993 through 1995 are derived from the
consolidated financial statements of City National incorporated in this Proxy
Statement/Prospectus by reference, which financial statements have been audited
by KPMG Peat Marwick LLP, independent certified public accountants. The selected
consolidated balance sheet data presented below as of December 31, 1991 and 1992
and the consolidated statement of operations data presented below for the years
ended December 31, 1991 and 1992, are derived from financial statements of City
National not included herein which have been audited by other independent
certified public accountants. The selected consolidated balance sheet data as of
September 30, 1995 and 1996 and the selected consolidated statement of
operations data for the nine months ended September 30, 1995 and 1996 have been
derived from City National's unaudited consolidated financial statements.
Operating results for the nine months ended September 30, 1996 may not be
indicative of the results that may be expected for the year ending December 31,
1996 or any future period.
15
<PAGE>
SELECTED FINANCIAL INFORMATION
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest income.......................... $ 208,626 $ 157,601 $ 217,594 $ 181,825 $ 169,792 $ 233,049 $ 360,834
Interest expense......................... 61,212 38,497 55,331 38,414 41,996 84,433 180,319
--------- --------- --------- --------- --------- --------- ---------
Net interest income...................... 147,414 119,104 162,263 143,411 127,796 148,616 180,515
Provision for credit losses(1)........... -- -- -- 7,535 60,163 128,878 118,600
Noninterest income (other than gains and
losses on securities transactions)..... 32,373 26,079 35,162 36,180 45,810 45,365 43,332
Gains (losses) on securities
transactions........................... 322 498 (596) (3,383) -- 1,629 --
Noninterest expense (other than ORE and
consolidation charge)(1)............... 104,874 87,897 118,684 121,296 129,226 150,546 148,302
Consolidation charge..................... -- -- -- -- 12,000 -- --
ORE expense (income)(1).................. (227) 16 (608) (5,297) (4,489) 8,788 1,948
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing operations
before taxes.............................. 75,462 57,768 78,753 52,674 (23,294) (92,602) (45,003)
Income taxes (benefit)................... 25,794 22,307 29,961 15,511 (9,260) (32,450) (22,387)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from continuing
operations............................. 49,668 35,461 48,792 37,163 (14,034) (60,152) (22,616)
Income from discontinued operations...... -- -- -- -- 7,128 804 1,396
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)...................... $ 49,668 $ 35,461 $ 48,792 $ 37,163 $ (6,906) $ (59,348) $ (21,220)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PER SHARE DATA:
Income (loss) per share from continuing
operations............................. $ 1.10 $ 0.77 $ 1.06 $ 0.81 $ (0.35) $ (1.87) $ (0.70)
Net income (loss) per share.............. 1.10 0.77 1.06 0.81 (0.17) (1.84) (0.66)
Cash dividends declared.................. 0.27 0.19 0.26 0.05 -- -- 0.32
Book value per share..................... 8.78 8.00 8.19 7.32 6.62 7.07 8.91
Shares used to compute income (loss) per
share.................................. 44,986,000 45,927,000 45,886,000 45,626,000 39,580,000 32,240,000 32,214,000
BALANCE SHEET DATA--AT PERIOD END:
Assets................................... $3,946,555 $3,067,640 $4,157,551 $3,012,775 $3,100,626 $3,514,102 $4,571,262
Loans(1)................................. 2,674,242 1,900,793 2,346,611 1,643,918 1,628,803 2,167,992 2,662,077
Securities............................... 853,682 728,901 975,407 749,435 904,481 443,922 731,196
Interest-earning assets(1)............... 3,661,156 2,827,860 3,784,245 2,716,524 2,838,698 3,105,978 4,040,757
Deposits................................. 2,940,169 2,071,527 3,248,035 2,417,762 2,526,767 2,911,276 3,664,219
Shareholders' equity..................... 385,383 362,919 366,957 330,721 298,074 227,944 287,064
BALANCE SHEET DATA--AVERAGE BALANCES:
Assets................................... $3,770,215 $2,768,797 $2,849,807 $2,831,471 $2,944,461 $3,918,949 $4,605,075
Loans(1)................................. 2,478,361 1,701,203 1,758,671 1,537,997 1,762,663 2,403,657 2,869,081
Securities............................... 843,731 711,093 705,122 854,823 517,059 548,734 665,071
Interest-earning assets(1)............... 3,454,772 2,545,901 2,624,436 2,594,241 2,623,164 3,550,920 4,180,860
Deposits................................. 2,823,941 2,036,775 2,062,412 2,241,175 2,380,106 3,133,109 3,706,621
Shareholders' equity..................... 367,207 346,075 350,551 313,196 260,649 259,629 318,776
ASSET QUALITY:
Nonaccrual loans(1)...................... $ 42,616 $ 35,160 $ 48,124 $ 58,801 $ 79,303 $ 253,089 $ 199,431
ORE(1)................................... 17,156 4,179 7,439 4,726 2,052 8,637 26,368
--------- --------- --------- --------- --------- --------- ---------
Total nonaccrual loans and ORE......... $ 59,772 $ 39,339 $ 55,563 $ 63,527 $ 81,355 $ 261,726 $ 225,799
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Assets held for accelerated
disposition............................ $ -- $ -- $ -- $ -- $ 17,450 $ -- $ --
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
16
<PAGE>
SELECTED FINANCIAL INFORMATION
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------- --------- --------- --------- --------- --------- ---------
PERFORMANCE RATIOS:
<S> <C> <C> <C> <C> <C> <C> <C>
Return on average assets................. 1.76% 1.71% 1.71% 1.31% (0.23)% (1.51)% (0.46)%
Return on average shareholders' equity... 18.07 13.70 13.92 11.87 (2.65) (22.84) (6.65)
Net interest spread(1)................... 4.49 4.92 4.84 4.60 4.12 3.44 3.30
Net interest margin(1)................... 5.86 6.31 6.26 5.57 4.92 4.30 4.47
Average shareholders' equity to average
assets................................. 9.74 12.50 12.30 11.06 8.85 6.62 6.92
Dividend payout ratio.................... 23.89 24.27 24.53 6.17 -- -- (2)
ASSET QUALITY RATIOS:
Nonaccrual loans to total loans(1)....... 1.59% 1.85% 2.05% 3.58% 4.87% 11.67% 7.49%
Nonaccrual loans and ORE to total
assets(1).............................. 1.51 1.28 1.34 2.11 2.62 7.45 4.94
Allowance for credit losses to total
loans(1)............................... 4.81 5.87 5.60 6.41 6.78 6.28 4.72
Allowance for credit losses to nonaccrual
loans(1)............................... 301.74 317.13 273.28 179.15 139.34 53.77 63.06
Net charge offs (recoveries) to average
loans(1)............................... 0.16 (0.49) (0.40) 0.83 4.78 4.93 1.84
</TABLE>
- ------------------------------
(1) Data for years prior to 1995 have been reclassified to reflect adoption of
Statements of Financial Accounting Standards 114 and 118.
(2) Not meaningful.
17
<PAGE>
VENTURA. The selected consolidated balance sheet data presented below for
the years ended December 31, 1994 and 1995 and of the consolidated statement of
operations data presented below for the years ended December 31, 1993, 1994 and
1995 are derived from the consolidated financial statements of Ventura included
as part of Ventura's Annual Report on Form 10-K for the year ended December 31,
1995 provided with this Proxy Statement/Prospectus, which financial statements
have been audited by Deloitte & Touche LLP, independent certified public
accountants. The selected consolidated balance sheet data presented below as of
December 31, 1991, 1992 and 1993 and the consolidated statement of operations
data presented below for the years ended December 31, 1991 and 1992, are derived
from financial statements of Ventura not included herein which have been audited
by Deloitte & Touche LLP, independent certified public accountants. The selected
consolidated balance sheet data as of September 30, 1996 and the consolidated
statement of operations data for the nine months ended September 30, 1995 and
1996 have been derived from Ventura's unaudited consolidated financial
statements. Operating results for the nine months ended September 30, 1996 may
not be indicative of the results that may be expected for the year ending
December 31, 1996 or any future period.
18
<PAGE>
SELECTED FINANCIAL INFORMATION
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Interest income........................ $ 15,968 $ 15,593 $ 20,798 $ 22,136 $ 25,911 $ 28,951 $ 34,107
Interest expense....................... 4,827 4,733 6,361 6,268 8,999 11,365 16,176
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income.................... 11,141 10,860 14,437 15,868 16,912 17,586 17,931
Provision for credit losses............ -- 410 410 3,825 16,213 3,404 2,537
Noninterest income (other than gains
and losses on securities
transactions)........................ 1,861 1,563 2,199 4,259 4,764 5,512 5,271
Gains (losses) on securities
transactions......................... (86) 47 47 (195) 56 -- 93
Noninterest expense (other than ORE)... 12,799 10,650 14,768 15,442 19,106 17,959 19,239
ORE expense (income)................... 241 (67) 169 642 1,733 479 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before taxes............. (124) 1,477 1,336 23 (15,320) 1,256 1,519
Income taxes (benefit)................. (146) 30 (2,432) 285 (3,233) 571 713
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss).................... $ 22 $ 1,447 $ 3,768 $ (262) $ (12,087) $ 685 $ 806
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
PER SHARE DATA:
Net income (loss) per share............ $ -- $ 0.20 $ 0.48 $ (0.04) $ (2.14) $ 0.12 $ 0.14
Cash dividends declared................ -- -- -- -- -- -- --
Book value per share................... 3.18 2.90 3.19 3.01 3.22 5.41 5.21
Shares used to compute income (loss)
per share............................ 9,291,000 7,363,000 7,833,000 6,334,000 5,636,000 5,611,000 5,621,000
BALANCE SHEET DATA--AT PERIOD END:
Assets................................. $ 271,720 $ 255,883 $ 267,756 $ 257,755 $ 340,529 $ 400,195 $ 364,734
Loans.................................. 170,397 157,937 157,765 167,934 267,514 312,592 299,267
Securities............................. 56,679 39,482 36,588 50,634 40,775 33,168 13,590
Interest-earning assets................ 255,026 230,919 241,903 246,262 328,469 352,895 325,739
Deposits............................... 237,930 226,244 236,072 236,342 318,289 348,587 324,486
Shareholders' equity................... 29,345 26,728 29,459 19,052 20,370 30,388 29,179
BALANCE SHEET DATA--AVERAGE BALANCES:
Assets................................. $ 266,143 $ 251,352 $ 254,201 $ 295,294 $ 380,961 $ 388,624 $ 374,361
Loans.................................. 164,701 161,036 159,899 212,029 289,675 315,659 291,822
Securities............................. 49,399 45,206 43,290 37,736 37,935 18,438 15,379
Interest-earning assets................ 243,277 233,691 234,912 277,612 351,686 355,090 335,520
Deposits............................... 233,560 227,621 227,919 272,928 333,462 356,567 341,868
Shareholders' equity................... 29,181 21,933 24,086 20,103 26,789 29,778 28,932
ASSET QUALITY:
Nonaccrual loans....................... $ 2,687 $ 4,540 $ 4,341 $ 7,612 $ 18,939 $ 2,464 $ 2,142
ORE.................................... 3,315 3,737 3,580 3,224 2,229 3,940 2,206
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total nonaccrual loans and ORE....... $ 6,002 $ 8,277 $ 7,921 $ 10,836 $ 21,168 $ 6,404 $ 4,348
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
PERFORMANCE RATIOS: (1)
Return on average assets............... 0.01% 0.77% 1.49% (0.09)% (3.18)% 0.18% 0.22%
Return on average shareholders'
equity............................... 0.10 8.82 15.64 (1.29) (45.12) 2.30 2.79
Net interest spread.................... 4.90 5.10 5.00 4.80 3.96 4.27 5.06
Net interest margin.................... 6.12 6.21 6.15 5.68 4.81 4.95 5.34
Average shareholders' equity to average
assets............................... 10.96 8.73 9.48 6.81 7.03 7.66 7.73
ASSET QUALITY RATIOS:
Nonaccrual loans to total loans........ 1.58% 2.87% 2.75% 4.53% 7.08% 0.79% 0.72%
Nonaccrual loans and ORE to total
assets............................... 2.21 3.23 2.96 4.20 6.22 1.60 1.19
Allowance for credit losses to total
loans................................ 2.90 3.64 3.42 4.92 5.35 1.23 0.95
Allowance for credit losses to
nonaccrual loans..................... 184.22 126.71 124.42 108.53 75.57 156.41 132.82
Net charge offs to average loans (1)... 0.37 2.43 2.05 4.66 1.99 0.76 0.68
</TABLE>
- ------------------------------
(1) Ratios shown for the nine month periods ending September 30, 1995 and 1996
have been annualized.
19
<PAGE>
SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following tables present selected pro forma combined financial data as
of September 30, 1996 and for the year ended December 31, 1995 and for the nine
months ended September 30, 1996 as if the Merger and the Riverside Merger had
been effective on January 1, 1995 and January 1, 1996, respectively, after
giving effect to the purchase accounting and other merger-related adjustments
described in the respective Notes to Pro Forma Condensed Combined Financial
Statement. See "PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION." The Low
Range, Medium Range and High Range selected pro forma condensed combined
financial data, respectively, reflect the Ventura Merger being completed at an
assumed Final City National Stock Price equal to $13.90 per share, $17.475 per
share, and $19.10 per share with respect to the Merger and $13.50 per share,
$17.475 per share and $19.50 per share with respect to the Riverside Merger.
Actual results within each of the Low, Medium and High Ranges will vary from
those presented if the Final City National Stock Price is other than those
assumed in the tables. See "THE MERGER--Consideration Payable Upon Consummation
of the Merger". The selected pro forma condensed combined financial information
tables are intended for informational purposes only and are not necessarily
indicative of the future financial positions or future results of operations of
City National after (i) the Merger or (ii) the Merger and the Riverside Merger
or of the financial position or results of operations that would have actually
occurred had (a) the Merger or (b) the Merger and the Riverside Merger been in
effect as of the dates or the periods presented.
20
<PAGE>
CITY NATIONAL AND VENTURA
<TABLE>
<CAPTION>
LOW RANGE(1) MEDIUM RANGE(1) HIGH RANGE(1)
---------------------------- ---------------------------- ----------------------------
AT OR FOR THE AT OR FOR THE AT OR FOR THE
NINE MONTHS FOR THE NINE MONTHS FOR THE NINE MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1995 1996 1995 1996 1995
------------- ------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance sheet data:
Total assets................. $ 4,213,349 $ 4,216,204 $ 4,216,204
Net loans.................... 2,711,100 2,711,100 2,711,100
Securities................... 910,361 910,361 910,361
Deposits..................... 3,178,099 3,178,099 3,178,099
Stockholder's equity......... 407,721 410,576 410,576
Statement of income data:
Total interest income........ $ 223,723 $ 237,132 $ 223,723 $ 237,132 $ 223,723 $ 237,132
Total interest expense....... 66,039 61,692 66,039 61,692 66,039 61,692
Provision for loan losses -- 410 -- 410 -- 410
------------- ------------- ------------- ------------- ------------- -------------
Net interest income after
provision for loan
losses..................... 157,684 175,030 157,684 175,030 157,684 175,030
Other income................. 34,470 36,812 34,470 36,812 34,470 36,812
Other expense................ 119,822 135,848 120,036 136,134 120,036 136,134
------------- ------------- ------------- ------------- ------------- -------------
Income before income taxes... 72,332 75,994 72,118 75,708 72,118 75,708
Income tax expense........... 24,627 26,126 24,627 26,136 24,627 26,136
------------- ------------- ------------- ------------- ------------- -------------
Net income................... $ 47,705 $ 49,868 $ 47,491 $ 49,572 $ 47,491 $ 49,572
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
Cash dividend paid........... $ 11,865 $ 11,755 $ 11,865 $ 11,755 $ 11,865 $ 11,755
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
Per share data:
Pro forma net income per
share...................... $ 1.02 $ 1.05 $ 1.02 $ 1.05 $ 1.03 $ 1.05
Cash dividend per share...... 0.26 0.25 0.26 0.25 0.26 0.25
Book value per share......... 8.95 -- 9.05 -- 9.07 --
Pro forma equivalent per share
data:
Net income per share......... $ 0.33 $ 0.34 $ 0.29 $ 0.30 $ 0.27 $ 0.28
Cash dividend per share...... 0.08 0.08 0.07 0.07 0.07 0.07
Book value per share......... 2.88 -- 2.60 -- 2.39 --
</TABLE>
- ------------------------------
(1) The Low Range, Medium Range and High Range pro forma results reflect a Final
City National Stock Price equal to $13.90, $17.475 and $19.10, respectively,
to reflect the range of possible consideration values contemplated in the
Merger Agreement. See "PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION."
21
<PAGE>
CITY NATIONAL, VENTURA AND RIVERSIDE
<TABLE>
<CAPTION>
LOW RANGE(1) MEDIUM RANGE(1) HIGH RANGE(1)
---------------------------- ---------------------------- ----------------------------
AT OR FOR THE AT OR FOR THE AT OR FOR THE
NINE MONTHS FOR THE NINE MONTHS FOR THE NINE MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1996 1995 1996 1995 1996 1995
------------- ------------- ------------- ------------- ------------- -------------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance sheet data:
Total assets................... $ 4,445,947 $ 4,454,084 $ 4,458,027
Net loans...................... 2,875,474 2,875,474 2,875,474
Securities..................... 940,160 940,160 940,160
Deposits....................... 3,397,524 3,397,524 3,397,524
Stockholder equity............. 414,590 422,727 426,670
Statement of income data:
Total interest income.......... $ 235,229 $ 251,841 $ 235,327 $ 251,983 $ 235,491 $ 252,220
Total interest expense......... 69,890 66,680 69,890 66,680 69,890 66,680
Provision for loan losses...... 75 590 75 590 75 590
------------- ------------- ------------- ------------- ------------- -------------
Net interest income after
provision for loan losses.... 165,264 184,571 165,362 184,713 165,526 184,950
Other income................... 36,174 39,682 36,174 39,682 36,174 39,682
Other expense.................. 128,543 148,619 128,977 149,198 128,977 149,198
------------- ------------- ------------- ------------- ------------- -------------
Income before income taxes..... 72,895 75,634 72,559 75,197 72,723 75,434
Income tax expense............. 25,000 26,079 25,041 26,149 25,111 26,249
------------- ------------- ------------- ------------- ------------- -------------
Net income..................... $ 47,895 $ 49,555 $ 47,518 $ 49,048 $ 47,612 $ 49,185
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
Cash dividend paid............. $ 12,110 $ 11,968 $ 12,181 $ 12,030 $ 12,233 $ 12,075
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
Per share data:
Pro forma net income per
share........................ $ 1.01 $ 1.03 $ 1.01 $ 1.02 $ 1.01 $ 1.02
Cash dividend per share........ 0.26 0.25 0.26 0.25 0.27 0.25
Book value per share........... 8.99 -- 9.17 -- 9.25 --
Pro forma equivalent per share
data:
Net income per share........... $ 0.32 $ 0.32 $ 0.29 $ 0.29 $ 0.27 $ 0.27
Cash dividend per share........ 0.09 0.08 0.08 0.07 0.07 0.07
Book value per share........... 2.89 -- 2.64 -- 2.44 --
</TABLE>
- ------------------------------
(1) The Low Range, Medium Range and High Range pro forma results reflect a Final
City National Stock Price equal to $13.90, $17.475 and $19.10, respectively,
for the Merger; and $13.50, $17.475 and $19.50 for the Riverside Merger,
respectively, to reflect the range of possible consideration values
contemplated in the Merger Agreement and the Riverside Merger Agreement. See
Appendix A and "PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION."
22
<PAGE>
COMPARATIVE PER SHARE DATA (UNAUDITED)
The following unaudited financial information reflects certain comparative
per share data relating to net income, cash dividends, and book value per common
share (1) on a historical basis for City National and Ventura, (2) on a pro
forma combined basis per share of City National Stock giving effect to the
Merger, (3) on a pro forma combined basis per share of City National Stock
giving effect to both the Merger and Riverside Merger and (4) on an equivalent
pro forma basis per share of Ventura Stock giving effect to the Merger and the
Riverside Merger. The pro forma combined information and the Ventura pro forma
equivalent information give effect to the Merger and the Riverside Merger on a
purchase accounting basis and reflect the Low Range, Medium Range and High Range
assumed for the Final City National Stock Price as discussed in the Pro Forma
Condensed Combined Financial Information. There can be no assurance as to what
the market price of the City National Stock will be if and when the Merger and
the Riverside Merger are consummated. See "INTRODUCTION--Markets and Market
Prices." For a description of purchase accounting with respect to the Merger,
see "THE MERGER--Accounting Treatment." The information shown below is for
information purposes only and should be read in conjunction with the historical
consolidated financial statements of Ventura and City National, including the
respective notes thereto, which, in the case of Ventura, appear as an Appendix
to this Proxy Statement/ Prospectus, and in the case of City National, are
incorporated by reference in this Proxy Statement/ Prospectus, and the unaudited
pro forma financial statements, including the notes thereto, included in this
Proxy Statement/Prospectus. Results of Ventura and City National for the nine
months ended September 30, 1996 are not necessarily indicative of the results
which may be expected for any other interim period or for the year as a whole.
The pro forma financial data are not necessarily indicative of results that
actually would have occurred had the Merger and/or the Riverside Merger been
consummated on the date indicated or that may be obtained in the future. See
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
23
<PAGE>
<TABLE>
<CAPTION>
TWELVE MONTHS
NINE MONTHS ENDED ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------- -------------------
<S> <C> <C>
NET INCOME PER COMMON SHARE:
City National Historical............................................... $ 1.10 $ 1.06
Ventura Historical..................................................... $ 0.00 $ 0.48
Final City National Stock Price @ Low Range
Pro Forma Combined City National and Ventura (1)....................... 1.02 1.05
Pro Forma Combined City National, Ventura and Riverside (2)............ 1.01 1.03
Ventura pro forma equivalent (3)....................................... 0.32 0.32
Final City National Stock Price @ Medium Range
Pro Forma Combined City National and Ventura (1)....................... 1.02 1.05
Pro Forma Combined City National, Ventura and Riverside (2)............ 1.01 1.02
Ventura pro forma equivalent (3)....................................... 0.29 0.29
Final City National Stock Price @ High Range
Pro Forma Combined City National and Ventura (1)....................... 1.03 1.05
Pro Forma Combined City National, Ventura and Riverside (2)............ 1.01 1.02
Ventura pro forma equivalent (3)....................................... 0.27 0.27
CASH DIVIDEND PAID PER COMMON SHARE (4):
City National Historical............................................... $ 0.27 $ 0.26
Ventura Historical..................................................... $ 0.00 $ 0.00
Final City National Stock Price @ Low Range
Pro Forma Combined City National and Ventura (5)....................... 0.26 0.25
Pro Forma Combined City National, Ventura and Riverside (2)............ 0.26 0.25
Final City National Stock Price @ Medium Range
Pro Forma Combined City National and Ventura (5)....................... 0.26 0.25
Pro Forma Combined City National, Ventura and Riverside(2)............. 0.26 0.25
Final City National Stock Price @ High Range
Pro Forma Combined City National and Ventura (5)....................... 0.26 0.25
Pro Forma Combined City National, Ventura and Riverside(2)............. 0.27 0.25
BOOK VALUE PER COMMON SHARE (END OF PERIOD):
City National Historical............................................... $ 8.78 $ 8.19
Ventura Historical..................................................... $ 3.18 $ 3.19
Final City National Stock Price @ Low Range
Pro Forma Combined City National and Ventura (6)....................... 8.95
Pro Forma Combined City National, Ventura and Riverside (7)............ 8.99
Ventura pro forma equivalent (8)....................................... 2.89
Final City National Stock Price @ Medium Range
Pro Forma Combined City National and Ventura (6)....................... 9.05
Pro Forma Combined City National, Ventura and Riverside (7)............ 9.17
Ventura pro forma equivalent (8)....................................... 2.64
Final City National Stock Price @ High Range
Pro Forma Combined City National and Ventura (6)....................... 9.07
Pro Forma Combined City National, Ventura and Riverside (7)............ 9.25
Ventura pro forma equivalent (3)....................................... 2.44
</TABLE>
- ------------------------
(1) Represents the pro forma combined information of City National and Ventura
as if the Merger were consummated on January 1, 1996 and January 1, 1995
respectively, and accounted for as a purchase.
(2) Represents the pro forma combined information of City National, Ventura and
Riverside as if the Merger and the Riverside Merger were consummated on
January 1, 1996 and January 1, 1995
24
<PAGE>
(3) Represents the pro forma combined information of City National, Ventura and
Riverside multiplied by the exchange ratio of a share of City National Stock
for 55% of the shares of Ventura Stock for the respective time period and
the Final City National Stock Price.
(4) See "INTRODUCTION--Markets and Market Prices."
(5) Represents the historical dividends paid by City National divided by pro
forma shares outstanding including the shares of Ventura Stock which would
become City National Stock.
(6) Represents the pro forma combined information of City National and Ventura
as if the Merger were consummated on September 30, 1996 and accounted for as
a purchase.
(7) Represents the pro forma combined information of City National, Ventura and
Riverside as if the Merger and the Riverside Merger were consummated on
September 30, 1996 and accounted for as a purchase.
25
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following sets of unaudited Pro Forma Condensed Combined Balance Sheets
as of September 30, 1996 combine the historical consolidated balance sheets of
City National, Ventura and Riverside as if the Merger and the Riverside Merger
had been effective on September 30, 1996, after giving effect to the purchase
accounting and other merger-related adjustments described in the respective
Notes to Pro Forma Condensed Combined Financial Statements. The following sets
of the unaudited Pro Forma Combined Statements of Operations present the
combined consolidated results of operations of City National, Ventura and
Riverside for the nine months ended September 30, 1996 and the year ended
December 31, 1995 as if the Merger and the Riverside Merger had been effective
on January 1, 1996 and January 1, 1995, respectively, after giving effect to the
purchase accounting and other merger-related adjustments described in the
respective accompanying notes.
Under the Merger Agreement, Ventura shareholders receiving City National
Stock will receive for each share of Ventura Stock held by them, that fraction
of a share of City National Stock equal to the Exchange Ratio. The Exchange
Ratio is determined by dividing $5.03 by the Final City National Stock Price,
provided in the event the Final City National Stock Price is more than $19.10,
the Exchange Ratio will be based upon a Final City National Stock Price of
$19.10 and, accordingly, will be fixed at .2634 (the "High Range") and in the
event the Final City National Stock Price is less than $15.65, the Exchange
Ratio will be based upon a Final City National Stock Price of $15.65 and,
accordingly, will be fixed at .3214. Ventura has the right to terminate the
Merger if the Final City National Stock Price is less than $13.90 (the "Low
Range"). The exchange ratio based on the average of the closing City National
Stock prices on the twenty business days ending three business days before
September 30, 1996 was .2878 (the "Medium Range"). Pursuant to the Merger
Agreement, 55% of the aggregate number of issued and outstanding shares of
Ventura Stock as of the Effective Time will be converted into shares of City
National Stock.
The Low Range Pro Forma Condensed Combined Financial Statements reflect the
purchase being completed at a Final City National Stock Price of $13.90 and an
Exchange Ratio of .3214. If the Final City National Stock Price was below $13.90
per share, Ventura would have the right to terminate the Merger Agreement,
without payment of consideration. Accordingly, this Low Range scenario reflects
the lowest consideration received by those Ventura shareholders who receive City
National Stock and the lowest purchase price payable prior to Ventura having a
unilateral right to terminate the Merger Agreement. However, if the Ventura
Board of Directors does not exercise its right to terminate the Merger Agreement
in the event that the Final City National Stock Price Falls below $13.90 per
share, the purchase price payable to the Ventura shareholders will be lower. See
"THE MERGER--Amendment and Termination."
The Medium Range Pro Forma Condensed Combined Financial Statements reflect
the purchase being completed at a Final City National Stock Price of $17.475 and
an Exchange Ratio of .2878.
At a Final City National Stock Price above $19.10, the consideration
received by Ventura shareholders who receive City National Stock and the
purchase price would continue to increase. The High Range Pro Forma Condensed
Combined Financial Statements reflect the purchase being completed at a Final
City National Stock Price of $19.10 and an Exchange Ratio of .2634 which results
in the lowest purchase price payable within the High Range.
Under the Riverside Agreement, Riverside shareholders receiving City
National Stock will receive for each share of Riverside Stock held by them, that
fraction of a share (or number of shares) of City National Stock (the "Riverside
Exchange Ratio") determined by dividing $18.00 by the Final City National Stock
Price for Riverside, provided in the event the Final City National Stock Price
for Riverside is between $19.50 and $22.50, the Riverside Exchange Ratio will be
based upon a Final City National Stock Price for Riverside of $19.50 and,
accordingly, will be fixed at .9231 (the "Riverside High Range"). In the event
the Final City National Stock Price is above $22.50, the Riverside Exchange
Ratio is determined by dividing $20.77 by the Final City National Stock Price.
In the event the Final City National Stock Price for Riverside is less than
$16.00, the Riverside Exchange Ratio will be based upon a Final City National
Stock Price of $16.00 and, accordingly, will be fixed at 1.125. Riverside has
the right to terminate the Riverside
26
<PAGE>
Merger if the Final City National Stock Price for Riverside is less than $13.50
and the number obtained by dividing the Final City National Stock Price for
Riverside by $17.75 is more than 15% less than the number obtained by dividing
the average closing price of the banks and bank holding companies included in
the Standards & Poor's Bank Index for the twenty consecutive business days
ending three days prior to the Riverside closing by the Index Price on October
10, 1996 (the "Riverside Low Range"). The Riverside Exchange Ratio based on the
average of the closing City National Stock prices on the twenty business days
ending three business days before September 30, 1996 was 1.03 (the "Riverside
Medium Range"). Pursuant to the Riverside Agreement, not less than 48% of the
aggregate number of issued and outstanding shares of Riverside common stock as
of the effective time for the Riverside Merger will be converted into shares of
City National Stock.
The Low Range Pro Forma Condensed Combined Financial Statements reflect the
purchase being completed at a Final City National Stock Price of $13.50 and a
Riverside Exchange Ratio of 1.125. If the Final City National Stock Price for
Riverside was below $13.50 per share and the Standard & Poor's Bank Index had
declined by more than 15% from its level on October 10, 1996, Riverside would
have the right to terminate the Riverside Agreement, without consideration.
Accordingly, this Low Range scenario reflects the lowest consideration received
by those Riverside shareholders who receive City National Stock and the lowest
purchase price payable prior to Riverside having a unilateral right to terminate
the Riverside Agreement.
The Medium Range Pro Forma Condensed Combined Financial Statements reflect
the purchase being completed at a Final City National Stock Price of $17.475 and
a Riverside Exchange Ratio of 1.03.
At a Final City National Stock Price above $19.50, the consideration
received by Riverside shareholders who receive City National Stock and the
purchase price continue to increase to a maximum $22.50, above which the
purchase price is fixed. The High Range Pro Forma Condensed Combined Financial
Statements reflect the purchase being completed at a Final City National Stock
Price of $19.50 a share and a Riverside Exchange Ratio of .9231 which results in
the lowest purchase price payable in the High Range.
Actual results within each of the Low, Medium and High Ranges for Ventura
and for Riverside will vary from those presented if the Final City National
Stock Price is other than those described above.
The sets of unaudited pro forma combined financial statements and
accompanying notes reflect the application of the purchase method of accounting.
Under this method of accounting, the purchase price will be allocated to the
assets acquired and liabilities assumed based on their estimated fair values at
the closing. As described in the accompanying notes, estimates of the fair
values of Ventura's and Riverside's assets and liabilities have been combined
with the recorded values of the assets and liabilities of City National.
However, changes to the adjustments included in the unaudited pro forma combined
financial statements are expected as evaluations of assets and liabilities are
completed and as additional information becomes available. See "THE
MERGER--Accounting Treatment." In addition, the results of operations of Ventura
and Riverside subsequent to September 30, 1996 will affect the allocation of the
purchase price. Accordingly, the final pro forma combined amounts will differ
from those set forth in the unaudited pro forma combined financial statements.
The sets of unaudited pro forma condensed combined financial statements are
intended for informational purposes only and are not necessarily indicative of
the future financial position or future results of operations of the combined
company, or of the financial position or results of operations of the combined
company that would have actually occurred had the Merger and the Riverside
Merger been in effect as of the date or for the periods presented. The unaudited
pro forma condensed combined financial statements of City National, Ventura and
Riverside should be read in conjunction with the historical and other pro forma
information, including the respective notes thereto, which in the case of City
National, are incorporated by reference in this Proxy Statement/Prospectus, and
in the case of Ventura, are attached to this Proxy Statement/Prospectus.
27
<PAGE>
LOW RANGE
PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
CITY PRO FORMA
NATIONAL VENTURA PRO FORMA COMBINED RIVERSIDE
HISTORICAL HISTORICAL ADJUSTMENTS WITH VENTURA HISTORICAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and due from banks........................... $ 245,706 $ 10,588 $ (582 ) $ 255,112 $ 24,622
(600 )
Interest-bearing deposits in other banks.......... 30,206 30,206
Federal funds sold and securities purchased under
resale agreements............................... 80,000 27,950 (20,889 ) 87,061 17,000
Securities........................................ 853,682 56,679 910,361 29,799
Trading account securities........................ 23,026 23,026
Loans............................................. 2,674,242 170,397 2,844,639 167,014
Less allowance for credit losses.................. 128,589 4,950 133,539 2,640
------------ ------------ ------------ ------------ ------------
Net loans..................................... 2,545,653 165,447 2,711,100 164,374
Premises and equipment, net....................... 23,364 2,110 25,474 5,888
Customers' acceptance liability................... 3,654 3,654
Other real estate................................. 17,156 2,437 19,593 3,153
Deferred tax asset................................ 65,147 1,170 (7,149 ) 59,168 477
Goodwill.......................................... 7,894 7,894
Other intangible assets........................... 11,764 14,400 28,664 387
2,500
Other assets...................................... 47,197 5,339 (500 ) 52,036 2,658
------------ ------------ ------------ ------------ ------------
Total assets.................................. $ 3,946,555 $ 271,720 $ (4,926 ) $ 4,213,349 $ 248,358
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
LIABILITIES
Demand deposits................................... $ 1,274,831 $ 73,256 $ 1,348,087 $ 70,422
Interest bearing deposits......................... 1,665,338 164,674 1,830,012 149,003
------------ ------------ ------------ ------------
Total deposits................................ 2,940,169 237,930 3,178,099 219,425
Federal funds purchased and securities sold under
repurchase agreements........................... 203,051 203,051
Other short-term borrowings....................... 328,632 328,632 4,073
Long-term debt.................................... 34,800 34,800
Other liabilities................................. 50,866 4,445 $ 4,400 57,392 2,231
(2,319 )
Acceptances outstanding........................... 3,654 3,654
------------ ------------ ------------ ------------ ------------
Total liabilities............................. 3,561,172 242,375 2,081 3,805,628 225,729
------------ ------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY
Preferred Stock................................... -- -- -- -- --
Common stock...................................... 414,327 29,345 (28,361 ) 415,311 22,629
Treasury shares, at cost.......................... (28,944) 21,354 (7,590 )
------------ ------------ ------------ ------------ ------------
Total shareholders' equity.................... 385,383 29,345 (7,007 ) 407,721 22,629
------------ ------------ ------------ ------------ ------------
Total liabilities and shareholders' equity.... $ 3,946,555 $ 271,720 $ (4,926 ) $ 4,213,349 $ 248,358
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
<CAPTION>
COMBINED
PRO FORMA WITH VENTURA
ADJUSTMENTS & RIVERSIDE
------------ ------------
<S> <C> <C>
Cash and due from banks........................... $ (1,666 ) $ 277,668
(400 )
Interest-bearing deposits in other banks.......... 30,206
Federal funds sold and securities purchased under
resale agreements............................... (20,351 ) $ 75,687
(8,023 )
Securities........................................ 940,160
Trading account securities........................ 23,026
Loans............................................. 3,011,653
Less allowance for credit losses.................. 136,179
------------ ------------
Net loans..................................... 2,875,474
Premises and equipment, net....................... 31,362
Customers' acceptance liability................... 3,654
Other real estate................................. 22,746
Deferred tax asset................................ (5,202 ) 54,443
Goodwill.......................................... 7,982 15,876
Other intangible assets........................... 12,300 41,351
Other assets...................................... (400 ) 54,294
------------ ------------
Total assets.................................. $ (15,760 ) $4,445,947
------------ ------------
------------ ------------
Demand deposits................................... $1,418,509
Interest bearing deposits......................... 1,979,015
------------
Total deposits................................ 3,397,524
Federal funds purchased and securities sold under
repurchase agreements........................... 203,051
Other short-term borrowings....................... 332,705
Long-term debt.................................... 34,800
Other liabilities................................. $ 1,500 59,623
(1,500 )
Acceptances outstanding........................... 3,654
------------ ------------
Total liabilities............................. -- 4,031,357
------------ ------------
Preferred Stock................................... -- --
Common stock...................................... (23,350 ) 414,590
Treasury shares, at cost.......................... 7,590 0
------------ ------------
Total shareholders' equity.................... (15,760 ) 414,590
------------ ------------
Total liabilities and shareholders' equity.... $ (15,760 ) $4,445,947
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Unaudited Low Range Pro Forma Condensed Combined
Financial.
28
<PAGE>
LOW RANGE
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CITY
NATIONAL VENTURA PRO FORMA PRO FORMA RIVERSIDE
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED HISTORICAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Interest income
Interest and fees on loans...................... $ 165,029 $ 12,374 $ 177,403 $ 10,688
Interest on federal funds sold and securities
purchased under resale agreements............. 2,958 1,162 (871 ) 3,249 343
Interest on securities.......................... 39,238 2,432 41,670 1,658
Interest on trading account securities.......... 1,401 0 1,401 0
------------ ------------ ------------ ------------ ------------
Total......................................... 208,626 15,968 (871 ) 223,723 12,689
------------ ------------ ------------ ------------ ------------
Interest expense:
Interest on deposits............................ 40,409 4,827 45,236 3,800
Interest on federal funds purchased and
securities sold under repurchase agreements... 10,176 10,176
Interest on other short-term borrowings......... 9,188 9,188 51
Interest on long-term debt...................... 1,439 1,439
------------ ------------ ------------ ------------ ------------
Total......................................... 61,212 4,827 66,039 3,851
------------ ------------ ------------ ------------ ------------
Net interest income............................. 147,414 11,141 (871 ) 157,684 8,838
Provision for credit losses..................... 0 0 0 0 75
------------ ------------ ------------ ------------ ------------
Net interest income after provision for credit
losses........................................ 147,414 11,141 (871 ) 157,684 8,763
------------ ------------ ------------ ------------ ------------
Noninterest income................................ 32,695 1,775 0 34,470 1,704
Noninterest expense............................... 104,647 13,040 2,135 119,822 6,804
------------ ------------ ------------ ------------ ------------
Income before taxes............................... 75,462 (124 ) (3,006 ) 72,332 3,663
Income taxes (benefit)............................ 25,794 (146 ) (1,021 ) 24,627 1,431
------------ ------------ ------------ ------------ ------------
Net income........................................ $ 49,668 $ 22 $ (1,985 ) $ 47,705 $ 2,232
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income per share.............................. $1.10 $1.02
------------ ------------
------------ ------------
Shares (in thousands) used to compute Net
Income/Share.................................... 44,986 1,631 46,617 690
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
PRO FORMA
COMBINED
PRO FORMA WITH VENTURA
ADJUSTMENTS & RIVERSIDE
------------ ------------
<S> <C> <C>
Interest income
Interest and fees on loans...................... $ 188,091
Interest on federal funds sold and securities
purchased under resale agreements............. $ (1,183 ) 2,409
Interest on securities.......................... 43,328
Interest on trading account securities.......... 1,401
------------ ------------
Total......................................... (1,183 ) 235,229
------------ ------------
Interest expense:
Interest on deposits............................ 49,036
Interest on federal funds purchased and
securities sold under repurchase agreements... 10,176
Interest on other short-term borrowings......... 9,239
Interest on long-term debt...................... 1,439
------------ ------------
Total......................................... 69,890
------------ ------------
Net interest income............................. (1,183 ) 165,339
Provision for credit losses..................... 0 75
------------ ------------
Net interest income after provision for credit
losses........................................ (1,183 ) 165,264
------------ ------------
Noninterest income................................ 36,174
Noninterest expense............................... 1,917 128,543
------------ ------------
Income before taxes............................... (3,100 ) 72,895
Income taxes (benefit)............................ (1,058 ) 25,000
------------ ------------
Net income........................................ $ (2,042 ) $ 47,895
------------ ------------
------------ ------------
Net income per share.............................. $1.01
------------
------------
Shares (in thousands) used to compute Net
Income/Share.................................... 47,307
------------
------------
</TABLE>
See accompanying Notes to Unaudited Low Range Pro Forma Condensed Combined
Financial.
29
<PAGE>
LOW RANGE
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CITY
NATIONAL VENTURA PRO FORMA PRO FORMA RIVERSIDE
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED HISTORICAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Interest income
Interest and fees on loans...................... $ 168,862 $ 16,375 $ 185,237 $ 13,354
Interest on federal funds sold and securities
purchased under resale agreements............. 7,013 1,816 (1,260 ) 7,569 572
Interest on securities.......................... 39,704 2,607 42,311 2,494
Interest on trading account securities.......... 2,015 0 2,015 0
------------ ------------ ------------ ------------ ------------
Total......................................... 217,594 20,798 (1,260 ) 237,132 16,420
------------ ------------ ------------ ------------ ------------
Interest expense:
Interest on deposits............................ 32,039 6,357 38,396 4,905
Interest on federal funds purchased and
securities sold under repurchase agreements... 17,855 17,855 1
Interest on other short-term borrowings......... 4,378 4 4,382 82
Interest on long-term debt...................... 1,059 1,059
------------ ------------ ------------ ------------ ------------
Total......................................... 55,331 6,361 0 61,692 4,988
------------ ------------ ------------ ------------ ------------
Net interest income............................. 162,263 14,437 (1,260 ) 175,440 11,432
Provision for credit losses..................... 0 410 0 410 180
------------ ------------ ------------ ------------ ------------
Net interest income after provision for credit
losses........................................ 162,263 14,027 (1,260 ) 175,030 11,252
------------ ------------ ------------ ------------ ------------
Noninterest income................................ 34,566 2,246 36,812 2,870
Noninterest expense............................... 118,076 14,937 2,835 135,848 10,074
------------ ------------ ------------ ------------ ------------
Income before taxes............................... 78,753 1,336 (4,095 ) 75,994 4,048
Income taxes (benefit)............................ 29,961 (2,432 ) (1,403 ) 26,126 1,420
------------ ------------ ------------ ------------ ------------
Net income........................................ $ 48,792 $ 3,768 $ (2,692 ) $ 49,868 $ 2,628
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income per share.............................. $1.06 $1.05
------------ ------------
------------ ------------
Shares (in thousands) used to compute Net
Income/Share.................................... 45,886 1,631 47,517 690
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
PRO FORMA
COMBINED
PRO FORMA WITH VENTURA
ADJUSTMENTS & RIVERSIDE
------------ ------------
<S> <C> <C>
Interest income
Interest and fees on loans...................... $ 198,591
Interest on federal funds sold and securities
purchased under resale agreements............. $ (1,711 ) 6,430
Interest on securities.......................... 44,805
Interest on trading account securities.......... 2,015
------------ ------------
Total......................................... (1,711 ) 251,841
------------ ------------
Interest expense:
Interest on deposits............................ 43,301
Interest on federal funds purchased and
securities sold under repurchase agreements... 17,856
Interest on other short-term borrowings......... 4,464
Interest on long-term debt...................... 1,059
------------ ------------
Total......................................... 0 66,680
------------ ------------
Net interest income............................. (1,711 ) 185,161
Provision for credit losses..................... 0 590
------------ ------------
Net interest income after provision for credit
losses........................................ (1,711 ) 184,571
------------ ------------
Noninterest income................................ 39,682
Noninterest expense............................... 2,697 148,619
------------ ------------
Income before taxes............................... (4,408 ) 75,634
Income taxes (benefit)............................ (1,467 ) 26,079
------------ ------------
Net income........................................ $ (2,941 ) $ 49,555
------------ ------------
------------ ------------
Net income per share.............................. $1.03
------------
------------
Shares (in thousands) used to compute Net
Income/Share.................................... 48,207
------------
------------
</TABLE>
See accompanying Notes to Unaudited Low Range Pro Forma Condensed Combined
Financial.
30
<PAGE>
NOTES TO THE UNAUDITED LOW RANGE PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
VENTURA
BALANCE SHEET
Assuming a Final City National Stock Price of $13.90, the total
consideration value paid to existing Ventura shareholders is $43,505,000, with
total cash consideration of $20,889,000 and the balance in City National Stock.
The cash payment of $20,889,000 will be paid from Federal funds sold. The
number of shares to be tendered will be contingent upon the Final City National
Stock Price which is the average of the City National Stock closing price in the
twenty business day period ending three business days before the Effective Time.
For the purpose of the Low Range Pro Forma Financial Statements, the stock
portion of the total consideration value is satisfied by the issuance of
1,631,374 shares of City National Stock held as treasury stock and recorded as a
credit to shareholders' equity of $1,321,000 and to treasury shares of
$21,354,000 based on the weighted average cost of the treasury shares.
The purchase price of $44,747,000 which includes expenses of $600,000
directly attributable to the acquisition and a $582,000 payment to cash out
existing unexercised stock options is allocated to the assets acquired and the
liabilities assumed based on their estimated fair values at September 30, 1996
in accordance with Accounting Principles Board Opinion No. 16, "Business
Combinations," as amended ("APB No. 16"). The table below reflects the
adjustment of certain assets and liabilities to estimated fair value and the
resultant goodwill. Total goodwill of approximately $7,894,000 is expected to be
amortized over ten years. Total core deposit intangibles of $14,400,000 is
expected to be amortized over seven years.
<TABLE>
<CAPTION>
ADJUSTMENTS RELATED
TO ACQUISITIONS
---------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Assets/liabilities
Cash........................................................................... $ (1,182)
Core deposit intangibles....................................................... 14,400
Servicing rights for SBA loans................................................. 2,500
Fixed assets................................................................... (500)
Deferred taxes created by core deposit intangibles and servicing rights for SBA
loans........................................................................ (7,149)
Other liabilities.............................................................. 2,081
Shareholders' equity for option payment, net of tax............................ (338)
Remaining unallocated purchase price (Goodwill)................................ $ 7,894
</TABLE>
Included in the total adjustment is $600,000 in direct costs to be paid
immediately prior to the Effective Time and an additional $4,400,000 liability
incurred in connection with the termination of contracts and leases and existing
severance contracts. Included in the total adjustment to Other Liabilities is a
$2,319,000 reduction in income taxes currently payable to reflect the tax
benefit related to the $4,400,000 liability incurred, the $500,000 in fixed
asset writeoffs and the $582,000 payment made immediately prior to the Effective
Time to cash out unexercised stock options held by Ventura's employees and
directors.
STATEMENT OF INCOME
(a) Decrease in interest on Federal funds sold is due to the utilization of
Federal funds sold to fund the cash portion of the purchase price. The loss in
interest income is estimated to be $871,000 and $1,260,000 for the nine-month
and 12-month period beginning January 1, 1996 and January 1, 1995, respectively.
31
<PAGE>
(b) Non-interest expense includes the amortization of core deposit
intangibles and goodwill for the nine months beginning January 1, 1996 of
$1,543,000 and $592,000, respectively and for the 12-month period beginning
January 1, 1995 of $2,046,000 and $789,000, respectively.
(c) Additional income tax expense is computed using a 42.3% tax rate. The
tax attributes of Ventura will carry over to City National including all assets
and liabilities and are recorded at amounts previously reflected, adjusted for
purchase price allocations. The goodwill is not tax deductible.
(d) The pro forma combined net income per common share data are based on (i)
combined historical income of Ventura and City National assuming the Merger is
accounted for as a purchase and (ii) pro forma combined equivalent of the
Ventura Stock converted (as adjusted for an exchange ratio of .3214 of a share
of City National Stock for each share of Ventura Stock) and City National Common
Stock as of September 30, 1996 and December 31, 1995.
RIVERSIDE
BALANCE SHEET
Assuming a Final City National Stock Price of $13.50, the total
consideration value paid to existing Riverside shareholders is $36,202,000, with
total cash consideration of $20,351,000 and the balance in City National Stock.
The cash payment of $20,351,000 will be paid from Federal funds sold. The
number of shares to be tendered will be contingent upon the Final City National
Stock Price which is the average of the City National Stock closing price in the
twenty day period ending three business days before the Effective Time. For the
purpose of the Low Range Pro Forma Financial Statements, the stock portion of
the total consideration value is comprised of the issuance of the remaining
579,826 shares of City National Stock held as treasury stock as of September 30,
1996 and the purchase of an additional 594,284 shares of City National Stock on
the open market for issuance to Riverside shareholders. The issuance of the
treasury stock is recorded as a credit to shareholders' equity of $238,000 and a
credit to treasury stock of $7,590,000 based on the weighted average cost of the
treasury shares. The purchase of additional treasury shares is assumed to be at
$13.50, the lowest purchase price payable prior to Riverside having an
unilateral right to terminate the Riverside Agreement, and is assumed to be
funded from liquidation of Federal funds sold.
The purchase price of $38,268,000 which includes expenses of $400,000
directly attributable to the acquisition and a $1,666,000 payment to cash out
existing unexercised stock options is allocated to the assets acquired and the
liabilities assumed based on their estimated fair values at September 30, 1996
in accordance with APB No. 16. The table below reflects the adjustment of
certain assets and liabilities to estimated fair value and the resultant
goodwill. Total goodwill of approximately $7,982,000 is expected to be amortized
over ten years. Total core deposit intangibles of approximately $12,300,000 is
expected to be amortized over seven years.
<TABLE>
<CAPTION>
ADJUSTMENTS RELATED
TO ACQUISITIONS
---------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Assets/liabilities
Cash........................................................................... $ (2,051)
Core deposit premiums.......................................................... 12,300
Fixed assets................................................................... (400)
Deferred taxes created by core deposit premiums................................ (5,202)
Shareholders' equity for option payment, net of tax............................ (959)
Remaining unallocated purchase price (Goodwill)................................ $ 7,982
</TABLE>
Included in the total adjustment is $400,000 in direct costs to be paid
immediately prior to the Effective Time and an additional $1,500,000 liability
incurred in connection with existing severance
32
<PAGE>
contracts and with the termination of contracts. Included in the total
adjustment to Other Liabilities is a $1,500,000 reduction in income taxes
currently payable to reflect the tax benefit related to the $1,500,000 liability
incurred, the $400,000 fixed asset writeoff and the $1,666,000 payment made
immediately prior to the Effective Time to cash out certain of the Riverside
stock options (for approximately 183,000 shares) held by Riverside's employees
and directors.
STATEMENT OF INCOME
(a) Decrease in interest on Federal funds sold is due to the utilization of
Federal funds sold to fund the cash portion of the purchase price. The loss in
interest income is estimated to be $1,183,000 and $1,711,000 for the nine-month
and 12-month period beginning January 1, 1996 and January 1, 1995, respectively.
(b) Non-interest expense includes the amortization of core deposit
intangibles and goodwill for the nine months beginning January 1, 1996 of
$1,318,000 and $599,000, respectively and for the 12-month period beginning
January 1, 1995 of $1,899,000 and $798,000, respectively.
(c) Additional income tax expense is computed using a 42.3% tax rate. The
tax attributes of Riverside will carry over to City National including all
assets and liabilities and are recorded at amounts previously reflected,
adjusted for purchase price allocations. The goodwill is not tax deductible.
33
<PAGE>
MEDIUM RANGE
PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1996 (UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
CITY PRO FORMA COMBINED WITH
NATIONAL VENTURA PRO FORMA COMBINED RIVERSIDE PRO FORMA VENTURA &
HISTORICAL HISTORICAL ADJUSTMENTS WITH VENTURA HISTORICAL ADJUSTMENTS RIVERSIDE
--------- ----------- ------------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and due from banks......... $ 245,706 $ 10,588 $ (582) $ 255,112 $ 24,622 $ (1,666) $ 277,668
(600) (400)
Interest-bearing deposits in
other banks................... 30,206 30,206 30,206
Federal funds sold and
securities purchased
under resale agreements....... 80,000 27,950 (20,889) 87,061 17,000 (20,351) 78,034
(5,676)
Securities...................... 853,682 56,679 910,361 29,799 940,160
Trading account securities...... 23,026 23,026 23,026
Loans........................... 2,674,242 170,397 2,844,639 167,014 3,011,653
Less allowance for credit
losses........................ 128,589 4,950 133,539 2,640 136,179
--------- ----------- ------------- ------------ ----------- ----------- --------------
Net loans..................... 2,545,653 165,447 2,711,100 164,374 2,875,474
Premises and equipment, net..... 23,364 2,110 25,474 5,888 31,362
Customers' acceptance
liability..................... 3,654 3,654 3,654
Other real estate............... 17,156 2,437 19,593 3,153 22,746
Deferred tax asset.............. 65,147 1,170 (7,149) 59,168 477 (5,202) 54,443
Goodwill........................ 10,749 10,749 10,917 21,666
Other intangible assets......... 11,764 14,400 28,664 387 12,300 41,351
2,500
Other assets.................... 47,197 5,339 (500) 52,036 2,658 (400) 54,294
--------- ----------- ------------- ------------ ----------- ----------- --------------
Total assets.................. $3,946,555 $ 271,720 $ (2,071) $4,216,204 $ 248,358 $ (10,478) $4,454,084
--------- ----------- ------------- ------------ ----------- ----------- --------------
--------- ----------- ------------- ------------ ----------- ----------- --------------
LIABILITIES
Demand deposits................. $1,274,831 $ 73,256 $1,348,087 $ 70,422 $1,418,509
Interest bearing deposits....... 1,665,338 164,674 1,830,012 149,003 1,979,015
--------- ----------- ------------- ------------ ----------- ----------- --------------
Total deposits................ 2,940,169 237,930 3,178,099 219,425 3,397,524
Federal funds purchased and
securities sold under
repurchase agreements......... 203,051 203,051 203,051
Other short-term borrowings..... 328,632 328,632 4,073 332,705
Long-term debt.................. 34,800 34,800 34,800
Other liabilities............... 50,866 4,445 4,400 57,392 2,231 1,500 59,623
(2,319) (1,500)
Acceptances outstanding......... 3,654 3,654 3,654
--------- ----------- ------------- ------------ ----------- ----------- --------------
Total liabilities............. 3,561,172 242,375 2,081 3,805,628 225,729 -- 4,031,357
--------- ----------- ------------- ------------ ----------- ----------- --------------
SHAREHOLDERS' EQUITY
Preferred Stock................. -- -- -- -- -- -- --
Common stock.................... 414,327 29,345 (23,276) 420,396 22,629 (20,298) 422,727
Treasury shares, at cost........ (28,944) 19,125 (9,819) 9,820 0
--------- ----------- ------------- ------------ ----------- ----------- --------------
Total shareholders' equity.... 385,383 29,345 (4,152) 410,576 22,629 (10,478) 422,727
--------- ----------- ------------- ------------ ----------- ----------- --------------
Total liabilities and
shareholders' equity........ $3,946,555 $ 271,720 $ (2,071) $4,216,204 $ 248,358 $ (10,478) $4,454,084
--------- ----------- ------------- ------------ ----------- ----------- --------------
--------- ----------- ------------- ------------ ----------- ----------- --------------
</TABLE>
See accompanying Notes to Unaudited Medium Range Pro Forma Condensed Combined
Financial.
34
<PAGE>
MEDIUM RANGE
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
CITY COMBINED WITH
NATIONAL VENTURA PRO FORMA PRO FORMA RIVERSIDE PRO FORMA VENTURA &
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED HISTORICAL ADJUSTMENTS RIVERSIDE
----------- ----------- ------------- ----------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income
Interest and fees on
loans............... $ 165,029 $ 12,374 $ 177,403 $ 10,688 $ 188,091
Interest on federal
funds sold and
securities purchased
under resale
agreements.......... 2,958 1,162 $ (871) 3,249 343 $ (1,085) 2,507
Interest on
securities.......... 39,238 2,432 41,670 1,658 43,328
Interest on trading
account
securities.......... 1,401 0 1,401 0 1,401
----------- ----------- ------------- ----------- ----------- ------------- --------------
Total........... 208,626 15,968 (871) 223,723 12,689 (1,085) 235,327
----------- ----------- ------------- ----------- ----------- ------------- --------------
Interest expense:
Interest on
deposits............ 40,409 4,827 45,236 3,800 49,036
Interest on federal
funds purchased and
securities sold
under repurchase
agreements.......... 10,176 10,176 10,176
Interest on other
short-term
borrowings.......... 9,188 9,188 51 9,239
Interest on long-term
debt................ 1,439 1,439 1,439
----------- ----------- ------------- ----------- ----------- ------------- --------------
Total........... 61,212 4,827 66,039 3,851 69,890
----------- ----------- ------------- ----------- ----------- ------------- --------------
Net interest income... 147,414 11,141 (871) 157,684 8,838 (1,085) 165,437
Provision for credit
losses.............. 0 0 0 0 75 0 75
----------- ----------- ------------- ----------- ----------- ------------- --------------
Net interest income
after provision for
credit losses....... 147,414 11,141 (871) 157,684 8,763 (1,085) 165,362
----------- ----------- ------------- ----------- ----------- ------------- --------------
Noninterest income...... 32,695 1,775 0 34,470 1,704 36,174
Noninterest expense..... 104,647 13,040 2,349 120,036 6,804 2,137 128,977
----------- ----------- ------------- ----------- ----------- ------------- --------------
Income before taxes..... 75,462 (124) (3,220) 72,118 3,663 (3,222) 72,559
Income taxes
(benefit)............. 25,794 (146) (1,021) 24,627 1,431 (1,017) 25,041
----------- ----------- ------------- ----------- ----------- ------------- --------------
Net income.............. $ 49,668 $ 22 $ (2,199) $ 47,491 $ 2,232 $ (2,205) $ 47,518
----------- ----------- ------------- ----------- ----------- ------------- --------------
----------- ----------- ------------- ----------- ----------- ------------- --------------
Net income per share.... $ 1.10 $ 1.02 $ 1.01
----------- ----------- --------------
----------- ----------- --------------
Shares (in thousands)
used to compute Net
Income/Share.......... 44,986 1,461 46,447 874 47,321
----------- ----------- ----------- ----------- --------------
----------- ----------- ----------- ----------- --------------
</TABLE>
See accompanying Notes to Unaudited Medium Range Pro Forma Condensed Combined
Financial.
35
<PAGE>
MEDIUM RANGE
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
CITY COMBINED WITH
NATIONAL VENTURA PRO FORMA PRO FORMA RIVERSIDE PRO FORMA VENTURA &
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED HISTORICAL ADJUSTMENTS RIVERSIDE
----------- ----------- ------------- ----------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income
Interest and fees on
loans.................... $ 168,862 $ 16,375 $ 185,237 $ 13,354 $ 198,591
Interest on federal funds
sold and securities
purchased under resale
agreements............... 7,013 1,816 $ (1,260) 7,569 572 $ (1,569) 6,572
Interest on securities..... 39,704 2,607 42,311 2,494 44,805
Interest on trading account
securities............... 2,015 0 2,015 0 2,015
----------- ----------- ------------- ----------- ----------- ------------- --------------
Total.................... 217,594 20,798 (1,260) 237,132 16,420 (1,569) 251,983
----------- ----------- ------------- ----------- ----------- ------------- --------------
Interest expense:
Interest on deposits....... 32,039 6,357 38,396 4,905 43,301
Interest on federal funds
purchased and securities
sold under repurchase
agreements............... 17,855 17,855 1 17,856
Interest on other
short-term borrowings.... 4,378 4 4,382 82 4,464
Interest on long-term
debt..................... 1,059 1,059 1,059
----------- ----------- ------------- ----------- ----------- ------------- --------------
Total.................... 55,331 6,361 61,692 4,988 66,680
----------- ----------- ------------- ----------- ----------- ------------- --------------
Net interest income........ 162,263 14,437 (1,260) 175,440 11,432 (1,569) 185,303
Provision for credit
losses................... 0 410 0 410 180 0 590
----------- ----------- ------------- ----------- ----------- ------------- --------------
Net interest income after
provision for credit
losses................... 162,263 14,027 (1,260) 175,030 11,252 (1,569) 184,713
----------- ----------- ------------- ----------- ----------- ------------- --------------
Noninterest income........... 34,566 2,246 36,812 2,870 39,682
Noninterest expense.......... 118,076 14,937 3,121 136,134 10,074 2,990 149,198
----------- ----------- ------------- ----------- ----------- ------------- --------------
Income before taxes.......... 78,753 1,336 (4,381) 75,708 4,048 (4,559) 75,197
Income taxes................. 29,961 (2,432) (1,393) 26,136 1,420 (1,407) 26,149
----------- ----------- ------------- ----------- ----------- ------------- --------------
Net income................... $ 48,792 $ 3,768 $ (2,988) $ 49,572 $ 2,628 $ (3,152) $ 49,048
----------- ----------- ------------- ----------- ----------- ------------- --------------
----------- ----------- ------------- ----------- ----------- ------------- --------------
Net income per share......... $ 1.06 $ 1.05 $ 1.02
----------- ----------- --------------
----------- ----------- --------------
Shares (in thousands) used to
compute Net Income/Share.... 45,886 1,461 47,347 874 48,221
----------- ----------- ----------- ----------- --------------
----------- ----------- ----------- ----------- --------------
</TABLE>
See accompanying Notes to Unaudited Medium Range Pro Forma Condensed Combined
Financial.
36
<PAGE>
NOTES TO THE UNAUDITED MEDIUM RANGE PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
VENTURA
BALANCE SHEET
Assuming a Final City National Stock price of $17.475, the total
consideration value paid to Ventura shareholders is $46,420,000, with total cash
consideration of $20,889,000 and the balance in City National Stock.
The cash payment of $20,889,000 will be paid from Federal funds sold. The
number of shares to be tendered will be contingent upon the Final City National
Stock Price which is the average of the City National Stock closing price in the
twenty business day period ending three business days before the Effective Time.
For the purpose of the Medium Range Pro Forma Financial Statements, the stock
portion of the total consideration value is satisfied by the issuance of
1,461,001 shares of City National Stock held as treasury stock and recorded as a
credit to shareholders' equity of $6,407,000 and to treasury shares of
$19,124,000 based on the weighted average cost of the treasury shares.
The purchase price of $47,602,000 which includes expenses of $600,000
directly attributable to the acquisition and a $582,000 payment to cash out
existing unexercised stock options is allocated to the assets acquired and the
liabilities assumed based on their estimated fair values at September 30, 1996
in accordance with APB No. 16. The table below reflects the adjustment of
certain assets and liabilities to estimated fair value and the resultant
goodwill. Total goodwill of approximately $10,749,000 is expected to be
amortized over ten years. Total core deposit intangibles of $14,400,000 is
expected to be amortized over seven years.
<TABLE>
<CAPTION>
ADJUSTMENTS
RELATED
TO
ACQUISITIONS
------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Assets/liabilities
Cash............................................ $ (1,182 )
Core deposit intangibles........................ 14,400
Servicing rights for SBA loans.................. 2,500
Fixed assets.................................... (500 )
Deferred taxes created by core deposit
intangibles and servicing rights for SBA
loans......................................... (7,149 )
Other liabilities............................... 2,081
Shareholders' equity for option payment, net of
tax........................................... (338 )
Remaining unallocated purchase price
(Goodwill).................................... $ 10,749
</TABLE>
Included in the total adjustment is $600,000 in direct costs to be paid
immediately prior to the Effective Time and an additional $4,400,000 liability
incurred in connection with the termination of contracts and leases and existing
severance contracts. Included in the total adjustment to Other Liabilities is a
$2,319,000 reduction in income taxes currently payable to reflect the tax
benefit related to the $4,400,000 liability incurred, the $500,000 in fixed
asset writeoffs and the $582,000 payment made immediately prior to the Effective
Time to cash out unexercised stock options held by Ventura's employees and
directors.
STATEMENT OF INCOME
(a) Decrease in interest on Federal funds sold is due to the utilization of
Federal funds sold to fund the cash portion of the purchase price. The loss in
interest income is estimated to be $871,000 and $1,260,000 for the nine-month
and 12-month period beginning January 1, 1996 and January 1, 1995, respectively.
37
<PAGE>
(b) Non-interest expense includes the amortization of core deposits
intangibles and goodwill for the nine months beginning January 1, 1996 of
$1,543,000 and $806,000 respectively and for the 12-month period beginning
January 1, 1995 of $2,046,000 and $1,075,000 respectively.
(c) Additional income tax expense is computed using a 42.3% tax rate. The
tax attributes of Ventura will carry over to City National including all assets
and liabilities and are recorded at amounts previously reflected, adjusted for
purchase price allocations. The goodwill is not tax deductible.
(d) The pro forma combined net income per common share data are based on (i)
combined historical income of Ventura and City National assuming the Merger is
accounted for as a purchase and (ii) pro forma combined equivalent of the
Ventura Stock converted (as adjusted for an exchange ratio of .2878 of a share
of City National Common Stock for each share of Ventura Stock) and City National
Stock as of September 30, 1996 and December 31, 1995.
RIVERSIDE
BALANCE SHEET
Assuming a Final City National Stock Price of $17.475, the total
consideration value paid to the existing Riverside shareholders is $39,137,000,
with total cash consideration of $20,351,000 and the balance in City National
Stock.
The cash payment of $20,351,000 will be paid from Federal funds sold. The
number of shares to be tendered will be contingent upon the Final City National
Stock Price which is the average of the City National common stock closing price
in the twenty day period ending three business days before the Effective Time.
For the purpose of the Low Range Pro Forma Financial Statements, the stock
portion of the total consideration value is comprised of the issuance of the
remaining 750,199 shares of City National Stock held as treasury stock as of
September 30, 1996 and the purchase of an additional 324,809 shares of City
National Stock on the open market for issuance shareholders. The issuance of the
treasury stock is recorded as a credit to shareholders' equity of $3,290,000 and
a credit to treasury stock of 9,820,000 based on the weighted average cost of
the treasury shares. The purchase of additional treasury shares is assumed to be
at $17.475, and is assumed to be funded from liquidation of Federal funds sold.
The purchase price of $41,203,000 which includes expenses of $400,000
directly attributable to the acquisition and a $1,666,000 payment to cash out
existing unexercised stock options is allocated to the assets acquired and the
liabilities assumed based on their estimated fair values at September 30, 1996
in accordance with APB No. 16. The table below reflects the adjustment of
certain assets and liabilities to estimated fair value and the resultant
goodwill. Total goodwill of approximately $10,917,000 is expected to be
amortized over ten years. Total core deposit intangibles of approximately
$12,300,000 is expected to be amortized over seven years.
<TABLE>
<CAPTION>
ADJUSTMENTS
RELATED
TO
ACQUISITIONS
------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Assets/liabilities
Cash............................................ $ (2,051 )
Core deposit premiums........................... 12,300
Fixed assets.................................... (400 )
Deferred taxes created by core deposit
premiums...................................... (5,202 )
Shareholders' equity for option payment, net of
tax........................................... (959 )
Remaining unallocated purchase price
(Goodwill).................................... $ 10,917
</TABLE>
Included in the total adjustment $400,000 in direct costs to be paid
immediately prior to the Effective Time and an additional $1,500,000 liability
incurred in connection with existing severance contracts and with the
termination of contracts. Included in the total adjustment to Other Liabilities
is a $1,500,000 reduction in income taxes currently payable to reflect the tax
benefit related to the $1,500,000 liability incurred, the $400,000 fixed asset
writeoff and the $1,666,000 payment made immediately prior to the
38
<PAGE>
Effective Time to cash out certain of the Riverside stock options (for
approximately 183,000 shares) held by Riverside's employees and directors.
STATEMENT OF INCOME
(a) Decrease in interest on Federal funds sold is due to the utilization of
Federal funds sold to fund the cash portion of the purchase price. The loss in
interest income is estimated to be $1,085,000 and $1,569,000 for the nine-month
and 12-month period beginning January 1, 1996 and January 1, 1995, respectively.
(b) Non-interest expense includes the amortization of core deposit
intangibles and goodwill for the nine months beginning January 1, 1996 of
$1,318,000 and $819,000, respectively and for the 12-month period beginning
January 1, 1995 of $1,899,000 and $1,091,000, respectively.
(c) Additional income tax expense is computed using a 42.3% tax rate. The
tax attributes of Riverside will carry over to City National including all
assets and liabilities and are recorded at amounts previously reflected,
adjusted for purchase price allocations. The goodwill is not tax deductible.
39
<PAGE>
HIGH RANGE
PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1996 (UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
CITY PRO FORMA
NATIONAL VENTURA PRO FORMA COMBINED RIVERSIDE
HISTORICAL HISTORICAL ADJUSTMENTS WITH VENTURA HISTORICAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and due from banks........................... $ 245,706 $ 10,588 $ (582 ) $ 255,112 $ 24,622
(600 )
Interest-bearing deposits in other banks.......... 30,206 30,206
Federal funds sold and securities purchased under
resale agreements............................... 80,000 27,950 (20,889 ) 87,061 17,000
Securities........................................ 853,682 56,679 910,361 29,799
Trading account securities........................ 23,026 23,026
Loans............................................. 2,674,242 170,397 2,844,639 167,014
Less allowance for credit losses.................. 128,589 4,950 133,539 2,640
------------ ------------ ------------ ------------ ------------
Net loans..................................... 2,545,653 165,447 2,711,100 164,374
Premises and equipment, net....................... 23,364 2,110 25,474 5,888
Customers' acceptance liability................... 3,654 3,654
Other real estate................................. 17,156 2,437 19,593 3,153
Deferred tax asset................................ 65,147 1,170 (7,149 ) 59,168 477
Goodwill.......................................... 10,749 10,749
Other intangible assets........................... 11,764 14,400 28,664 387
2,500
Other assets...................................... 47,197 5,339 (500 ) 52,036 2,658
------------ ------------ ------------ ------------ ------------
Total assets.................................. $ 3,946,555 $ 271,720 $ (2,071 ) $ 4,216,204 $ 248,358
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
LIABILITIES
Demand deposits................................... $ 1,274,831 $ 73,256 $ 1,348,087 $ 70,422
Interest bearing deposits......................... 1,665,338 164,674 1,830,012 149,003
------------ ------------ ------------ ------------
Total deposits................................ 2,940,169 237,930 3,178,099 219,425
Federal funds purchased and securities sold under
repurchase agreements........................... 203,051 203,051
Other short-term borrowings....................... 328,632 328,632 4,073
Long-term debt.................................... 34,800 34,800
Other liabilities................................. 50,866 4,445 $ 4,400 57,392 2,231
(2,319 )
Acceptances outstanding........................... 3,654 3,654
------------ ------------ ------------ ------------ ------------
Total liabilities............................. 3,561,172 242,375 2,081 3,805,628 225,729
------------ ------------ ------------ ------------ ------------
SHAREHOLDERS' EQUITY
Preferred Stock................................... -- -- -- -- --
Common stock...................................... 414,327 29,345 (21,649 ) 422,023 22,629
Treasury shares, at cost.......................... (28,944) 17,497 (11,447 )
------------ ------------ ------------ ------------ ------------
Total shareholders' equity.................... 385,383 29,345 (4,152 ) 410,576 22,629
------------ ------------ ------------ ------------ ------------
Total liabilities and shareholders' equity.... $ 3,946,555 $ 271,720 $ (2,071 ) $ 4,216,204 $ 248,358
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
<CAPTION>
COMBINED
PRO FORMA WITH VENTURA
ADJUSTMENTS & RIVERSIDE
------------ ------------
<S> <C> <C>
Cash and due from banks........................... $ (1,666 ) $ 277,668
(400 )
Interest-bearing deposits in other banks.......... 30,206
Federal funds sold and securities purchased under
resale agreements............................... (20,351 ) 81,977
(1,733 )
Securities........................................ 940,160
Trading account securities........................ 23,026
Loans............................................. 3,011,653
Less allowance for credit losses.................. 136,179
------------ ------------
Net loans..................................... 2,875,474
Premises and equipment, net....................... 31,362
Customers' acceptance liability................... 3,654
Other real estate................................. 22,746
Deferred tax asset................................ (5,202 ) 54,443
Goodwill.......................................... 10,917 21,666
Other intangible assets........................... 12,300 41,351
Other assets...................................... (400 ) 54,294
------------ ------------
Total assets.................................. $ (6,535 ) $4,458,027
------------ ------------
------------ ------------
Demand deposits................................... $1,418,509
Interest bearing deposits......................... 1,979,015
------------
Total deposits................................ 3,397,524
Federal funds purchased and securities sold under
repurchase agreements........................... 203,051
Other short-term borrowings....................... 332,705
Long-term debt.................................... 34,800
Other liabilities................................. $ 1,500 59,623
(1,500 )
Acceptances outstanding........................... 3,654
------------ ------------
Total liabilities............................. -- 4,031,357
------------ ------------
Preferred Stock................................... -- --
Common stock...................................... (17,982 ) 426,670
Treasury shares, at cost.......................... 11,447 0
------------ ------------
Total shareholders' equity.................... (6,535 ) 426,670
------------ ------------
Total liabilities and shareholders' equity.... $ (6,535 ) $4,458,027
------------ ------------
------------ ------------
</TABLE>
See accompanying Notes to Unaudited High Range Pro Forma Condensed Combined
Financial.
40
<PAGE>
HIGH RANGE
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CITY
NATIONAL VENTURA PRO FORMA PRO FORMA RIVERSIDE
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED HISTORICAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans...................... $ 165,029 $ 12,374 $ 177,403 $ 10,688
Interest on federal funds sold and securities
purchased under resale agreements............. 2,958 1,162 $ (871 ) 3,249 343
Interest on securities.......................... 39,238 2,432 41,670 1,658
Interest on trading account securities.......... 1,401 0 1,401 0
------------ ------------ ------------ ------------ ------------
Total......................................... 208,626 15,968 (871 ) 223,723 12,689
------------ ------------ ------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits............................ 40,409 4,827 45,236 3,800
Interest on federal funds purchased and
securities sold under repurchase agreements... 10,176 10,176
Interest on other short-term borrowings......... 9,188 9,188 51
Interest on long-term debt...................... 1,439 1,439
------------ ------------ ------------ ------------ ------------
Total......................................... 61,212 4,827 66,039 3,851
------------ ------------ ------------ ------------ ------------
Net interest income............................. 147,414 11,141 (871 ) 157,684 8,838
Provision for credit losses..................... 0 0 0 0 75
------------ ------------ ------------ ------------ ------------
Net interest income after provision for credit
losses........................................ 147,414 11,141 (871 ) 157,684 8,763
------------ ------------ ------------ ------------ ------------
Noninterest income................................ 32,695 1,775 0 34,470 1,704
Noninterest expense............................... 104,647 13,040 2,349 120,036 6,804
------------ ------------ ------------ ------------ ------------
Income before taxes............................... 75,462 (124 ) (3,220 ) 72,118 3,663
Income taxes benefit.............................. 25,794 (146 ) (1,021 ) 24,627 1,431
------------ ------------ ------------ ------------ ------------
Net income........................................ $ 49,668 $ 22 $ (2,199 ) $ 47,491 $ 2,232
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income per share.............................. $ 1.10 $ 1.03
------------ ------------
------------ ------------
Shares (in thousands) used to compute Net
Income/Share.................................... 44,986 1,337 46,323 985
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
PRO FORMA
COMBINED
PRO FORMA WITH VENTURA
ADJUSTMENTS & RIVERSIDE
------------ ------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans...................... $ 188,091
Interest on federal funds sold and securities
purchased under resale agreements............. $ (921 ) 2,671
Interest on securities.......................... 43,328
Interest on trading account securities.......... 1,401
------------ ------------
Total......................................... (921 ) 235,491
------------ ------------
INTEREST EXPENSE:
Interest on deposits............................ 49,036
Interest on federal funds purchased and
securities sold under repurchase agreements... 10,176
Interest on other short-term borrowings......... 9,239
Interest on long-term debt...................... 1,439
------------ ------------
Total......................................... 69,890
------------ ------------
Net interest income............................. (921 ) 165,601
Provision for credit losses..................... 0 75
------------ ------------
Net interest income after provision for credit
losses........................................ (921 ) 165,526
------------ ------------
Noninterest income................................ 36,174
Noninterest expense............................... 2,137 128,977
------------ ------------
Income before taxes............................... (3,058 ) 72,723
Income taxes benefit.............................. (947 ) 25,111
------------ ------------
Net income........................................ $ (2,111 ) $ 47,612
------------ ------------
------------ ------------
Net income per share.............................. $ 1.01
------------
------------
Shares (in thousands) used to compute Net
Income/Share.................................... 47,308
------------
------------
</TABLE>
See accompanying Notes to Unaudited High Range Pro Forma Condensed Combined
Financial.
41
<PAGE>
HIGH RANGE
PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995
(UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CITY
NATIONAL VENTURA PRO FORMA PRO FORMA RIVERSIDE
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED HISTORICAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans...................... $ 168,862 $ 16,375 $ 185,237 $ 13,354
Interest on federal funds sold and securities
purchased under resale agreements............. 7,013 1,816 $ (1,260 ) 7,569 572
Interest on securities.......................... 39,704 2,607 42,311 2,494
Interest on trading account securities.......... 2,015 0 2,015 0
------------ ------------ ------------ ------------ ------------
Total......................................... 217,594 20,798 (1,260 ) 237,132 16,420
------------ ------------ ------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits............................ 32,039 6,357 38,396 4,905
Interest on federal funds purchased and
securities sold under repurchase agreements... 17,855 17,855 1
Interest on other short-term borrowings......... 4,378 4 4,382 82
Interest on long-term debt...................... 1,059 1,059
------------ ------------ ------------ ------------ ------------
Total......................................... 55,331 6,361 61,692 4,988
------------ ------------ ------------ ------------ ------------
Net interest income............................. 162,263 14,437 (1,260 ) 175,440 11,432
Provision for credit losses..................... 0 410 0 410 180
------------ ------------ ------------ ------------ ------------
Net interest income after provision for credit
losses........................................ 162,263 14,027 (1,260 ) 175,030 11,252
------------ ------------ ------------ ------------ ------------
Noninterest income................................ 34,566 2,246 36,812 2,870
Noninterest expense............................... 118,076 14,937 3,121 136,134 10,074
------------ ------------ ------------ ------------ ------------
Income before taxes............................... 78,753 1,336 (4,380 ) 75,708 4,048
Income taxes...................................... 29,961 (2,432 ) (1,393 ) 26,136 1,420
------------ ------------ ------------ ------------ ------------
Net income........................................ $ 48,792 $ 3,768 $ (2,987 ) $ 49,572 $ 2,628
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net income per share.............................. $ 1.06 $ 1.05
------------ ------------
------------ ------------
Shares (in thousands) used to compute Net
Income/Share.................................... 45,886 1,337 47,223 985
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
<CAPTION>
PRO FORMA
COMBINED
PRO FORMA WITH VENTURA
ADJUSTMENTS & RIVERSIDE
------------ ------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans...................... $ 198,591
Interest on federal funds sold and securities
purchased under resale agreements............. $ (1,332 ) 6,809
Interest on securities.......................... 44,805
Interest on trading account securities.......... 2,015
------------ ------------
Total......................................... (1,332 ) 252,220
------------ ------------
INTEREST EXPENSE:
Interest on deposits............................ 43,301
Interest on federal funds purchased and
securities sold under repurchase agreements... 17,856
Interest on other short-term borrowings......... 4,464
Interest on long-term debt...................... 1,059
------------ ------------
Total......................................... 66,680
------------ ------------
Net interest income............................. (1,332 ) 185,540
Provision for credit losses..................... 0 590
------------ ------------
Net interest income after provision for credit
losses........................................ (1,332 ) 184,950
------------ ------------
Noninterest income................................ 39,682
Noninterest expense............................... 2,990 149,198
------------ ------------
Income before taxes............................... (4,322 ) 75,434
Income taxes...................................... (1,307 ) 26,249
------------ ------------
Net income........................................ $ (3,015 ) $ 49,185
------------ ------------
------------ ------------
Net income per share.............................. $ 1.02
------------
------------
Shares (in thousands) used to compute Net
Income/Share.................................... 48,208
------------
------------
</TABLE>
See accompanying Notes to Unaudited High Range Pro Forma Condensed Combined
Financial.
42
<PAGE>
NOTES TO THE UNAUDITED HIGH RANGE PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
VENTURA
BALANCE SHEET
Assuming a Final City National Stock price of $19.10, the total
consideration value paid to existing Ventura shareholders is $46,420,000, with
total cash consideration of $20,889,000 and the balance in City National Stock.
The cash payment of $20,889,000 will be paid from Federal funds sold. The
number of shares to be tendered will be contingent upon the Final City National
Stock Price which is the average of the City National Stock closing price in the
twenty business day period ending three business days before the Effective Time.
For the purpose of the High Range Pro Forma Financial Statements, the stock
portion of the total consideration value is satisfied by the issuance of
1,336,702 shares of City National Stock held as treasury stock and recorded as a
credit to shareholders' equity of $8,034,000 and to treasury shares of
$17,497,000 based on the weighted average cost of the treasury shares.
The purchase price of $47,602,000 which includes expenses of $600,000
directly attributable to the acquisition and a $582,000 payment to cash out
existing unexercised stock options is allocated to the assets acquired and the
liabilities assumed based on their estimated fair values at September 30, 1996
in accordance with APB No. 16. The table below reflects the adjustment of
certain assets and liabilities to estimated fair value and the resultant
goodwill. Total goodwill of approximately $10,749,000 is expected to be
amortized over ten years. Total core deposit intangibles of $14,400,000 is
expected to be amortized over seven years.
<TABLE>
<CAPTION>
ADJUSTMENTS RELATED
TO ACQUISITIONS
---------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Assets/liabilities
Cash................................................................. $ (1,182)
Core deposit intangibles............................................. 14,400
Servicing rights for SBA loans....................................... 2,500
Fixed assets......................................................... (500)
Deferred taxes created by core deposit intangibles and servicing
rights for SBA loans............................................... (7,149)
Other liabilities.................................................... 2,081
Shareholders' equity for option payment, net of tax.................. (338)
Remaining unallocated purchase price (Goodwill)...................... $ 10,749
</TABLE>
Included in the total adjustment is $600,000 in direct costs to be paid
immediately prior to the Effective Time and an additional $4,400,000 liability
incurred in connection with the termination of contracts and leases and existing
severance contracts. Included in the total adjustment to Other Liabilities is a
$2,319,000 reduction in income taxes currently payable to reflect the tax
benefit related to the $4,400,000 liability incurred, the $500,000 in fixed
asset writeoffs and the $582,000 payment made immediately prior to the Effective
Time to cash out unexercised stock options held by Ventura's employees and
directors.
STATEMENT OF INCOME
(a) Decrease in interest on Federal funds sold is due to the utilization of
Federal funds sold to fund the cash portion of the purchase price. The loss in
interest income is estimated to be $871,000 and $1,260,000 for the nine-month
and 12-month period beginning January 1, 1996 and January 1, 1995, respectively.
43
<PAGE>
(b) Non-interest expense includes the amortization of core deposit
intangibles and goodwill for the nine months beginning January 1, 1996 of
$1,543,000 and $806,000 respectively and for the 12-month period beginning
January 1, 1995 of $2,046,000 and $1,075,000 respectively.
(c) Additional income tax expense is computed using a 42.3% tax rate. The
tax attributes of Ventura will carry over to City National including all assets
and liabilities and are recorded at amounts previously reflected, adjusted for
purchase price allocations. The goodwill is not tax deductible.
(d) The pro forma combined net income per common share data are based on (i)
combined historical income of Ventura and City National assuming the Merger is
accounted for as a purchase and (ii) pro forma combined equivalent of the
Ventura Stock converted (as adjusted for an exchange ratio of .2634 of a share
of City National Stock for each share of Ventura Stock) and City National Stock
as of September 30, 1996 and December 31, 1995.
RIVERSIDE
BALANCE SHEET
Assuming a Final City National Stock Price of $19.50, the total
consideration value paid to existing Riverside shareholders is $39,137,000, with
total cash consideration of $20,351,000 and the balance in City National Stock.
The cash payment of $20,351,000 will be paid from Federal funds sold. The
number of shares to be tendered will be contingent upon the Final City National
Stock Price which is the average of the City National Stock closing price in the
twenty day period ending three business days before the Effective Time. For the
purpose of the Low Range Pro Forma Financial Statements, the stock portion of
the total consideration value is comprised of the issuance of the remaining
874,498 shares of City National Stock held as treasury stock as of September 30,
1996 and the purchase of an additional 88,874 shares of City National Stock on
the open market for issuance to Riverside shareholders. The issuance of the
treasury stock is recorded as a credit to shareholders' equity of $5,606,000 and
a credit to treasury stock of $11,447,000 based on the weighted average cost of
the treasury shares. The purchase of additional treasury shares is assumed to be
at $19.50, and is assumed to be funded from liquidation of Federal funds sold.
The purchase price of $41,203,000 which includes expenses of $400,000
directly attributable to the acquisition and a $1,666,000 payment to cash out
existing unexercised stock options is allocated to the assets acquired and the
liabilities assumed based on their estimated fair values at September 30, 1996
in accordance with APB No. 16. The table below reflects the adjustment of
certain assets and liabilities to estimated fair value and the resultant
goodwill. Total goodwill of approximately $10,917,000 is expected to be
amortized over ten years. Total core deposit intangibles of approximately
$12,300,000 is expected to be amortized over seven years.
<TABLE>
<CAPTION>
ADJUSTMENTS RELATED
TO
ACQUISITIONS
---------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Assets/liabilities.....................................................
Cash................................................................. $ (2,051)
Core deposit premiums................................................ 12,300
Fixed assets......................................................... (400)
Deferred taxes created by core deposit premiums...................... (5,202)
Shareholders' equity for option payment, net of tax.................. (959)
Remaining unallocated purchase price (Goodwill)...................... $ 10,917
</TABLE>
Included in the total adjustment is $400,000 in direct costs to be paid
immediately prior to the Effective Time and an additional $1,500,000 liability
incurred in connection with existing severance contracts and with the
termination of contracts. Included in the total adjustment to Other Liabilities
is a
44
<PAGE>
$1,500,000 reduction in income taxes currently payable to reflect the tax
benefit related to the $1,500,000 liability incurred, the $400,000 fixed asset
writeoff and the $1,666,000 payment made immediately prior to the Effective Time
to cash out certain of the Riverside stock options (for approximately 183,000
shares) held by Riverside's employees and directors.
STATEMENT OF INCOME
(a) Decrease in interest on Federal funds sold is due to the utilization of
Federal funds sold to fund the cash portion of the purchase price. The loss in
interest income is estimated to be $921,000 and $1,332,000 for the nine-month
and 12-month period beginning January 1, 1996 and January 1, 1995, respectively.
(b) Non-interest expense includes the amortization of core deposit
intangibles and goodwill for the nine months beginning January 1, 1996 of
$1,318,000 and $819,000, respectively and for the 12-month period beginning
January 1, 1995 of $1,899,000 and $1,091,000, respectively.
(c) Additional income tax expense is computed using a 42.3% tax rate. The
tax attributes of Riverside will carry over to City National including all
assets and liabilities and are recorded at amounts previously reflected,
adjusted for purchase price allocations. The goodwill is not tax deductible.
45
<PAGE>
INTRODUCTION
GENERAL
This Proxy Statement/Prospectus is being furnished to the holders of Ventura
Stock in connection with the solicitation of proxies by the Board of Directors
of Ventura for use at the Special Meeting of Ventura shareholders to be held at
the offices of Ventura, 500 Esplanade Drive, Oxnard, California, on January ,
1997, at .m., Pacific Standard Time, and at any adjournments or
postponements thereof.
At the Special Meeting, the shareholders of record of Ventura Stock as of
the close of business on November 25, 1996, will consider and vote upon a
proposal to approve the Merger Agreement pursuant to which Ventura will merge
with and into City National and the Merger. Upon consummation of the Merger,
each outstanding share of Ventura Stock (other than Dissenting Common Stock and
Cancelled Shares (each as hereinafter defined)) will be converted into the right
to receive, at the election of the holder thereof either: (1) shares of City
National Stock calculated as described herein; (2) $5.03 in cash; or (3) a
combination of City National Stock and cash, calculated as described herein. See
"THE SPECIAL MEETING" and "THE MERGER--Consideration Payable Upon Consummation
of the Merger." The City National Board of Directors has approved the issuance
of the shares of City National Stock to be issued upon consummation of the
Merger. Approval of the shareholders of City National is not required for the
issuance of the shares of City National Stock.
This Proxy Statement/Prospectus also constitutes a prospectus of City
National in respect of the shares of City National Stock to be issued in
connection with the Merger.
PARTIES TO THE MERGER
CITY NATIONAL. City National is a bank holding company which conducts a
commercial banking business through its wholly owned subsidiary, City National
Bank. City National Bank, which was founded in 1953, conducts business in
Southern California and operates 21 banking offices in Los Angeles County, one
in Orange County and one in San Diego County. As of September 30, 1996, City
National and City National Bank had total assets of approximately $3.9 billion,
total deposits of approximately $2.9 billion and shareholders' equity of
approximately $385.4 million.
City National Bank primarily serves middle-market companies, professional
and business borrowers and associated individuals with commercial banking and
fiduciary needs.
City National's executive offices are located at 400 North Roxbury Drive,
Beverly Hills, California 90210, and its telephone number is (310) 888-6000.
City National is a Delaware corporation. Additional information about City
National and City National Bank is included in documents incorporated by
reference into this Proxy Statement/Prospectus. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
VENTURA. Ventura is a registered bank holding company conducting business
through its two subsidiary banks, Ventura Bank and Frontier Bank. As of
September 30, 1996, Ventura had total consolidated assets of $271.7 million,
total consolidated deposits of $237.9 million and total consolidated
shareholders' equity of $29.3 million.
Ventura Bank and Frontier Bank are both national banking associations
operating in Southern California. Ventura Bank conducts its banking operations
through four branch offices located in Ventura County, California, approximately
60 miles northwest of downtown Los Angeles. Ventura Bank's headquarters are
located in Oxnard, California, and its branch offices are located in Oxnard,
Ventura, Camarillo and Westlake Village. Frontier Bank is based in La Palma in
northwestern Orange County and has a branch office in Wilmington in southern Los
Angeles County. Ventura Bank and Frontier Bank provide commercial banking
services to small to medium sized businesses, professional firms and individuals
in their market areas.
46
<PAGE>
The principal executive offices of Ventura are located at 500 Esplanade
Drive, Oxnard, California 93030, and its telephone number at that address is
(805) 981-2780.
RIVERSIDE MERGER
City National and City National Bank are also parties to the Riverside
Agreement, which contemplates the merger of Riverside with and into City
National Bank (the "Riverside Merger"). City National Bank will be the surviving
national bank in the Riverside Merger. The directors and officers of City
National Bank immediately prior to the Riverside Merger will be the directors
and officers, respectively, of the surviving national bank following the
Riverside Merger.
As a result of the Riverside Merger, holders of Riverside common stock will
receive City National Stock and/or cash. The precise amount of City National
Stock to be received by Riverside shareholders depends on the Riverside Exchange
Ratio, calculated in accordance with the Riverside Agreement. However, the total
amount of City National Stock to be issued to Riverside shareholders in the
aggregate will be no less than 48%, and no greater than 60%, of the total
consideration paid in the Riverside Merger, as calculated pursuant to the
Riverside Agreement. See "PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION."
The consummation of the Riverside Merger is subject to a number of
conditions, including regulatory approval and the approval of Riverside's
shareholders. Subject to the satisfaction of such conditions, the Riverside
Merger and the Merger are expected to be consummated within several weeks of
each other. While it is currently expected that the Merger is likely to be
consummated prior to the Riverside Merger, there is a possibility that the
Riverside Merger will be the first of the two transactions to close.
MARKETS AND MARKET PRICES
The City National Stock is listed on the NYSE under the symbol "CYN" and the
Ventura Stock is quoted in the Nasdaq National Market System under the symbol
"VCNB." The following table sets forth the high and low closing price per share
of City National Stock, as reported on the NYSE Composite Tape, and the high and
low sales price per share of Ventura Stock, as reported on the Nasdaq National
Market System for each of the 11 fiscal quarters ended September 30, 1996.
<TABLE>
<CAPTION>
CITY NATIONAL STOCK VENTURA STOCK
QUARTER ENDED HIGH LOW HIGH LOW
- ------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1994
March 31....................................... $ 9.25 $ 7.13 $ 2.38 $ 1.88
June 30........................................ 11.75 8.00 3.25 1.75
September 30................................... 12.13 9.88 3.13 2.75
December 31.................................... 11.63 8.25 2.94 2.00
1995
March 31....................................... 12.38 10.00 2.38 2.13
June 30........................................ 11.75 9.75 2.50 2.25
September 30................................... 15.38 11.25 4.13 2.38
December 31.................................... 14.25 12.63 4.00 3.38
1996
March 31....................................... 14.13 12.63 3.875 3.44
June 30........................................ 16.50 13.13 4.0625 3.50
September 30................................... 19.00 14.63 4.75 3.125
</TABLE>
The closing price per share of City National Stock, as reported on the NYSE
Composite Tape, and the bid and asked price per share of Ventura Stock, as
reported on the Nasdaq National Market System as of
47
<PAGE>
September 13, 1996, the last trading day before the day on which City National
and Ventura executed the Merger Agreement, and December , 1996 were as
follows:
<TABLE>
<CAPTION>
VENTURA STOCK
CITY NATIONAL STOCK BID ASKED
------------------- --------- ---------
<S> <C> <C> <C>
September 13, 1996....................................... $ 17.25 $ 3.75 $ 3.50
December , 1996........................................
</TABLE>
Following the Merger, the Ventura Stock will no longer exist and, as a
result, will no longer be quoted on Nasdaq. The shares of City National Stock
issued in connection with the Merger will be listed on the NYSE.
THE SPECIAL MEETING
RECORD DATE
The Ventura Board of Directors has fixed the close of business on November
25, 1996 as the Record Date for the determination of shareholders entitled to
notice of, and to vote at, the Special Meeting. Accordingly, only holders of
record of shares of Ventura Stock on the Record Date will be entitled to vote at
the Special Meeting. As of the Record Date, there were shares of Ventura
Stock outstanding held by approximately shareholders of record.
PROXIES
When a proxy card is returned, properly signed and dated, the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a shareholder does not attend the Special Meeting and if a
shareholder does not return the signed proxy card, such holder's shares will not
be voted and this will have the effect of a vote "AGAINST" the approval of the
Merger Agreement and the Merger. Shareholders are urged to mark the box on the
proxy card to indicate how their shares are to be voted. If a shareholder
returns a signed proxy card but does not indicate how the shares represented by
the proxy card are to be voted, such shares will be voted "FOR" approval of the
Merger Agreement and the Merger. The proxy card also confers discretionary
authority on the proxyholder to vote the shares represented thereby on any other
matter that is properly presented for action at the Special Meeting. A
shareholder who has given a proxy may revoke it at any time prior to its
exercise at the Special Meeting by delivering an instrument of revocation to the
Secretary of Ventura, by duly executing and submitting a proxy card bearing a
later date, or by appearing at the Special Meeting and voting in person.
However, the mere presence at the Special Meeting of the shareholder who has
given a proxy will not revoke such proxy. In addition, brokers who hold shares
of Ventura Stock as nominees will not have discretionary authority to vote such
shares in connection with the proposal to approve the principal terms of the
Merger Agreement in the absence of instructions from the beneficial owners.
Proxies will be solicited through the use of the mails. In addition, certain
directors, officers and employees of Ventura may solicit proxies (for no
additional compensation) by personal interview, telephone, telegram or similar
means of communication. Ventura has retained the services of Georgeson &
Company, Inc. to assist in soliciting proxies for stockholders and brokers,
banks and other institutions, nominees and fiduciaries for a fee estimated at
$6,000.
QUORUM
The presence, either in person or by properly executed proxies, of the
holders of a majority of the outstanding shares of Ventura Stock is necessary to
constitute a quorum at the Special Meeting. Abstentions will be counted for
purposes of establishing a quorum and broker non-votes will not be counted for
purposes of establishing a quorum.
48
<PAGE>
VOTE REQUIRED
Ventura shareholders are entitled to one vote at the Special Meeting for
each share of Ventura Stock held of record by them on the Record Date. The
proposal concerning the approval of the principal terms of the Merger Agreement
and the Merger requires the affirmative vote of the holders of a majority of the
outstanding shares of Ventura Stock. Abstentions and broker non-votes will have
the same effect as a vote "AGAINST" the proposal, except for purposes of
entitlement to dissenters' rights. See "DISSENTERS' RIGHTS".
As of the Record Date, directors, executive officers and affiliates of such
directors and executive officers of Ventura beneficially owned an aggregate of
1,242,710 shares of Ventura Stock (not including shares issuable upon exercise
of stock options) or approximately 14.27% of the shares outstanding as of the
Record Date. All of Ventura's directors have agreed to vote their approximately
shares (approximately %) in favor of the Merger Agreement and the Merger.
See "CERTAIN RELATED AGREEMENTS--Shareholders' Agreement."
As of the Record Date, City National beneficially owned shares of
Ventura Stock.
SHAREHOLDINGS OF CERTAIN BENEFICIAL OWNERS AND VENTURA'S MANAGEMENT
Management of Ventura knows of no person, other than Basswood Partners,
L.P., Matthew Lindenbaum and Bennett Lindenbaum, who owns, beneficially or of
record, either individually or as a group, 5 percent or more of the outstanding
shares of Ventura Stock. The following table sets forth, as of the Record Date,
the number and percentage of shares of outstanding Ventura Stock beneficially
owned, directly or indirectly, by each of Ventura's directors and executive
officers, principal shareholders, and by the directors and officers of Ventura
as a group. In general, beneficial ownership includes shares over which the
director, principal shareholder or officer has sole or shared voting or
investment power and shares which such person has the right to acquire within 60
days of the Record Date.
49
<PAGE>
Unless otherwise indicated, the persons listed below have sole voting and
investment powers of the shares beneficially owned.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- -------------------------------------------------------------- -------------------- -----------
<S> <C> <C>
DIRECTORS AND MANAGEMENT:
Michael Antin................................................. 82,616 *
Ralph R. Bennett.............................................. 109,634(1) 1.18
Richard S. Cupp............................................... 76,822(2) *
James M. Davis................................................ 14,777 *
Bart M. Hackley, Jr........................................... 25,908(3) *
W. E. Hartman................................................. 398,744(4) 4.32
James B. Hussey............................................... 125,147(5) 1.36
Kathleen L. Kellogg........................................... 14,853(6) *
Richard A. Lagomarsino........................................ 95,496 1.03
Simone Lagomarsino............................................ 9,375(7) *
Carl W. Raggio................................................ 13,816(8) *
Zella A. Rushing.............................................. 8,356 *
Raymond E. Swift.............................................. 354,186(9) 3.84
Total for Directors and Executive Officers (numbering 13)..... 1,329,910(10) 14.27
PRINCIPAL SHAREHOLDERS:
Basswood Partners L.P., Matthew Lindenbaum and Bennett
Lindenbaum.................................................. 573,497(11) 6.21
</TABLE>
- ------------------------
*Less than 1%
(1) Shared voting and investment power as to 102,144 shares.
(2) Includes 6,334 shares allocated to Mr. Cupp's account under the 401(k)/ESOP
as of the Record Date. Also includes 66,020 shares acquirable by the
exercise of stock options. Mr. Cupp's option agreement contains antidilution
provisions pursuant to which the number of shares of Ventura Stock that are
issuable upon the exercise of such option would be increased in the event
Ventura issues additional shares.
(3) Shared voting and investment power as to 4,497 shares.
(4) Shared voting and investment power as to 148,430 shares.
(5) Shared voting and investment power as to 56,434 shares.
(6) Includes 5,453 shares allocated to Ms. Kellogg's account under the
401(k)/ESOP. Also includes 9,000 shares acquirable by the exercise of stock
options.
(7) Includes 2,930 shares allocated to Ms. Lagomarsino's account under the
401(k)/ESOP. Also includes 5,000 shares acquirable by the exercise of stock
options.
(8) Includes 6,816 shares allocated to Mr. Raggio's account under the
401(k)/ESOP. Also includes 7,000 shares acquirable by the exercise of stock
options.
(9) Shared voting and investment power as to 115,799 shares.
(10) Includes 87,020 shares acquirable by the exercise of stock options and
21,533 shares allocated under the 401(k)/ESOP.
50
<PAGE>
(11) Based on a Schedule 13D, dated August 2, 1995. Basswood Partners, L.P.
("Basswood") is a Delaware limited partnership and Matthew Lindenbaum and
Bennett Lindenbaum are the sole principals of Basswood Management, Inc.,
Basswood's general partner. Basswood's principal office is at 52 Forest
Avenue, Paramus, NJ 07652. Basswood is the general partner of Basswood
Financial Partners, L.P. and advises several managed accounts.
Each of Ventura's directors has agreed to vote in favor of adoption of the
Merger Agreement. See "CERTAIN RELATED AGREEMENTS--Shareholders' Agreement."
THE MERGER
The following information, insofar as it relates to matters contained in the
Merger Agreement, is qualified in its entirety by reference to the Merger
Agreement, which is incorporated herein by reference and attached hereto as
Appendix A. Ventura shareholders are urged to read the Merger Agreement
carefully.
BACKGROUND OF AND REASONS FOR THE MERGER
During the 1990s, Ventura experienced significant declines in earnings and
increases in nonperforming assets which resulted in Ventura and its subsidiary
banks becoming subject to supervisory agreements with their respective federal
regulators. In response, in September 1993, new management brought in by the
Ventura Board of Directors developed and began to implement a plan to address
the major concerns confronting Ventura Bank and Frontier Bank and restore core
profitability, consisting of (1) improving management, (2) reducing
nonperforming and classified assets, (3) improving asset quality, (4) reducing
other expenses, (5) improving liquidity and (6) increasing capital ratios.
In connection with those efforts, from 1993 through 1996, the Board of
Directors and executive officers of Ventura met at various times to consider
strategic alternatives available to Ventura and to implement a program to
improve the earnings of Ventura and enhance the value of the shareholders'
investment in Ventura. In 1994, Ventura retained Sandler O'Neill to act as
financial advisor with respect to capital augmentation, acquisition and
disposition strategies. The Ventura Board of Directors considered, among other
things, the sale of either or both subsidiary banks, as well as Ventura as a
whole. During the period from May 1994 through April 1995, Ventura was
approached by several banking institutions concerning a possible acquisition of
Ventura as a whole and Ventura Bank or Frontier Bank separately. In July 1994,
Ventura entered into a letter of intent with another financial institution for
the acquisition of Frontier Bank which was subsequently terminated. Except for
the letter of intent with respect to Frontier Bank, no understandings or
agreements were reached with any other institutions.
In late 1994, the Ventura Board of Directors determined that the interests
of the Ventura shareholders would be best served by a plan focusing on
continuing to build Ventura's core business of generating and maintaining
profitable banking relationships with small and medium sized businesses,
professional firms and individuals in its market areas. In that regard, in May
1995, Ventura undertook a rights offering to shareholders and standby purchasers
in which $6.5 million in gross proceeds was raised.
Subsequent to the rights offering, the Ventura Board of Directors continued
to review the strategic alternatives available to Ventura, which included the
acquisition by Ventura of other banking institutions. In February 1996, Ventura
entered into an engagement letter with Sandler O'Neill to act as its financial
advisor with respect to strategic planning and merger and acquisition
strategies. On March 13, 1996, Frank P. Pekny, City National's Executive Vice
President and Treasurer/Chief Financial Officer contacted Richard S. Cupp,
Ventura's Chief Executive Officer regarding the potential acquisition of
Ventura. Thereafter, Sandler O'Neill and Ventura's management and Capital
Committee identified a number of potential acquisition partners, including City
National. Each of the prospective institutions was asked to sign a
confidentiality agreement. The institutions contacted were all California-based
financial institutions.
51
<PAGE>
On April 30, 1996, the Capital Committee met to discuss the contacts with
the potential acquisition partners, City National's indication of interest in
Ventura and the alternatives available to Ventura. The Committee authorized
Sandler O'Neill to proceed with discussions with City National. During May and
June 1996, representatives of Sandler O'Neill met with representatives of City
National to discuss a possible combination of Ventura and City National.
Pursuant to the confidentiality agreement, during the period between June 1996
and August 1996, Ventura provided City National with documentation and
information for due diligence purposes.
On July 9, 1996, James Hussey, Ventura's Chairman. and Mr. Cupp, met with
Mr. Pekny and Heng W. Chen, City National Bank's Senior Vice
President-Finance/Controller, along with Thomas Killian of Sandler O'Neill to
discuss a pro forma analysis of the companies. Mr. Pekny and Mr. Chen informed
City National's senior management of the results of these meetings and on July
12, City National authorized Mr. Pekny to proceed with discussions. Between July
12, 1996 and July 25, 1996, discussions continued. At that time, it was
determined that City National would complete its due diligence review before
moving forward with further discussions. During August 1996, City National
continued its off-site due diligence review of Ventura, Ventura Bank and
Frontier Bank. On August 24, 1996, Mr. Cupp and Mr. Pekny met to discuss pricing
issues. On August 28, 1996, Messrs. Hussey, Cupp, Pekny, Chen and Killian met to
further discuss the proposal, and reached preliminary agreement on a number of
issues. On August 30 and 31, 1996, City National conducted on-site diligence
reviews and discussions with management of Ventura Bank and Frontier Bank.
On September 4 and 5, 1996, representatives of Sandler O'Neill conducted a
due diligence review of City National, including discussions with management.
From September 8 to 15, 1996, representatives of Ventura and City National met
and had numerous telephone conversations to negotiate the final terms of the
Merger Agreement, the Option Agreement and the Shareholders' Agreement. See
"CERTAIN RELATED AGREEMENTS--Shareholders' Agreement" and "CERTAIN RELATED
AGREEMENTS--Option Agreement" below.
On September 15, 1996, the Board of Directors of Ventura met to consider the
proposal submitted by City National. Following presentations from management of
Ventura and Ventura's financial and legal advisors, the Board of Directors of
Ventura approved the terms of City National's proposal and the Merger pursuant
to the Merger Agreement. The Merger Agreement, Option Agreement and
Shareholders' Agreement were executed on September 15, 1996.
In evaluating the proposed Merger with City National, the Board of Directors
of Ventura considered a variety of factors, reviewed information relating to
City National and Ventura and received reports from and presentations by its
officers, financial advisors and legal counsel. Among the factors considered by
the Board of Directors were the fact that the value of the consideration to be
paid in the Merger represents a premium over the current market price of Ventura
Stock; the value and form of the consideration to be paid in the Merger compared
with prices paid in acquisitions of the other banks and bank holding companies;
the book value and earnings per share of Ventura; the results of operations and
prospects of Ventura and City National; alternatives to an acquisition of
Ventura, including the advisability of continuing to operate Ventura as an
independent entity; the opinion of Sandler O'Neill, confirmed in a letter to the
Board of Directors, that the consideration to be received in the Merger is fair
from a financial point of view to shareholders of Ventura (see "Opinion of
Financial Advisor to Ventura," below); the tax consequences of the transaction
to shareholders of Ventura; and the value of City National Stock as an
investment, including the fact that it pays a dividend and offers the Ventura
shareholders the opportunity to participate in the future performance of a
larger financial institution than Ventura. The Ventura Board concluded, in light
of these factors and other factors it considered appropriate, that the Merger is
in the best interests of Ventura and its shareholders.
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RECOMMENDATION OF THE VENTURA BOARD OF DIRECTORS
THE VENTURA BOARD OF DIRECTORS HAS UNANIMOUSLY CONCLUDED THAT THE MERGER IS IN
THE BEST INTERESTS OF VENTURA AND ITS SHAREHOLDERS. THE BOARD OF DIRECTORS OF
VENTURA HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE MERGER AND THE
TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT AND UNANIMOUSLY RECOMMENDS
THAT SHAREHOLDERS VOTE TO APPROVE THE MERGER AGREEMENT AND THE MERGER.
OPINION OF FINANCIAL ADVISOR TO VENTURA
The following information was provided by Sandler O'Neill.
Pursuant to a letter agreement dated as of February 9, 1996, (the "Sandler
O'Neill Agreement"), Ventura retained Sandler O'Neill as an independent
financial advisor in connection with strategic planning and merger and
acquisition transactions. Sandler O'Neill is a nationally recognized investment
banking firm whose principal business specialty is banks and savings
institutions and is regularly engaged in the valuation of such businesses and
their securities in connection with mergers and acquisitions and other corporate
transactions.
Pursuant to the terms of the Sandler O'Neill Agreement, Sandler O'Neill
acted as financial advisor to Ventura in connection with the Merger. In
connection therewith, at the September 15, 1996 meeting at which Ventura's Board
approved and adopted the Merger Agreement, Sandler O'Neill delivered a written
opinion to Ventura's Board that, as of such date, the consideration to be
received by the holders of shares of Ventura Common Stock pursuant to the Merger
Agreement was fair, from a financial point of view, to such shareholders. THE
SEPTEMBER 15, 1996 WRITTEN OPINION WAS CONFIRMED ON DECEMBER , 1996 (AS
CONFIRMED, THE "FAIRNESS OPINION"). THE FULL TEXT OF THE FAIRNESS OPINION, WHICH
SETS FORTH THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND
QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS APPENDIX
E TO THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. THE
DESCRIPTION OF SUCH OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO APPENDIX E. HOLDERS OF VENTURA STOCK ARE URGED TO READ THE FAIRNESS
OPINION IN ITS ENTIRETY IN CONNECTION WITH THEIR CONSIDERATION OF THE PROPOSED
MERGER. SANDLER O'NEILL'S FAIRNESS OPINION SHOULD NOT BE CONSTRUED BY THE
HOLDERS OF SHARES OF VENTURA STOCK AS A RECOMMENDATION AS TO HOW THEY SHOULD
VOTE AT THE SPECIAL MEETING.
In connection with rendering the Fairness Opinion, Sandler O'Neill performed
a variety of financial analyses. The following is a summary of such analyses,
but does not purport to be a complete description of Sandler O'Neill's analysis.
The preparation of a fairness opinion is a complex process involving subjective
judgements and is not necessarily susceptible to a partial analysis or summary
description. Sandler O'Neill believes that its analyses must be considered as a
whole and that selecting portions of such analyses and the factors considered
therein, without considering all factors and analyses, could create an
incomplete view of the analyses and processes underlying the Fairness Opinion.
In performing its analyses, Sandler O'Neill made numerous assumptions with
respect to industry performance, business and economic conditions and various
other matters, many of which cannot be predicted and are beyond the control of
Ventura, City National and Sandler O'Neill. Any estimates contained in Sandler
O'Neill's analyses are not necessarily indicative of future results or values,
which may be significantly more or less favorable than such estimates. Estimates
on the values of companies do not purport to be appraisals or necessarily
reflect the prices at which companies or their securities may actually be sold.
Because such estimates are inherently subject to uncertainty, none of Ventura,
City National nor Sandler O'Neill assumes responsibility for their accuracy.
STOCK TRADING HISTORY. Sandler O'Neill examined the history of the trading
prices and the volume of Ventura Stock and City National Stock, and the
relationship between the movements in the prices of the Ventura Stock and City
National Stock, respectively, to movements in certain stock indices, including
the
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Standard & Poor's 500 Index, the NASDAQ Banking Index and a composite group of
publicly traded commercial banks in geographic proximity and of similar asset
size.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. In preparing its
presentation, Sandler O'Neill used publicly available information to compare
selected financial and market trading information, including book value,
tangible book value, earnings, asset quality ratios, loan loss reserve levels,
profitability and capital adequacy, for Ventura and certain other institutions.
The 16 publicly-traded regional California commercial banks (the "Regional
Group") to which Sandler O'Neill compared Ventura were: California State Bank,
Far East National Bank, Pacific Bank, N.A., SC Bancorp, Foothill Independent
Bancorp, Eldorado Bancorp, SierraWest Bancorp, Bank of Commerce, SJNB Financial
Corp, Cupertino National Bancorp, FP Bancorp, Inc., Riverside National Bank,
Capital Corp of the West, Orange National Bancorp, SDNB Financial Corp and
California Community Bancshares. Sandler O'Neill also compared Ventura to a
group of 15 publicly-traded commercial banks which were considered to be
highly-valued (the "Highly Valued Group") by investors because their price to
tangible-book-value ratio was greater than 185%. The institutions which made-up
the Highly Valued Group were: Bank of Granite Corporation, ABC Bancorp, 1st
United Bancorp, Aspen Bancshares, First State Corporation, Franklin
Bancorporation, Inc., Summit Bancshares, Inc., S.Y. Bancorp, Inc., Sun Bancorp,
Inc., Centennial Bancorp, American Bancorp of Nevada, SJNB Financial Corp., New
Iberia Bancorp, Inc., Cascade Bancorp and First Patriot Bankshares Corp. The
analysis compared publicly available year-end financial information as of and
for the years ending December 31, 1991 through December 31, 1995, and for the
six months ended June 30, 1996. The following comparisons are based upon the
June 30, 1996 financial information. The data described below with respect to
the Regional Group and the Highly Valued Group consists of the median data for
such groups.
The total assets of Ventura were approximately $274 million, compared to
approximately $276 million for the Regional Group and approximately $354 million
for the Highly Valued Group. The annual growth rate of assets for Ventura was
positive 9.00%, compared to a positive growth rate of approximately 19.5% for
the Regional Group and approximately 19% for the Highly Valued Group. The total
equity of Ventura was approximately $28 million, compared to approximately $28
million for the Regional Group and approximately $29 million for the Highly
Valued Group. The tangible equity to total assets ratio was 10.39% for Ventura,
compared to approximately 8.72% for the Regional Group and approximately 9.12%
for the Highly Valued Group. The net loans to assets ratio for Ventura was
approximately 59.46%, compared to approximately 62% for the Regional Group and
approximately 63% for the Highly Valued Group. The cash and securities to total
assets ratio was approximately 37% for Ventura, compared to approximately 29%
for the Regional Group and approximately 29% for the Highly Valued Group. Total
deposits were approximately $243 million for Ventura, compared to approximately
$238 million for the Regional Group and approximately $300 million for the
Highly Valued Group. Ventura had a gross loans to total deposits ratio of
approximately 69.81%, compared to approximately 73% for the Regional Group and
approximately 81% for the Highly Valued Group. The total borrowings to total
asset ratio for Ventura was 0%, compared to approximately 1% for the Regional
Group and approximately 6% for the Highly Valued Group. The ratio of
non-performing loans to total assets for Ventura was 0.88%, compared to
approximately 0.88% for the Regional Group and approximately 0.20% for the
Highly Valued Group. The ratio of non-performing assets to total assets for
Ventura was 1.97%, compared to approximately 1.75% for the Regional Group and
approximately 0.25% for the Highly Valued Group. The ratio of loan loss reserves
to non-performing loans for Ventura was 209.36%, compared to approximately 130%
for the Regional Group and approximately 415% for the Highly Valued Group. The
net interest margin of Ventura was 6.10%, compared to approximately 6.18% for
the Regional Group and 5.8% for the Highly Valued Group. The ratio of
non-interest income to average assets for Ventura was 0.91%, compared to
approximately 1.04% for the Regional Group and approximately 0.85% for the
Highly Valued Group. The ratio of non-interest expense to average assets was
5.70% for Ventura, compared to approximately 5.10% for the Regional Group and
approximately 3.70% for the Highly Valued Group. The efficiency ratio of Ventura
was 85.35%, compared to approximately 76% for the Regional Group and
approximately 58% for the
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Highly Valued Group. The overhead ratio of Ventura was 82.95%, compared to
approximately 68% for the Regional Group and approximately 51% for the Highly
Valued Group. The return on average assets for Ventura was 0.93%, compared to
approximately 0.95% for the Regional Group and approximately 1.50% for the
Highly Valued Group. The return on average equity for Ventura was 8.96%,
compared to approximately 11% for the Regional Group and approximately 16% for
the Highly Valued Group. The price to tangible book value for Ventura was
113.6%, compared to approximately 131% for the Regional Group and approximately
213% for the Highly Valued Group. The price to earnings per share multiple for
Ventura was 11.3x, compared to 13.2x for the Regional Group and 13.7x for the
Highly Valued Group.
Sandler O'Neill also used publicly available information to perform a
similar comparison of selected financial and market trading information for City
National and certain other institutions. The 5 publicly-traded commercial banks
(the "Regional Bank Group") to which Sandler O'Neill compared City National
were: Bank of the West, Imperial Bancorp, Silicon Valley Bancshares, Sumitomo
Bank of California, and Westamerica Bancorporation. Sandler O'Neill also
compared City National to a group of 9 publicly-traded commercial banks which
were considered to be highly-valued (the "Highly Valued Bank Group" ) by
investors because their price to tangible book value was greater than 180% of
which City National was included. The companies in Highly Valued Group were:
Associated Banc-Corp., Colonial BancGroup, Inc., Commerce Bancorp, Inc., First
Michigan Bank Corp, Mark Twain Bancshares, Inc., National Commerce Bancorp.,
North Fork Bancorporation, United Carolina Bancshares, and Westamerica
Bancorporation. The analysis compared publicly available year end financial
information as of and for the years ending December 31, 1990, through December
31, 1995, and for the quarter ended June 30, 1996. The following comparisons are
based upon the June 30, 1996 financial information. The data described below
with respect to the Regional Bank Group and the Highly Valued Bank Group
consists of the median data for such groups.
The total assets of City National were approximately $3.9 billion, compared
to $3.4 billion for the Regional Bank Group and $3.9 billion, for the Highly
Valued Bank Group. The annual growth rate of assets for City National was
positive 36.88%, compared to a positive growth rate of approximately 18% for the
Regional Bank Group and approximately 13% for the Highly Valued Bank Group. The
total equity of City National was approximately $368 million, compared to
approximately $316 million for the Regional Bank Group and approximately $284
million for the Highly Valued Bank Group. The tangible equity to total assets
ratio was 9.27% for City National, compared to approximately 8.9% for the
Regional Bank Group and approximately 7.7% for the Highly Valued Bank Group. The
net loans to total assets ratio for City National was approximately 62.7%,
compared to approximately 61% for the Regional Bank Group and approximately 66%
for the Highly Valued Bank Group. The cash and securities to total assets ratio
was approximately 33% for City National, compared to approximately 35% for the
Regional Bank Group and approximately 31% for the Highly Valued Bank Group.
Total deposits were approximately $2.9 billion for City National, compared to
approximately $2.7 billion for the Regional Bank Group and approximately $2.9
billion for the Highly Valued Bank Group. City National had a gross loans to
total deposits ratio of approximately 89%, compared to approximately 77% for the
Regional Bank Group and approximately 82% for the Highly Valued Bank Group. The
total borrowings to total assets ratio for City National was approximately 15%,
compared to approximately 6% for the Regional Bank Group and approximately 10%
for the Highly Valued Bank Group. The total non-performing loans to total assets
ratio for City National was 1.30%, compared to approximately 1.20% for the
Regional Bank Group and approximately 0.35% for the Highly Valued Bank Group.
The non-performing assets to total assets ratio for City National was 1.70%,
compared to approximately 1.50% for the Regional Bank Group and approximately
0.50% for the Highly Valued Bank Group. The ratio of loan loss reserves to
non-performing loans for City National was 255%, compared to approximately 220%
for the Regional Bank Group and approximately 335% for the Highly Valued Bank
Group. The ratio of loan loss reserves to non-performing assets for City
National was 194%, compared to approximately 170% for the Regional Bank Group
and approximately 240% for the Highly Valued Bank Group. The net interest margin
of City National was 5.99%, compared to approximately 5.70% for the Regional
Bank Group and approximately 4.70% for the Highly Valued Bank Group.
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The ratio of non-interest income to average assets for City National was 1.16%,
compared to approximately 0.90% for the Regional Bank Group and approximately
1.21% for the Highly Valued Bank Group. The ratio of non-interest expense to
average assets was 3.78% for City National, compared to approximately 3.45% for
the Regional Bank Group and approximately 3.25% for the Highly Valued Bank
Group. The efficiency ratio of City National was 56.77%, compared to
approximately 56% for the Regional Bank Group and approximately 57% for the
Highly Valued Bank Group. The overhead ratio of City National was 47.65%,
compared to approximately 47% for the Regional Bank Group and approximately 45%
for the Highly Valued Bank Group. The return on average assets for City National
was 1.75%, compared to approximately 1.52% for the Regional Bank Group and
approximately 1.42% for the Highly Valued Bank Group. The return on average
equity for City National was 16.17%, compared to approximately 16.18% for the
Regional Bank Group and approximately 16.18% for the Highly Valued Bank Group.
The price to tangible book value for City National was 212.41%, compared to
approximately 195% for the Regional Bank Group and approximately 214% for the
Highly Valued Bank Group. The price to earnings per share multiple for City
National was 13.47x, compared to approximately 11.3x for the Regional Bank Group
and approximately 13.1x for the Highly Valued Bank Group.
ANALYSIS OF SELECTED MERGER TRANSACTIONS. Sandler O'Neill reviewed 7
transactions announced from January 1, 1996 to September 6, 1996 involving
California commercial banks as targets with transaction values over $15 million
and less than $100 million ("1996 California Transactions"), 14 transactions
announced from January 1, 1995 to September 6, 1996 involving California
commercial banks as targets with transaction values over $15 million, and less
than $100 million ("1995-96 California Transactions"), and 19 transactions
announced from January 1, 1996 to September 6, 1996 involving commercial banks
nationwide as targets with equity/assets of 10% or greater ("Highly Capitalized
Transactions"). Sandler O'Neill reviewed the ratios of price to earnings, price
to book value, price to tangible book value, price to deposits, price to assets,
and deposit premium paid in each such transaction and computed high, low, mean,
and median ratios and premiums for the respective groups of transactions. Based
upon the median multiples for 1996 California Transactions, Sandler O'Neill
derived an imputed range of values per share of Ventura Stock of $3.29 to $4.93.
Based upon the median multiples for 1995-96 California Transactions, Sandler
O'Neill derived an imputed range of values per share of Ventura Stock of $2.63
to $4.78. Based upon the median multiples for Highly Capitalized Transactions,
Sandler O'Neill derived an imputed range of values per share of Ventura Stock of
$2.45 to $6.74.
DISCOUNTED DIVIDEND STREAM AND TERMINAL VALUE ANALYSIS. Sandler O'Neill also
performed an analysis which estimated the future stream of after-tax dividend
flows of Ventura through 2000 under various circumstances, assuming Ventura
performed in accordance with the earnings forecasts of its management and
certain variations thereof (including variation with respect to the growth rate
of assets, net interest spread, non-interest income, non-interest expense and
dividend payout ratio). To approximate the terminal value of Ventura Stock at
the end of the five-year period, Sandler O'Neill applied price to earnings
multiples ranging from 8x to 17x and applied multiples of book value ranging
from 120.0% to 210.0%. The dividend income streams and terminal values were then
discounted to present values using different discount rates (ranging from 9.0%
to 14.0%) chosen to reflect different assumptions regarding required rates of
return of holders of prospective buyers of Ventura Stock. This analysis,
assuming the current dividend payout ratio, indicated an imputed range of values
per share of Ventura Stock between $3.04 and $7.89 when applying the price to
earnings multiples, and an imputed range of values per share of Ventura Stock
between $3.51 and $7.51 when applying multiples of book value. In connection
with its analysis, Sandler O'Neill extensively used sensitivity analyses to
illustrate the effects changes in the underlying assumptions would have on the
resulting present value, and discussed these changes with Ventura's Board of
Directors.
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In addition, Sandler O'Neill performed an analysis which estimated the
future stream of after-tax dividend flows of City National on a pro-forma basis,
assuming consummation of the Merger (the "Combined Company") through 2001 under
various circumstances, assuming (i) the operations of the Combined Company
attributable to Ventura performed in accordance with the earnings forecasts of
Ventura's management and certain variations thereof, as described in the
previous paragraph; (ii) the operations of the Combined Company attributable to
City National performed in accordance with certain publicly available earnings
forecasts prepared by financial analysts and certain variations thereof
(including variation with respect to the growth rate of assets, net interest
spread, non-interest income, non-interest expense and dividend payout ratio);
and (iii) the Combined Company realized cost savings equal to 40% of Ventura's
projected non-interest expenses. To approximate the terminal value of the
Combined Company's common stock at the end of the five-year period, Sandler
O'Neill applied price to earnings multiples ranging from 13.5x to 16.2x, and
applied multiples of book value ranging from 210% to 220.0%. The dividend income
streams and terminal values were then discounted to present value using a
discount rate of 13.5%. This analysis, assuming the current dividend payout
ratio, indicated an imputed range of values of the shares of City National Stock
to be received in the Merger of approximately $15.37 to $21.16 when applying the
price to earnings multiples, and an imputed range of values of the shares of
City National Stock to be issued in the Merger of approximately $16.00 to $21.30
when applying multiples of book value. In connection with its analysis, Sandler
O'Neill extensively used sensitivity analyses to illustrate the effects changes
in the underlying assumptions would have on the resulting present value, and
discussed these changes with Ventura's Board of Directors.
In connection with rendering the Fairness Opinion, Sandler O'Neill reviewed,
among other things: (i) the Merger Agreement and exhibits thereto; (ii) the
Stock Option Agreement dated as of September 15, 1996 by and between City
National and Ventura; (iii) a draft of this Proxy Statement/Prospectus; (iv)
City National's audited consolidated financial statements and management's
discussion and analysis of the condition and results of operations contained in
its annual report to shareholders for the year ended December 31, 1995, and six
months ended June 30, 1996; (v) Ventura's audited consolidated financial
statements and management's discussion and analysis of the financial condition
and results of operations contained in its annual report to shareholders for the
year ended December 31, 1995, and six months ended June 30, 1996; (vi) certain
financial analyses and forecasts of Ventura prepared by and reviewed with
management of Ventura and the views of senior management of Ventura regarding
Ventura's past and current business operations, results thereof, financial
condition and future prospects; (vii) certain financial analyses and forecasts
of City National prepared by and reviewed with management of City National and
the views of senior management of City National regarding City National's past
and current business operations, results thereof, financial condition and future
prospects; (viii) the pro forma impact of the Merger on City National; (ix) the
historical reported price and trading activity for City National Stock and
Ventura Stock, including a comparison of certain financial and stock market
information for City National and Ventura with similar information for certain
other companies the securities of which are publicly traded; (x) the financial
terms of recent business combinations in the savings institution and banking
industries; (xi) the current market environment generally and the banking
environment in particular; and (xii) such other information, financial studies,
analyses and investigations and financial, economic and market criteria as
Sandler O'Neill considered relevant, including Ventura's recent history of
inconsistent profitability and uncertain level of future profitability.
In performing its review, Sandler O'Neill assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information reviewed by and discussed with it
(relying, where relevant, on the analyses and estimates of City National and
Ventura), and Sandler O'Neill did not make an independent evaluation or
appraisal of the, specific assets, the collateral securing assets or the
liabilities of City National or Ventura or any of their subsidiaries, or the
collectibility of any such assets. With respect to the financial projections
reviewed with each company's management, Sandler O'Neill assumed that they have
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective managements of the respective future
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financial performances of City National and Ventura and that such performances
will be achieved. Sandler O'Neill also assumed the following: (i) that there has
been no material change in City National's or Ventura's assets, financial
condition, results of operations, business or prospects since the date of the
last financial statements noted above; (ii) that the Merger will be treated as a
tax-deferred reorganization with respect to any City National Stock received by
shareholders of Ventura in exchange for their shares of Ventura Stock; and (iii)
that City National will remain as a going concern for all periods relevant to
Sandler O'Neill's analyses and that the conditions precedent in the Merger
Agreement are not waived.
Under the Sandler O'Neill Agreement, Ventura will pay Sandler O'Neill a
transaction fee in connection with the Merger, a substantial portion of which is
contingent upon the consummation of the Merger. Under the terms of the Sandler
O'Neill Agreement, Ventura will pay Sandler O'Neill a transaction fee equal to
1.0% of the aggregate purchase price paid in the transaction, or approximately
$470,000, of which 25% was paid on the date of execution of the Merger Agreement
and 75% is payable on the day of closing of the transaction. Ventura has also
paid Sandler O'Neill a fee of $50,000 for rendering the Fairness Opinion.
Ventura has also agreed to reimburse Sandler O'Neill for its reasonable
out-of-pocket expenses incurred in connection with its engagement and to
indemnify Sandler O'Neill and its affiliates and their respective partners,
directors, officers, employees, agents, and controlling persons against certain
expenses and liabilities, including liabilities under securities laws.
Principals of Sandler O'Neill owned approximately 525,000 shares of Ventura
Stock as of the Record Date.
EFFECT OF THE MERGER
THE MERGER. At the Effective Time, Ventura will merge with and into City
National. City National will be the surviving corporation. At the Effective
Time, the City National Certificate and the City National By-laws as in effect
immediately prior thereto will be the Certificate of Incorporation and By-laws
of the surviving corporation. In addition, the directors and officers of City
National immediately prior to the Effective Time will continue as the directors
and officers of the surviving corporation.
THE BANK MERGERS. City National intends to cause Ventura Bank and Frontier
Bank to merge with and into City National Bank immediately following the Merger.
CONSIDERATION PAYABLE UPON CONSUMMATION OF THE MERGER
CONVERSION OF VENTURA STOCK. In the aggregate, 55% of the shares of Ventura
Stock issued and outstanding immediately prior to the Effective Time (other than
Dissenting Shares and Cancelled Shares) will be converted into the right to
receive City National Stock and 45% of such shares of Ventura Stock will be
converted into the right to receive cash. Holders of Ventura Stock will have the
opportunity to indicate their preference for receiving a different proportion of
cash and City National Stock in the Merger, and may indicate a preference for
receiving all cash or all City National Stock. Such Elections will be honored to
the extent possible; provided, that in the aggregate 55% of Ventura shares will
receive City National Stock and 45% of Ventura shares will receive cash.
Each such share of Ventura Stock will, by virtue of the Merger, be converted
into the right to receive either:
(1) a fraction of a share of City National Stock equal to the quotient
(such quotient, the "Exchange Ratio") of (A) $5.03, divided by (B) the
average of the daily closing prices of a share of City National Stock on the
NYSE as reported in the WALL STREET JOURNAL for the twenty consecutive
trading days ending on the third trading day immediately prior to the
Effective Time (such average, the "Final City National Stock Price");
provided, however, that if the Final City National Stock Price is more than
$19.10, the Exchange Ratio will be based upon a Final City National Stock
Price of $19.10 and, accordingly, will be fixed at 0.2634, and if the Final
City National Stock Price is less than $15.65, the Exchange Ratio will be
based upon a Final City National Stock Price of $15.65 and, accordingly,
will be fixed at 0.3214;
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(2) cash in the amount of $5.03; or
(3) a combination of City National Stock (at the rate of the Exchange
Ratio for a whole share of Ventura Stock) and cash (at the rate of $5.03 for
a whole share of Ventura Stock).
At the Effective Time, Cancelled Shares, shall be cancelled, retired and
shall cease to exist, and no exchange or payment shall be made with respect to
such Cancelled Shares.
ELECTION AND PRORATION PROCEDURE. A form of transmittal letter ("Letter of
Transmittal") will be mailed at least thirty-five days prior to the anticipated
Effective Time or on such other date as Ventura and City National mutually agree
("Mailing Date") to each holder of record of Ventura Stock as of five business
days prior to the Mailing Date. Each Letter of Transmittal will permit the
holder to elect (an "Election") to receive either (1) City National Stock with
respect to all of such holder's Ventura Stock (a "Stock Election"), or (2) cash
with respect to all of such holder's Ventura Stock (a "Cash Election"), or (3) a
combination of shares of City National Stock and cash in the proportions
specified on the Letter of Transmittal (a "Combination Election").
Any Ventura Stock (other than Dissenting Shares) with respect to which IBJ
Schroder Bank & Trust Company (the "Exchange Agent") does not receive an
effective, properly completed Letter of Transmittal prior to the Election
Deadline (as hereinafter defined) will be deemed to be "Undesignated Shares."
An Election will be properly made and effective only if the Exchange Agent
actually receives a properly completed Letter of Transmittal by 5:00 P.M. on or
before January , 1997, unless extended to a later date by the mutual agreement
of the parties (the "Election Deadline"). A Letter of Transmittal will be deemed
properly completed only if an Election is indicated for each share of Ventura
Stock covered by such Letter of Transmittal and if accompanied by one or more
certificates (or customary affidavits and indemnity regarding the loss or
destruction of such certificates or the guaranteed delivery of such
certificates, each as set forth in the Letter of Transmittal) representing all
shares of Ventura Stock covered by such Letter of Transmittal, together with
duly executed transmittal materials included in or required by the Letter of
Transmittal.
An Election may be revoked or changed at any time prior to the Election
Deadline. In the event an Election is revoked prior to the Election Deadline,
the related shares of Ventura Stock will automatically become Undesignated
Shares unless and until a new Election is properly made with respect to such
shares on or before the Election Deadline.
In the event that the aggregate number of shares of Ventura Stock as to
which Stock Elections and Combination Elections for Ventura Stock have been
effectively made exceeds the Stock Amount, then (1) all Undesignated Shares and
Dissenting Shares will be deemed to have made Cash Elections and (2) each holder
of Ventura Stock who made an effective Stock Election or Combination Election
for City National Stock will be entitled to a prorated number of shares of City
National Stock and a prorated amount of cash such that approximately the Stock
Amount is converted into shares of City National Stock.
Correspondingly, in the event that the aggregate number of shares of Ventura
Stock as to which Stock Elections and Combination Elections for Ventura Stock
have effectively been made is less than the Stock Amount, then the Exchange
Agent will select by lot such number of holders of Undesignated Shares to
receive City National Stock as will be necessary so that the number of shares
for which a Stock Election and Combination Election for City National Stock has
been made or is deemed to have been made with respect to such Undesignated
Shares will be approximately equal to the Stock Amount. In the event that all
Undesignated Shares plus all shares as to which Stock Elections and Combination
Elections for Ventura Stock have been made are less than the Stock Amount, then
each holder of Ventura Stock who made an effective Cash Election or Combination
Election for cash will be entitled to a prorated amount of cash and a prorated
number of shares of City National Stock such that approximately the Stock Amount
is converted into shares of City National Stock.
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HOLDERS OF VENTURA STOCK ARE UNLIKELY TO RECEIVE THE PRECISE PROPORTION OF
CITY NATIONAL STOCK AND/OR CASH INDICATED BY SUCH HOLDER'S ELECTION.
For a more complete discussion of the foregoing proration procedure see
Section 2.3 of the Merger Agreement.
For a discussion of the rights of dissenting shareholders of Ventura, see
"DISSENTERS' RIGHTS."
NO FRACTIONAL SHARES. Notwithstanding the foregoing, each holder of shares
of Ventura Stock exchanged pursuant to the Merger who would otherwise have been
entitled to receive a fraction of a share of City National Stock (after taking
into account all certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to such fractional part of a
share of City National Stock multiplied by the Final City National Stock Price.
No holder will be entitled to dividends, voting rights or any other rights as a
stockholder in respect of any fractional share of City National Stock.
EFFECTIVE TIME
The Effective Time of the Merger will be the date the certificate of merger
is filed in accordance with Sections 251 and 252 of the Delaware General
Corporation Law (the "Delaware Code"). On or about the Effective Time, (1) an
executed counterpart of such certificate of merger or (2) a copy of the Merger
Agreement, with an officer's certificate conforming to Section 1103 of the
California Code of each of City National and Ventura, and in either case, a tax
clearance certificate from the California Franchise Tax Board with respect to
Ventura, will be filed with the Secretary of State of the State of California.
If the Merger is approved by the shareholders of Ventura, subject to the
satisfaction or waiver of certain conditions described herein and the receipt of
all Regulatory Approvals (as hereinafter defined), the Effective Time currently
is expected to occur during the first quarter of 1997.
SURRENDER OF VENTURA STOCK CERTIFICATES
As soon as practicable following the Effective Time, and after the proration
procedures described above are completed, each holder of Ventura Stock who
submits (or submitted) a properly completed Letter of Transmittal will be issued
a certificate or certificates representing the number of shares of City National
Stock to which such holder is entitled, if any (and, if applicable, a check for
the amount to be paid in lieu of fractional shares of City National Stock),
and/or an amount of cash to which such holder is entitled, if any. Holders of
Ventura Stock who did not submit a Letter of Transmittal prior to the Election
Deadline must nevertheless submit a properly completed Letter of Transmittal
(other than the section pertaining to the Election) and the certificate or
certificates representing Ventura Stock to the Exchange Agent in order to
receive the Merger consideration payable in respect of such shares.
After the Effective Time, there will be no transfers on Ventura's stock
transfer books of shares of Ventura Stock issued and outstanding immediately
prior to the Effective Time. If certificates representing shares of Ventura
Stock are presented for transfer after the Effective Time, together with
documents sufficient to evidence and effect such transfer, they will be
cancelled and exchanged for the shares of City National Stock and/or cash, if
any, deliverable in respect thereof.
No dividend or other distribution declared or made with respect to City
National Stock with a record date after the Effective Time will be paid to the
holder of any unsurrendered certificate of Ventura Stock until the holder duly
surrenders such certificate. Following the surrender of any such certificate,
there will be paid to the holder, without interest, (1) the amount of any cash
payable with respect to a fractional share of City National Stock to which such
holder is entitled and the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such whole
shares of City National Stock and (2) at the appropriate payment date, the
amount of dividends or other
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distributions with (A) a record date after the Effective Time but prior to
surrender and (B) a payment date subsequent to surrender payable with respect to
such shares of City National Stock.
None of City National, Ventura, the Exchange Agent or any other person will
be liable to any former holder of Ventura Stock for any shares of City National
Stock (or dividends or distributions with respect thereto) or cash delivered to
a public official pursuant to applicable unclaimed property, abandoned property,
escheat or similar laws.
If a certificate for Ventura Stock has been lost, stolen or destroyed, the
Exchange Agent will issue the consideration properly payable in accordance with
the Merger Agreement upon receipt of appropriate evidence as to such loss, theft
or destruction, appropriate evidence as to the ownership of such certificate by
the claimant, and appropriate and customary indemnification.
Any shares as to which dissenters' rights have been perfected will be
purchased in accordance with the procedures described under "DISSENTERS' RIGHTS"
and in Appendix B to this Proxy Statement/ Prospectus.
CONDITIONS TO CONSUMMATION OF THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective obligations of City
National and Ventura to effect the Merger are subject to the satisfaction or
waiver prior to the Effective Time of certain conditions, including the
following:
(1) Receipt of the approval of the shareholders of Ventura solicited
hereby;
(2) Receipt of the required approvals, consents or waivers of
governmental authorities (all such approvals and the expiration of all
applicable waiting periods being the "Regulatory Approvals") and no such
approval consent or waiver shall include any condition or requirement that
would, in the good faith determination of City National, be materially
burdensome on City National;
(3) The absence of any order, injunction or decree that enjoins or
prohibits the consummation of the Merger, the Bank Mergers or any other
transaction contemplated by the Merger Agreement;
(4) No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated or enforced which prohibits, restricts or
makes illegal consummation of the Merger, the Bank Mergers or any other
transactions contemplated by the Merger Agreement;
(5) No stop order suspending the effectiveness under the Securities Act
of the Registration Statement of which this Proxy Statement/Prospectus is a
part shall have been issued and no proceedings for that purpose shall have
been initiated; and
(6) The shares of City National Stock to be issued in the Merger shall
be approved for listing on the NYSE, subject to notice of issuance.
For a discussion of the regulatory approvals required for consummation of
the Merger, see "THE MERGER--Regulatory Approvals."
CITY NATIONAL CONDITIONS. The obligation of City National to effect the
Merger is subject to the satisfaction or waiver prior to the Effective Time of
certain additional conditions, including the following:
(1) The truth of each of the representations and warranties of Ventura
contained in the Merger Agreement, in all material respects, at the
Effective Time as if made on such date; the receipt by City National of an
updated and current disclosure schedule; the performance by each of Ventura,
Ventura Bank and Frontier Bank, in all material respects, of its respective
covenants and agreements contained in the Merger Agreement; and the receipt
by City National of an officers' certificate of Ventura to the foregoing
effect;
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(2) The absence of any litigation or proceeding brought by any
governmental agency seeking to prevent the transactions under the Merger
Agreement;
(3) Receipt by City National of the opinion of Manatt, Phelps &
Phillips, LLP, special counsel to Ventura as to certain legal matters;
(4) Receipt by City National of the final calculation of Ventura's fees
and expenses incurred in connection with the Merger and the release of City
National from liability from fees or expenses of Ventura's advisors;
(5) At the close of business on the last day of the month preceding the
Effective Time, the "Book Value Per Share" (as defined in Section 7.2(e) of
the Merger Agreement) of Ventura shall have been not less than $3.12;
(6) At the close of business on the last day of the month preceding the
Effective Time, total deposits of Ventura and its subsidiaries shall have
been not less than 85% of the average of total deposits for Ventura and its
subsidiaries for the six month period ending on the last day of the same
month in the preceding year;
(7) There shall not have occurred any event related to the business
condition (financial or otherwise), prospects, operations or properties of
Ventura and its subsidiaries which would have a material adverse effect on
the business, financial condition, or results of operations of Ventura; and
(8) Receipt by City National and its directors and officers of letters
of Ventura's independent certified public accountants relating to the
registration statement of which this Proxy Statement is a part, dated as of
(i) the date of the mailing of this Proxy Statement/Prospectus to Ventura's
shareholders, and (ii) shortly prior to the Effective Time, with respect to
certain financial information regarding Ventura in the form customarily
issued by such accountants at such time in transactions of this type.
VENTURA CONDITIONS. The obligation of Ventura to effect the Merger is
subject to the satisfaction or waiver prior to the Effective Time of certain
additional conditions, including the following:
(1) The truth of each of the representations and warranties of City
National contained in the Merger Agreement, in all material respects, at the
Effective Time as if made on such date; the performance by City National, in
all material respects, of its covenants and agreements contained in the
Merger Agreement; and the receipt by Ventura of an officer's certificate of
City National to the foregoing effect;
(2) The absence of any litigation or proceeding brought by any
governmental agency seeking to prevent the consummation of the transactions
contemplated by the Merger Agreement;
(3) Receipt by Ventura of an opinion from Richard H. Sheehan, Jr.,
counsel to City National as to certain legal matters;
(4) Receipt by Ventura of a confirmation of the opinion received from
Tax Counsel (or by other tax counsel of a prominent law firm designated by
City National and acceptable to Ventura) as to the qualification of the
Merger as a tax-deferred reorganization within the meaning of Section 368(a)
of the Code; and
(5) There shall not have occurred any event related to the business
condition (financial or otherwise), prospects, operations or properties of
City National and its subsidiaries that has a material adverse effect on
City National.
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REGULATORY APPROVALS
THE MERGER. Receipt of the Regulatory Approvals is a condition to each
party's obligations to effect the Merger. See "Conditions to Consummation of the
Merger" above, and "Amendment and Termination" below. There can be no assurance
that such Regulatory Approvals will be obtained, and, if obtained, that the
Regulatory Approvals will not contain a condition or requirement which causes
such approvals to fail to satisfy the conditions set forth in the Merger
Agreement. The Regulatory Approvals are described below.
The Merger is subject to prior approval by the Federal Reserve Board under
the Bank Holding Company Act of 1956, as amended (the "BHCA"), which requires
that the Federal Reserve Board take into consideration, among other factors, the
financial and managerial resources and future prospects of the institutions and
the convenience and needs of the communities to be served. The BHCA prohibits
the Federal Reserve Board from approving the Merger (1) if it would result in a
monopoly or be in furtherance of any combination or conspiracy to monopolize the
business of banking in any part of the United States, or (2) if its effect in
any section of the country may be substantially to lessen competition or tend to
create a monopoly, or if it would in any other manner be a restraint of trade,
unless the Federal Reserve Board finds that the anticompetitive effects of the
Merger are clearly outweighed by the public interest and the probable effect of
the transaction in meeting the convenience and needs of the communities to be
served. The Federal Reserve Board has the authority to deny any application if
it concludes that the combined organization would have an inadequate capital
position or if the acquiring organization does not meet the requirements of the
Community Reinvestment Act. Under the BHCA, the Merger may not be consummated
until the 15th day following the date of the Federal Reserve Board approval,
during which time the United States Department of Justice may challenge the
Merger on antitrust grounds. If, however, the Department of Justice does not
commence a legal action during such 15-day period, it may not thereafter
challenge the transaction except in an action commenced under the antimonopoly
provisions of Section 2 of the Sherman Antitrust Act. The commencement of the
antitrust action would stay the effectiveness of the Federal Reserve Board's
approval unless a court specifically orders otherwise.
An application has been submitted seeking the foregoing approval of the
Federal Reserve Board. The BHCA provides for the publication of notice and the
opportunity for administrative hearings relating to an application for approval
under the BHCA and authorizes the Federal Reserve Board to permit interested
parties to intervene in the proceedings. If an interested party is permitted to
intervene, such intervention could substantially delay the regulatory approval
required for consummation of the Merger.
City National and Ventura are not aware of any material governmental
approvals or actions that are required for consummation of the Merger, except as
described above. Should any such approval or action be required, it is presently
contemplated that such approval or action would be sought.
THE BANK MERGERS. The Bank Mergers are subject to the prior approvals of
the Office of the Comptroller of the Company (the "OCC"). The Bank Merger Act
prohibits the OCC from approving a Bank Merger (1) if it would result in a
monopoly or be in furtherance of any combination or conspiracy to monopolize or
to attempt to monopolize the business of banking in any part of the United
States, or (2) if its effect in any section of the country may be substantially
to lessen competition or tend to create a monopoly, or if it would in any other
manner be a restraint of trade, unless the OCC finds that the anticompetitive
effects of the Bank Merger are clearly outweighed by the public interest and the
probable effect of the transaction in meeting the convenience and needs of the
communities to be served. Under the Bank Merger Act and applicable regulations,
a Bank Merger may not be consummated until the 15th day following the date of
receipt of OCC approval, during which time the United States Department of
Justice may challenge a Bank Merger on antitrust grounds. In addition, the Bank
Merger Act requires that the OCC take into consideration, among other factors,
the financial and managerial resources and future prospects of the institutions
and the convenience and needs of the communities to be served. The OCC has
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the authority to deny an application if it concludes that the combined
organization would have an inadequate capital position or if the requirements of
the Community Reinvestment Act are not satisfied.
An application for the requisite approvals of the Bank Mergers by the OCC
has been submitted. No assurances can be given, however, that such approvals
will be received or that the Bank Mergers will be consummated.
CONDUCT OF BUSINESS PENDING THE MERGER
VENTURA. The Merger Agreement contains certain restrictions on the conduct
of Ventura's business pending consummation of the Merger.
In particular, prior to the Effective Time, the Merger Agreement requires
each of Ventura, Ventura Bank and Frontier Bank to (1) conduct business in the
usual, regular and ordinary course, consistent with past practice; (2) use
commercially reasonable efforts to maintain and preserve intact its business
organization, employees and advantageous business relationships, and to continue
to develop such customer relationships and to retain the services of its key
employees; (3) maintain properties; (4) use commercially reasonable efforts to
maintain insurance coverage; (5) perform, in all material respects, its
obligations under material contracts, leases and documents relating to or
affecting its assets, properties and business except as it may in good faith
reasonably dispute; (6) charge off all loans, receivables and other assets, or
portions thereof, deemed uncollectible in accordance with generally accepted
accounting principles ("GAAP"), regulatory accounting principles ("RAP"),
applicable law or regulations, or classified as "loss" or as directed by its
regulators; (7) substantially comply with all federal and state laws and rules,
regulations or orders; and (8) take no action which would reasonably be expected
to adversely affect or delay the parties' ability to obtain any Regulatory
Approvals, or other approvals required for the Merger or to perform its
covenants or agreements under the Merger Agreement on a timely basis.
Without the prior written consent of City National, Ventura, Ventura Bank
and Frontier Bank may not take certain specified actions, including, but not
limited to, the following: (1) borrow money or guaranty the obligations of any
other person (except for ordinary course banking transactions or certain
short-term borrowings); (2) enter into transactions or make adjustments
involving its stock (other than upon the exercise of options outstanding under
the Option Plan or the payment to the option holder of the spread between $5.03
and the exercise price of any such option); or declare or pay dividends; (3)
transfer or encumber assets with a book value of $250,000 or more; (4) sell OREO
or similarly held properties for less than 80% of book value; (5) make material
investments or acquisitions; (6) enter into, renew, amend or terminate any
material contract (other than deposit and loan agreements or in the ordinary
course of business with respect to certain specified contracts); (7) alter its
method of establishing interest rates for deposits; (8) increase compensation or
benefits of directors, employees, former employees or retirees; agree to or
amend any pension, retirement, retention, "golden parachute" or other severance
(other than in accordance with the Merger Agreement), deferred compensation,
profit sharing or welfare benefit plan or agreement or employment agreement,
other than annual salary and bonus increases made in the ordinary course of
business not exceeding 2% in the aggregate or 6% for any employee; or
voluntarily accelerate the vesting of any employee benefits, except for the
acceleration of the vesting of options granted pursuant to the Option Plan; (9)
settle claims involving material monetary damages (except to the extent fully
reserved against on its books and records) or under terms containing material
obligations; (10) sell securities and certain SBA loans or purchase securities
other than U. S. treasury or agency securities maturing within three years; (11)
amend its charter documents; (12) change or introduce new services, products, or
campaigns or open or close any branch or facility; (13) renew, extend or
materially alter any loan or forbearance agreement for a period of greater than
six months, or make any loan or forbearance agreement, which would result in
total obligations outstanding exceeding specified levels; and (14) reallocate or
reduce any material accrual or reserve.
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CITY NATIONAL. City National has agreed not to (1) take any action which
would reasonably be expected to delay or adversely affect the ability of City
National, Ventura, Ventura Bank or Frontier Bank to obtain any necessary
approvals, consents or waivers of any governmental authority required for the
transactions contemplated by the Merger Agreement or to perform its covenants or
agreements on a timely basis under the Merger Agreement; (2) amend the City
National Certificate in any respect that materially and adversely affects the
rights and privileges attendant to the City National Stock; or (3) agree to, or
make any commitment to, do any of the foregoing.
NO SOLICITATION
Ventura has agreed in the Merger Agreement that it will not authorize or
permit any of its officers, directors, employees or agents to directly or
indirectly solicit, initiate or encourage any inquiries relating to, or the
making of any proposal which constitutes a "Takeover Proposal" (as defined
below), or recommend or endorse any Takeover Proposal, or participate in any
discussions or negotiations, or provide third parties with any nonpublic
information, relating to any such inquiry or proposal or otherwise facilitate
any effort or attempt to make or implement a Takeover Proposal, except if
Ventura's Board of Directors, after having consulted with and considered the
advice of counsel, has reasonably determined in good faith that the failure to
do so would cause the members of its Board of Directors to breach their
fiduciary duties under applicable laws. Ventura has agreed to cease and cause to
be terminated any activities, discussions or negotiations conducted prior to the
date of the Merger Agreement with any parties other than City National with
respect to any of the foregoing. Ventura has also agreed to immediately advise
City National following the receipt by it of any Takeover Proposal and the
details thereof, and advise City National of any developments with respect to
such Takeover Proposal immediately upon the occurrence thereof.
"Takeover Proposal" means, with respect to any person, any tender or
exchange offer, proposal for a merger, consolidation or other business
combination involving Ventura or any of its subsidiaries or any proposal or
offer to acquire in any manner a substantial equity interest in, or a
substantial portion of the assets of, Ventura or any of its subsidiaries other
than the transactions contemplated or permitted by the Merger Agreement.
AMENDMENT AND TERMINATION
AMENDMENT. Subject to compliance with applicable law, prior to the
Effective Time, the Merger Agreement may be amended or modified by the parties
thereto, except that, after the vote by the shareholders of Ventura, any
amendment which reduces the amount or changes the form of the consideration to
be delivered to the Ventura shareholders in the Merger will not be valid without
approval of the shareholders of Ventura.
TERMINATION. The Merger Agreement may be terminated at any time prior to
the Effective Time, either before or after its approval by the shareholders of
Ventura, (1) by mutual agreement; (2) by either party in the event of an uncured
material breach by the other party of any representation, warranty, covenant or
agreement contained in the Merger Agreement; (3) by either party if any
Regulatory Approval has been denied or any governmental authority or court shall
have issued a final, non-appealable order enjoining or otherwise prohibiting
consummation of the Merger; (4) by either party in the event that the Merger is
not consummated by May 31, 1997; (5) by either party if the required vote of the
shareholders of Ventura approving the Merger Agreement is not obtained at a duly
held meeting of shareholders; (6) by City National if the Board of Directors of
Ventura shall have withdrawn, modified or changed in a manner adverse to City
National its approval or recommendation of the Merger Agreement and the Merger;
(7) by Ventura, if the Final City National Stock Price is less than $13.90; (8)
by City National, if (A) Ventura shall have provided information to or
participated in discussions with a third party relating to a Takeover Proposal,
or facilitated or recommended a Takeover Proposal and shall have continued
discussions with any third party concerning such Takeover Proposal for more than
10 business days after the date of receipt
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of such Takeover Proposal; or (B) a Takeover Proposal that is publicly disclosed
shall have been commenced, publicly proposed or communicated to Ventura which
contains a proposal as to price (without regard to the specificity of such price
proposal) and Ventura shall not have rejected such proposal within 10 business
days of its receipt or the date its existence first becomes publicly disclosed,
if earlier; or (9) by Ventura if a Takeover Proposal exists and the Board of
Directors of Ventura, after having consulted with and considered the advice of
outside legal counsel, reasonably determine in good faith that such action is
necessary in the exercise of its fiduciary duties under applicable law.
As discussed above, if the Final City National Stock Price is less than
$13.90, the Ventura Board of Directors may, in its discretion, terminate the
Merger Agreement. On December , 1996, the closing price for the City National
Stock was $ . In making any such determination, the Ventura Board of
Directors anticipates that it would review current information relating to City
National and Ventura, receive presentations from its officers, financial advisor
and legal counsel and consider a variety of factors including those which it
considered in making its initial decision to enter into the Merger Agreement.
See "THE MERGER--Background of and Reasons for the Merger." If the Merger
Agreement is approved by a majority of the outstanding shares of Ventura Stock,
the Board of Directors of Ventura will have the power and authority, without the
necessity of a further vote of the Ventura shareholders, to determine whether or
not to proceed with the Merger as provided in the Merger Agreement. As such, the
Board of Directors may determine not to exercise a right to terminate the Merger
Agreement if the Final City Stock Price is less than $13.90.
BANK MERGERS
Following the Bank Mergers, the articles of association and by-laws of City
National Bank as in effect immediately prior thereto will be the articles of
association and by-laws of the surviving corporation. In addition, the directors
and officers of City National Bank immediately prior to the Bank Mergers will be
the directors and officers, respectively, of the surviving corporation. The Bank
Mergers are subject to certain regulatory approvals. See "Regulatory Approvals,"
above.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
As of the Record Date, the directors and executive officers of Ventura
(including the executive officers of Ventura Bank and Frontier Bank)
beneficially owned 1,242,710 shares of Ventura Stock (not including shares such
persons may acquire through the exercise of vested stock options) which will be
converted into the right to receive cash or City National Stock or both at the
Effective Time in the same manner as will the shares of Ventura Stock held by
all other Ventura shareholders. In addition, directors and executive officers of
Ventura (including the executive officers of Ventura Bank and Frontier Bank)
held as of such date options to purchase 274,636 shares of Ventura Stock, which
will be exercised or canceled in exchange for certain cash payments in
connection with the Merger. Immediately after the Effective Time, former
directors and executive officers of Ventura as a group will own less than 1% of
the outstanding shares of City National Stock.
Pursuant to the terms of an employment agreement and a benefit and salary
continuation agreement entered into with Richard Cupp (President and Chief
Executive Officer of Ventura and Ventura Bank) in July 1993 and the terms of
employment agreements entered into with Kathleen Kellogg (President and Chief
Executive Officer of Frontier Bank) in December 1994, Carl Raggio (Executive
Vice President/Chief Credit Officer of Ventura Bank) in October, 1994 and Simone
Lagomarsino (Senior Vice President/Chief Financial Officer of Ventura, Ventura
Bank and Frontier Bank) in March 1995 (collectively, the "Employment
Agreements"), upon termination of employment upon a change of control of Ventura
(as defined in such agreements), such as the Merger pursuant to the Merger
Agreement, the person whose employment has been so terminated shall be entitled
to receive a lump sum payment in an amount equal to, for Mr. Cupp, severance
payment in an amount equal to 9 months' salary and salary and benefit
continuation payment equal to three years' salary, subject to golden parachute
limitations, or $726,913 in the aggregate;
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for Ms. Kellogg, severance payment in an amount equal to 9 months' salary and
salary and benefit continuation payment equal to one year's salary, or $259,525
in the aggregate; for Mr. Raggio, severance payment in an amount equal to 6
months' salary and bonus and benefit and salary continuation payment equal to 6
months' salary, or approximately $163,786 in the aggregate; and for Ms.
Lagomarsino, severance payment in an amount equal to 6 months' salary and
benefit and salary continuation payment equal to 6 months' salary, or $128,150
in the aggregate.
City National has requested each of Richard Cupp, Kathleen Kellogg, Carl
Raggio and Simone Lagomarsino to remain employees of City National (or one of
its subsidiaries) for a period of up to six months following the Effective Time.
City National and the four executive officers of Ventura are currently engaged
in discussions to determine whether they can reach mutually satisfactory terms
for any such employment relationship.
Ventura, Ventura Bank and Frontier Bank have entered into indemnification
agreements with each of the directors and executive officers of Ventura, Ventura
Bank and Frontier Bank. The agreements provide that Ventura, Ventura Bank and
Frontier Bank will indemnify the indemnitee against expenses, judgment, fines,
settlements and other amounts actually and reasonably incurred by the indemnitee
in connection with any threatened or pending proceeding, including any
proceeding brought by or in the right of Ventura, Ventura Bank or Frontier Bank,
by reason of the fact that the indemnitee is or was a director or officer of
such company. The agreements further provide that expenses incurred by the
indemnitee will be paid by Ventura, Ventura Bank or Frontier Bank in advance,
subject to indemnitee's obligation to reimburse the company in the event it is
ultimately determined that the indemnitee is not entitled to indemnification
under the provisions of the agreement.
The Merger Agreement provides that all rights to indemnification now
existing in favor of the directors and officers of Ventura, Ventura Bank and
Frontier Bank as provided in their respective articles of incorporation,
articles of association, bylaws and indemnification agreements in effect as of
the date of the Merger Agreement will survive the Merger and shall continue in
full force and effect. City National further agreed that following the
consummation of the Merger, to the greatest extent permitted by Delaware law and
the organizational documents or Bylaws of City National it would indemnify,
defend and hold harmless individuals who were directors and officers of Ventura,
Ventura Bank and Frontier Bank for any claim or loss arising out of their
actions while a director or officer, and shall pay the expenses, including
attorneys fees, of such individual in advance of the final resolution of any
claim, provided such individual shall first execute an undertaking acceptable to
City National to return such advances in the event it is finally concluded such
indemnification is not allowed under applicable law.
EFFECT ON VENTURA EMPLOYEE BENEFIT PLANS
All employees of Ventura or its subsidiaries who become employees of City
National shall be entitled to participate in stock plans, bonus plans and all
other benefit plans of City National on the same basis as other similarly
situated City National employees. Each such Ventura employee will be credited
for eligibility, participation, vesting and accrual purposes with such
employee's respective years of service with Ventura or a subsidiary (or other
prior service credited by Ventura) as though they had been City National
employees, provided, however, that no more than 1,080 hours of sick leave may be
carried over into City National's sick leave program. See also "THE
MERGER--Interests of Certain Persons in the Transaction."
401(K)/EMPLOYEE STOCK OWNERSHIP PLAN. Ventura adopted the Ventura County
National Bancorp 401(k)/Employee Stock Ownership Plan (the "401(k)/ESOP" or the
"Plan") effective October 1, 1987. The 401(k)/ESOP was amended and restated,
effective October 1, 1989 to conform to certain changes in the Internal Revenue
Code, subsequently amended to incorporate the annual compensation limit, and
further amended and restated, effective January 1, 1989, to incorporate all
prior changes to the 401(k)/ESOP.
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The purpose of the 401(k)/ESOP is to provide employees with an ownership
interest in Ventura and to provide supplemental income upon retirement. All
employees of Ventura and its subsidiaries (including Ventura Bank and Frontier
Bank) are eligible to participate in the 401(k)/ESOP upon the attainment of age
21 and the completion of ninety days of service for purposes of making elective
deferrals to the 401(k) portion of the 401(k)/ESOP, and one year of service
(during which employees complete at least 1,000 hours of service) for purposes
of eligibility to receive an allocation of employer matching and/or
discretionary contributions. Directors of Ventura and its subsidiaries and
employees who do not complete at least 1,000 hours of service in a plan year are
not eligible to participate.
The 401(k)/ESOP consists of two programs: the Employee Stock Ownership Plan
("ESOP"), funded in its entirety by contributions from Ventura and its
subsidiaries, and the 401(k) Plan, under which participating employees may make
voluntary pre-tax elective deferrals (not to exceed 12% of the employee annual
compensation) for which matching contributions may be made by Ventura and its
subsidiaries as determined by the Board of Directors. It is intended that the
trust created by the 401(k)/ESOP (the "Trust") will invest the ESOP
contributions and matching contributions under the 401(k) Plan principally in
shares of Ventura Stock. Elective deferrals under the 401(k) Plan are invested
by the trustee for the Trust among investment options (which may include shares
of Ventura Stock) as specified by the participating employees. All Trust assets
are held for the exclusive benefit of participating employees in the
401(k)/ESOP. Contributions by Ventura and its subsidiaries are at the discretion
of their respective Boards of Directors.
Employer contributions to the 401(k)/ESOP are allocated among participating
employees in proportion to their compensation for the plan year. Participating
employees are 100% vested in all voluntary contributions by the employee under
the 401(k) Plan and become vested in contributions and matching contributions
made by Ventura and its subsidiaries under the ESOP and 401(k) portions of the
Plan to the extent of 20% thereof for each year of service, with 100% vesting
after five years of service. The Internal Revenue Service most recently
determined that the 401(k)/ESOP is a "qualified plan" and that the Trust is
exempt from income taxation under the Code by letter dated July 27, 1995.
As of the Record Date, the 401(k)/ESOP held shares of Ventura Stock,
of which shares had been allocated to participating employees and
shares remained unallocated.
Each participating employee in the 401(k)/ESOP may instruct the Trustee of
the Plan as to the manner in which the shares of Ventura Stock allocated to his
or her account will be voted at the Meeting. The Trustee will be bound by any
such instructions unless following such instructions would cause the Trustee to
breach one or more of its fiduciary duties to the Plan and the participating
employees as provided in Section 404(a) of ERISA. All allocated shares for which
no voting instructions are received by the Trustee and all unallocated shares
will be voted by the Trustee on the proposal to approve the principal terms of
the Merger Agreement and any other proposal properly brought before the
shareholders at the Meeting in the same proportion as the aggregate of all
participant instructions received by the Trustee with respect to each such
proposal unless doing so would cause the Trustee to breach one or more of its
fiduciary duties to the Plan and the participating employees as set forth in
Section 404(a) of ERISA. The unallocated shares represent less than 1% of the
shares of Ventura Stock outstanding on the Record Date.
If the Merger is approved, the participating employees will elect whether
shares held by the 401(k)/ ESOP (including shares that have been allocated to
participants' accounts) will be converted into cash, City National Stock, or a
combination of the two. See "THE MERGER--Consideration Payable Upon Consummation
of the Merger" above. Consistent with its fiduciary duties to the Plan and the
participating employees and as provided under Section 404(a) of ERISA, the
Trustee will determine, in its sole and absolute discretion, whether to elect to
receive cash, City National Stock or a combination of the two for all of the
unallocated shares of Ventura Stock held by the Plan upon consummation of the
Merger. The cash and City National Stock received upon the sale or conversion of
the unallocated shares will be allocated to participating employees in
accordance with the terms of the Plan.
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Subject to consummation of the Merger, all participating employees will
become 100% vested in their benefits under such Plan, regardless of their length
of employment with Ventura or its subsidiaries. Ventura, Ventura Bank, Frontier
Bank and City National will determine whether to terminate the entire Plan or
only the ESOP portion of the Plan or to merge all or only the 401(K) portion of
the Plan into the City National Corporation Profit Sharing Plan (the "City
National Plan"). If the Plan is merged into the City National Plan, all assets
of the Plan will be transferred into the City National Plan and future
distributions to participating employees will be made in accordance with the
City National Plan.
STOCK OPTIONS
Ventura currently maintains the Ventura County National Bancorp 1991 Stock
Option Plan (the "Option Plan"). As of October 31, 1996, options were
outstanding under the Option Plan to acquire 274,636 shares of Ventura Stock at
an average exercise price of $2.92 per share, and of such amount, directors as a
group hold options to acquire in the aggregate 100,000 shares of Ventura Stock,
at an average exercise price of $3.6875 per share.
Immediately prior to the Effective Time of the Merger, Ventura will pay each
holder of an unexercised option an amount in cash (subject to applicable
withholding tax) equal to the difference between $5.03 and the optionee's
exercise price per share, multiplied by the number of shares subject to option,
or approximately $ in the aggregate for all options outstanding as of
November 1, 1996. At the Effective Time of the Merger, the Ventura Option Plan
will be terminated and options not exercised or cancelled will be terminated.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes certain of the material federal income
tax consequences of the Merger. It is intended to provide only a general summary
and does not include a complete analysis of all the potential federal income tax
consequences or consequences that may vary with or are contingent upon
individual circumstances, such as the taxpayer's being subject to certain
special provisions of the Code. This discussion does not address any aspects of
state, local, or foreign tax laws or any federal tax laws other than those
pertaining to income tax.
Neither Ventura nor City National has requested a ruling from the Service
with respect to any of the matters discussed in this summary. Due to the
Service's so-called "comfort rulings" policy concerning corporate
reorganizations, it is unlikely that the Service would be willing to issue a
ruling regarding the Merger.
Manatt, Phelps & Phillips, LLP as Tax Counsel, has advised Ventura that, in
its opinion, the legal issues discussed in this federal income tax summary are
correct in all material respects. However, the summary is not an opinion of Tax
Counsel or tax advice and does not in any way constitute an assurance that the
federal income tax consequences discussed herein will be accepted by the Service
or the courts.
It is a condition to the obligations of Ventura to consummate the Merger
that Ventura receive an opinion from its Tax Counsel concluding that the Merger
will qualify as a tax-deferred reorganization within the meaning of Section
368(a) of the Code. The tax consequences discussed below are based on the
assumption that the Merger does so qualify. Ventura has received such an opinion
from its Tax Counsel, subject to confirmation at the Effective Time. The
discussion herein is based on the assumption that Tax Counsel will give its
confirming opinion at the Effective Time that the Merger will constitute a
tax-deferred reorganization within the meaning of Section 368(a) of the Code.
The following summary and the opinion of Tax Counsel are based on certain
assumptions regarding the factual circumstances that will exist at the Effective
Time of the Merger and on certain representations made by Ventura, a 5%
shareholder of Ventura, and City National with respect to the Merger, including
representations regarding actions of City National and certain Ventura
shareholders following the Merger.
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If any of these factual assumptions or representations are inaccurate, the tax
consequences of the Merger could differ from those described in this summary and
the opinion of Tax Counsel.
The treatment of the Merger as a tax-deferred reorganization will depend
upon, among other things, whether the shareholders of Ventura maintain a
sufficient continuity of stock ownership interest in City National after the
Merger. The Service takes the position for purposes of issuing advance rulings
under Section 368(a)(1)(A) of the Code that the shareholders of the acquired
corporation (i.e., Ventura) must maintain a continuing equity ownership interest
in the acquiring corporation (i.e., City National) equal to at least 50% of the
value of their equity ownership interest in the acquired corporation. The case
law standard is less stringent than the Service's announced advance rulings
standard. The Service's advance rulings standard is not a legal test. Tax
Counsel's opinion relies on the continuity standard under the decided cases
rather than the Service's advance rulings standard. It is anticipated that the
Merger will satisfy both the advance rulings standard and the case law
continuity requirement, but it is possible that sales, exchanges or other
dispositions of City National Stock undertaken by the Ventura shareholders could
disqualify the Merger as a tax-deferred reorganization within the meaning of
Section 368(a) of the Code. In that case, the Merger would constitute a fully
taxable transaction for Ventura and its shareholders. As a result of the Merger,
City National would inherit Ventura's tax liability (if any) resulting from the
Merger.
Subject to the assumptions discussed above, the federal income tax
consequences of the Merger to a shareholder of Ventura will depend on whether
the shareholder receives cash, shares of City National Stock, or both in
exchange for his or her shares of Ventura Stock. This will depend, in part, on
certain elections available to the shareholders. If a shareholder of Ventura
receives cash in exchange for all shares of Ventura Stock actually owned by him
or her, the federal income tax consequences will also depend on whether any
shares of Ventura Stock constructively owned by that shareholder (pursuant to
the constructive ownership rules of Section 318 of the Code) are exchanged for
cash or for shares of City National Stock. If a shareholder of Ventura receives
both cash and shares of City National Stock in exchange for Ventura Stock
actually owned by that shareholder, the federal income tax consequences may also
depend both upon whether he or she already owns any shares of City National
Stock and whether any such stock may be attributed to him or her pursuant to the
constructive ownership rules of Section 318 of the Code. Therefore, a
shareholder of Ventura must take into account the consideration received in
exchange for shares of Ventura Stock actually owned by him or her (including
shares of Ventura Stock owned by him or her that are held on his or her behalf
by brokerage firms, banks or other agents) and may also be required to take into
account (1) the consideration received by certain individuals and entities whose
stock ownership is attributed to that shareholder (as described in "Constructive
Ownership" below) in exchange for their shares of Ventura Stock and (2) any
shares of City National Stock from whatever source of which the shareholder is
the actual owner or constructive owner (as described in "Constructive Ownership"
below).
RECEIPT OF CITY NATIONAL STOCK FOR ALL VENTURA STOCK ACTUALLY OWNED. A
shareholder of Ventura who receives shares of City National Stock in exchange
for all the shares of Ventura Stock actually owned by that shareholder (without
regard to any cash received in lieu of a fractional share of City National
Stock) will recognize no gain or loss as a result of the Merger (except with
respect to any cash received in lieu of a fractional share). The basis of the
City National Stock received by that shareholder (including any fractional
interests) will be the same as the basis of the shares of the Ventura Stock
exchanged therefor, and the holding period of those shares of City National
Stock will include the holding period of the Ventura Stock surrendered in the
exchange, provided the latter shares were held by the shareholder as a capital
asset. The foregoing result will obtain regardless of whether the shareholder is
treated as owning other shares under the constructive ownership rules described
in "Constructive Ownership" below.
RECEIPT OF CASH FOR ALL VENTURA STOCK ACTUALLY OWNED. If cash is received
for all shares of Ventura Stock actually owned by a shareholder of Ventura and
either: (1) that shareholder is not treated as owning any additional shares of
Ventura Stock pursuant to the constructive ownership rules of Section 318 of the
Code; or (2) none of the shares of Ventura Stock treated as owned by that
shareholder, pursuant to the
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constructive ownership rules of Section 318 of the Code, is exchanged for shares
of City National Stock in the Merger, that shareholder will recognize gain or
loss in an amount equal to the difference between the cash received by the
shareholder and the basis for the shares of Ventura Stock exchanged. That gain
or loss will be capital gain or loss if the shares of Ventura Stock are held as
a capital asset at the time of the Merger.
However, if a shareholder of Ventura receives cash for all of the Ventura
Stock actually owned by the shareholder, but some or all of the shares of
Ventura Stock treated as constructively owned by that shareholder (pursuant to
Section 318 of the Code) are exchanged for shares of City National Stock in the
Merger, that shareholder will recognize gain or loss with respect to the Ventura
Stock actually owned by him or her in the manner described in the preceding
paragraph only if the receipt of cash by that shareholder does not have the
effect of a distribution of a dividend under Section 302 of the Code. See
"Impact of Section 302 of the Code" below. If none of the three tests of Section
302 of the Code for sale or exchange treatment (as described below) is
satisfied, a shareholder of Ventura described in this paragraph will be treated
as having received a dividend to the extent of the lesser of the cash received
or the amount of that shareholder's ratable share of Ventura's earnings and
profits (both current and accumulated) through the date of the Merger.
RECEIPT OF BOTH SHARES OF CITY NATIONAL STOCK AND CASH FOR VENTURA STOCK
ACTUALLY OWNED. A shareholder of Ventura who, in the Merger, receives both
shares of City National Stock and cash (other than cash received in lieu of a
fractional share of City National Stock) in exchange for all of the shares of
Ventura Stock actually owned by that shareholder, will not be permitted to
recognize any loss as a result of the Merger, but will be required to recognize
gain (if any) equal to the lesser of: (1) the amount of cash so received (other
than cash received in lieu of a fractional share of City National Stock); and
(2) the gain realized (i.e., the amount by which the sum of the amount of cash
so received and the market price on the date of the Merger of the shares of City
National Stock received, including any fractional interest, exceeds that
shareholder's basis for the shares of Ventura Stock surrendered). The
characterization of any such gain will depend upon whether the receipt of cash
by that shareholder has the effect of a distribution of a dividend under Section
302 of the Code with respect to City National Stock. See "Impact of Section 302
of the Code" below. In general, Section 302 of the Code sets forth three tests
for determining the character of the gain. Provided that any one of the three
tests for sale or exchange treatment is satisfied, the gain so recognized will
be capital gain if that shareholder's shares of Ventura Stock, and hence City
National Stock, are held as a capital asset at the time of the Merger. If none
of the three sale or exchange tests is satisfied, the entire amount of gain
required to be recognized by that shareholder will be treated as a dividend to
the extent of the shareholder's ratable share of the accumulated earnings and
profits of Ventura (or, possibly, the accumulated earnings and profits of City
National) and any remaining amount of recognized gain will be characterized in
accordance with the preceding sentence. The tax basis of the shares of City
National Stock received by such a shareholder will be the same as the basis of
the shares of Ventura Stock surrendered in exchange therefor, increased by the
amount recognized as either dividend income or capital gain, and decreased by
the amount of cash received, other than cash received in lieu of a fractional
share of City National Stock, and by any basis allocable to such a fractional
share of City National Stock. The holding period of the shares of City National
Stock received by that shareholder in the Merger will include the holding period
of the shares of Ventura Stock exchanged therefor, provided the shares of
Ventura Stock are held as a capital asset at the time of the Merger.
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IMPACT OF SECTION 302 OF THE CODE. As described in the preceding section
and below, the manner in which Section 302 of the Code is applied depends upon
whether a Ventura shareholder receives only cash or both cash and shares of City
National Stock in exchange for the shares of Ventura Stock actually owned by
that shareholder. The receipt of cash by a shareholder of Ventura who receives
only cash will be considered to be in connection with a sale or exchange and not
to have the effect of a distribution of a dividend under Section 302 only if,
after giving effect to the constructive ownership rules of Section 318 of the
Code and, if applicable, the exception thereto provided in Section 302(c)(2) of
the Code, the receipt of that cash is: (1) "not essentially equivalent to a
dividend," (2) a "substantially disproportionate redemption" with respect to
that shareholder, or (3) a "complete termination of the shareholder's interest"
in all the shares of Ventura Stock actually and constructively owned by that
shareholder.
The determination whether any of the three tests of Section 302 for sale or
exchange treatment is satisfied is made by treating the exchange as if all the
shares of Ventura Stock actually and constructively owned by the shareholder had
been exchanged solely for shares of City National Stock, and the shares of City
National Stock that were not in fact received had then been redeemed by City
National for cash (the "hypothetical redemption of City National Stock"). The
rules of Section 302 will then be applied by comparing a shareholder's
hypothetical stock ownership in City National before the hypothetical redemption
of City National Stock with that shareholder's stock ownership in City National
after the Merger.
Whether the receipt of cash by a shareholder of Ventura will be "not
essentially equivalent to a dividend" depends on the facts and circumstances of
the individual shareholder of Ventura. The receipt of cash by a Ventura
shareholder in exchange for the shares of Ventura Stock actually owned by that
shareholder should not be taxable as a dividend if the shareholder's relative
stock interest in City National is minimal, the shareholder exercises no control
over City National's affairs, and the hypothetical redemption of City National
shares described above causes the shareholder to undergo some reduction in
equity interest in City National (taking into account the hypothetical
redemption of City National Stock) in relation to all City National shareholders
taken as a group. It is not clear what constitutes a "minimal" stock interest
for this purpose, nor how much reduction in relative equity interest is
required. Because of the uncertainty in this area, shareholders are strongly
urged to consult their own tax advisors as to whether their receipt of cash
qualifies for capital gain treatment under this test.
Whether the receipt of cash by a shareholder of Ventura will constitute a
"substantially disproportionate redemption" within the meaning of Section 302 of
the Code is determined by the application of certain numerical tests. If cash is
received for shares of Ventura Stock actually owned by a shareholder, those
numerical tests are applied as follows: First, immediately, after the exchange,
the shareholder must own, both actually and constructively, less than 50% of the
total combined voting power of all classes of City National Stock entitled to
vote. Second, the ratio that the voting stock of City National owned, both
actually and constructively, by the shareholder immediately after the exchange
bears to all the voting stock of City National outstanding at that time must be
less than 80% of the ratio that the voting stock of City National owned, both
actually and constructively, by the shareholder immediately before the
hypothetical redemption of City National Stock described above bears to all the
voting stock of City National outstanding at that time. In making the
calculations required to determine whether the hypothetical redemption of City
National Stock is "substantially disproportionate" the constructive ownership
rules described below apply. See "Constructive Ownership" below.
The receipt of cash by a shareholder of Ventura will be a "complete
termination of interest" only if the shareholder receives cash for all of the
shares of Ventura Stock actually and constructively owned by that shareholder at
the time of the Merger. For these purposes, the attribution rules of Section 318
of the Code will apply as described below. However, Section 302(c)(2) provides
that, for the purpose of determining whether there is a "complete termination of
interest," the family attribution rules of Section 318(a)(1) of the Code
(described in "Constructive Ownership" below) will not apply if certain
conditions are met. If those conditions are met, a Ventura shareholder will not
be deemed to own shares of
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Ventura Stock owned or deemed to be owned by family members for the purpose of
determining whether there is a complete termination of that shareholder's
interest.
The Agreement and Plan of Merger permits Ventura shareholders to make
certain elections regarding their preferred mix of cash and City National Stock
to be received in the Merger. In planning which election to make, shareholders
of Ventura should take into account the rules regarding Section 302 of the Code
described above. The factors determining whether a particular shareholder will
obtain sale or exchange treatment (as opposed to dividend treatment) with
respect to any cash received must be analyzed on a shareholder-by-shareholder
basis. In addition, the relative benefits of receiving sale or exchange
treatment (as opposed to dividend treatment) with respect to any cash received
must be determined and weighed on a shareholder-by-shareholder basis. In
planning for such an election, each shareholder should consult with his or her
own tax advisor.
CONSTRUCTIVE OWNERSHIP. Under Section 318 of the Code, a shareholder of
Ventura will be deemed to own Ventura Stock that is owned or deemed to be owned
by certain members of his family and other related parties including, for
example, certain entities in which the shareholder has a direct or indirect
interest (including partnerships, estates, trusts and corporations) as well as
shares of Ventura Stock that the shareholder (or a related person) has the right
to acquire upon exercise of an option or conversion right held by the
shareholder (or a related person). Similarly, a shareholder of City National,
including a former shareholder of Ventura after the Merger, will be deemed to
own City National Stock that is owned or deemed to be owned as described in the
preceding sentence, including any City National Stock received in exchange for
Ventura Stock as a result of the Merger. Because application of these
constructive ownership rules could affect the application of Section 302 to a
shareholder of Ventura, each shareholder should consult his or her own tax
advisor with respect to the application of the constructive ownership rules to
his or her particular circumstances prior to making an election pursuant to the
terms of the Merger.
FRACTIONAL SHARES. Any shareholder of Ventura who receives cash in lieu of
a fractional share of City National Stock will be treated as if that shareholder
received the fractional share of City National Stock in the Merger, which
fractional share was then redeemed by City National.
OTHER CONSIDERATIONS APPLICABLE TO SHAREHOLDERS OF VENTURA. Shareholders of
Ventura will be required to provide their social security numbers or their
taxpayer identification numbers or, in some circumstances, certain other
information to the Exchange Agent in order to avoid the "backup withholding"
requirements that might otherwise apply under the Code.
SHARES ISSUED IN CONNECTION WITH STOCK OPTIONS OR THE PERFORMANCE OF
SERVICES. The preceding discussion of federal income tax consequences may not
be applicable to a shareholder of Ventura who acquires shares of Ventura Stock:
(1) pursuant to the exercise of any incentive stock option that was granted less
than two years prior to the date of the Merger; (2) pursuant to the exercise of
an incentive stock option that was exercised less than one year prior to the
date of Merger; or (3) in connection with the performance of services where the
shares of Ventura Stock continue to be subject to a "substantial risk of
forfeiture" (or are substantially non-vested), as of the date of the Merger.
Such a shareholder of Ventura may be treated as having received compensation
(taxable as ordinary income) as a result of the Merger. Accordingly, any such
shareholder should consult his or her own tax advisor with respect to the
federal income tax consequences of the Merger.
The foregoing discussion of the expected federal income tax consequences of
the Merger is based on current authorities. There is no assurance that
legislative or administrative changes or court decisions may not be forthcoming
that would significantly change these expected consequences. Any such changes
may or may not be retroactive with respect to transactions prior to the date of
those changes.
THE SUMMARY FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY. IT DOES NOT CONSTITUTE TAX ADVICE OR AN
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OPINION OF TAX COUNSEL. EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER APPLICABLE TO HIM OR
HER, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX
LAWS.
ACCOUNTING TREATMENT
The Merger will be accounted for by City National under the purchase method
of accounting in accordance with Accounting Principles Board Opinion No. 16,
"Business Combinations," as amended. Under this method of accounting, the
purchase price will be allocated to assets acquired and liabilities assumed
based on their estimated fair values at the Closing. Income of the combined
company will not include income (or loss) of Ventura prior to the Closing. See
"PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION."
EXPENSES
The Merger Agreement provides that each party will pay its own expenses in
connection with the Merger Agreement; provided, however, that the costs and
expenses of printing and mailing the Proxy Statement/Prospectus will be borne by
City National, unless the Merger does not occur (other than due to a termination
of the Merger Agreement arising out of a material breach of the Merger Agreement
by City National or Ventura), in which event such costs and expenses will be
borne equally by City National and Ventura. All filing and other fees paid to
the SEC in connection with the Merger will be borne by City National.
CERTAIN RELATED AGREEMENTS
SHAREHOLDERS' AGREEMENT
In connection with the Merger Agreement, each of the directors of Ventura,
together holding an aggregate of 1,225,666 shares of Ventura Stock (or
approximately 13% of the shares of Ventura Stock outstanding on the Record
Date), have entered into a Shareholders' Agreement with City National dated as
of September 15, 1996 (the "Shareholders' Agreement"). Pursuant to the
Shareholders' Agreement, such persons have agreed to vote or cause to be voted
all shares of Ventura Stock owned or acquired by them, in favor of the Merger
and the Merger Agreement and the other matters contemplated by the Merger
Agreement. In addition, such persons have agreed to vote or cause to be voted
all of the shares of Ventura Stock (1) against any action or agreement that
would result in a breach in any material respect of any covenant, representation
or warranty or any other obligation or agreement of Ventura under the Merger
Agreement or the Option Agreement, dated as of September 15, 1996, between City
National and Ventura (the "Option Agreement"); and (2) except with the prior
written consent of City National, against the following actions (other than the
Merger and the transactions contemplated by the Merger Agreement): (A) any
extraordinary corporate transactions, such as a merger, consolidation or other
business combination involving Ventura or its subsidiaries; (B) any sale, lease
or transfer of a material amount of the assets of Ventura or its subsidiaries;
(C) any change in the majority of the board of Ventura (D) any material change
in the present capitalization of Ventura; (E) any amendment of the Ventura
Articles (as hereinafter defined); (F) any other material change in Ventura's
corporate structure or business; or (G) any other action which is intended, or
could reasonably be expected, to impede, interfere with, delay, postpone,
discourage or materially adversely affect the contemplated economic benefits to
City National of the Merger or the transactions contemplated by the Merger
Agreement or the Option Agreement. Such persons also have agreed not to enter
into any agreement or understanding with any person or entity to vote or give
instructions after the date that the Shareholders' Agreement terminates in any
manner inconsistent with such persons' obligation to vote in accordance with the
above-referenced guidelines.
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Such persons also have agreed not to (1) sell, transfer, assign or otherwise
dispose of any of their shares of Ventura Stock without the prior written
consent of City National, other than shares of Ventura Stock sold or surrendered
to pay the exercise price of any stock options or to pay taxes or satisfy
Ventura's withholding obligations with respect to any taxes resulting from such
exercise or (2) pledge, mortgage or encumber such shares of Ventura Stock.
In addition, such persons also have agreed (1) that they will not directly
or indirectly solicit any inquiries or proposals from any person relating to any
proposal or transaction for the disposition of the business or assets of Ventura
or any of its subsidiaries, or the acquisition of voting securities of Ventura
or any subsidiary of Ventura or any business combination between Ventura and any
person other than City National and (2) to use their best efforts to maintain
such persons' (including their affiliates') banking relationship with Ventura
Bank and/or Frontier after the Merger and after the occurrence of a Bank Merger,
with City National Bank, for a period of at least three years in a manner
consistent with past practice.
Pursuant to the Shareholders' Agreement, City National has agreed to
establish a Ventura County Board of Advisors, or similar advisory and community
liaison group, in order that Ventura Bank and, following the Bank Merger, City
National Bank, will be able to continue visibility in Ventura County and to
provide service to the community. City National's current intention is that one
or more former directors of Ventura will serve initially on such board of
advisors, and each director has agreed to give due consideration to a request by
City National that he or she serve on such body.
OPTION AGREEMENT
GENERAL. Concurrently with the execution and delivery of the Merger
Agreement, and as a condition and inducement thereto, City National and Ventura
entered into the Option Agreement, pursuant to which Ventura granted City
National an option to purchase up to 1,836,516 shares of the outstanding Ventura
Stock (or such other number of shares of Ventura Stock as represent 19.9% of the
then outstanding Ventura Stock) at a price per share of $3.93. The consummation
of a purchase or a repurchase (as described below) pursuant to the Stock Option
Agreement may be subject to, among other things obtaining any required
regulatory approvals.
The following is a summary of certain provisions of the Option Agreement
which is attached hereto as Annex D to this Proxy Statement/Prospectus and is
incorporated herein by reference. The following summary is qualified in its
entirety by reference to the Option Agreement.
EXERCISE OF THE OPTION. The option is exercisable only upon the occurrence
of certain specified events (each an "Exercise Event") inconsistent with the
consummation of the Merger pursuant to the Merger Agreement. These include, but
are not limited to:
(1) a merger or consolidation of Ventura or its subsidiaries or a
disposition of 50% or more of their consolidated assets;
(2) the issuance, sale or disposition of securities representing 20% or
more of the voting power of Ventura or its subsidiaries;
(3) the acquisition by any person or group of beneficial ownership of,
or the right to acquire beneficial ownership of, 20% or more of the
outstanding shares of Ventura Stock;
(4) the public authorization, recommendation or endorsement by Ventura
of, or the entering into by Ventura of an agreement to effect, any of the
above-listed transactions; or
(5) the termination by Ventura of the Merger Agreement pursuant to the
exercise of the Ventura Board of Directors' fiduciary duties.
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If the Merger Agreement is terminated in a manner that does not immediately
render the option exercisable, the option may thereafter become exercisable upon
the occurrence of an Exercise Event, provided the option has not expired.
EXPIRATION. The right to exercise the option expires under various
circumstances, including, but not limited to (1) termination of the Merger
Agreement by mutual consent, (2) termination of the Merger Agreement by Ventura
if the Final City National Stock Price is less than $13.90, or (3), provided an
Exercise Event or certain preliminary acquisition events have not occurred,
termination of the Merger Agreement due to a material breach thereof, the
failure to obtain Regulatory Approval or shareholder approval or the failure to
consummate the Merger by May 31, 1997, or termination by City National due to a
withdrawal of the endorsement of the Merger Agreement by the Ventura Board. The
option also expires eighteen months following the date it first becomes
exercisable or following any termination of the Merger Agreement other than
pursuant to the provisions summarized in the previous sentence.
LIMITATION ON SPREAD VALUE. City National may not realize Spread Value (as
described below) in excess of $2,000,000 upon the exercise of the option. In the
event the Spread Value exceeds $2,000,000 the number of shares of Ventura Stock
which City National is entitled to purchase will be reduced to the extent
required such that the Spread Value following such reduction is equal to or less
than $2,000,000.
"Spread Value" is precisely defined in the Option Agreement, but is intended
to approximate the excess of the market value of Ventura Stock (based on Nasdaq
closing prices of Ventura Stock just prior to the date of exercise) over the
option exercise price of $3.93 per share of Ventura Stock.
ADJUSTMENT OF NUMBER OF SHARES. The number and type of securities subject
to the options and the purchase price of the shares of Ventura Stock are subject
to adjustment upon any change in the Ventura Stock by reason of dividend, stock
split, recapitalization, combination, exchange of shares or other similar
transactions or events such that City National will receive (upon exercise of
the option) the same number and class of securities as if the option had been
exercised immediately prior to the occurrence of such transaction or event. The
number of shares of Ventura Stock subject to the option will also be adjusted in
the event Ventura issues additional shares of Ventura Stock, such that the
number of shares of Ventura Stock subject to the option represents 19.9% of
Ventura's Stock then outstanding.
SUBSTITUTE OPTION. In the event of certain mergers or consolidations
involving Ventura or its subsidiaries or the sale or transfer of substantially
all of Ventura's assets, City National has the right to cause the option to
convert into or be exchanged for a substitute option. This substitute option
would be subject to exercise by City National and repurchase by the issuer at
the request of City National, at prices, and subject to conditions, specified in
the Option Agreement.
REPURCHASE AT THE OPTION OF CITY NATIONAL. During the 12 month period
following specified "Repurchase Events," City National has the right to require
Ventura to repurchase the option and, to the extent permitted by the California
Code, all shares of Ventura Stock purchased by City National pursuant to a
previous exercise of the option. A "Repurchase Event" under the Option Agreement
includes: (i) the acquisition by any person or group of beneficial ownership, or
the right to acquire beneficial ownership, of 50% or more of the
then-outstanding shares of Ventura Stock, (ii) the consummation of a transaction
causing a substitute option to be issued, or (iii) following an Exercise Event,
the receipt by City National of notice that regulatory approval required for the
exercise of the option and purchase of the option shares will not be issued or
granted.
Any repurchase will be at a price specified in the Option Agreement as the
"Repurchase Consideration." Generally, the Repurchase Consideration equals the
sum of (1) the option price paid by City National upon exercises of the option,
(2) the excess of the Applicable Price over $3.93, multiplied by the number of
shares of Ventura Stock with respect to which the option has not been exercised
or with respect to which the option has been exercised but City National still
has beneficial ownership of the shares of
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Ventura Stock, multiplied by the number of all of such shares. The portion of
the Repurchase Consideration in excess of the exercise price paid by City
National is limited to $2,000,000.
Under the Option Agreement, the "Applicable Price" generally refers to the
highest price per share of Ventura Stock (1) paid by another party in certain
Repurchase Events, (2) received by Ventura shareholders in any transaction which
caused a substitute option to be issued, or (3) in the market during a specified
period prior to City National's exercise of its repurchase right. In the event
of a sale of less than all of Ventura's assets, "Applicable Price" is defined
with respect to market value of Ventura's remaining assets.
REGISTRATION RIGHTS. City National has certain rights to require
registration of any shares of Ventura Stock purchased pursuant to the Option
Agreement under the securities laws if necessary to enable City National to sell
such shares.
EFFECT OF OPTION AGREEMENT. The Option Agreement is intended to increase
the likelihood that the Merger will be consummated on the terms set forth in the
Merger Agreement. Consequently, certain aspects of the Option Agreement may have
the effect of discouraging persons who might now or prior to the Effective Time
be interested in acquiring all of or a significant interest in Ventura from
considering or proposing such an acquisition, even if such persons were prepared
to offer higher consideration per share for Ventura Stock then the consideration
set forth in the Merger Agreement.
RESALE OF CITY NATIONAL STOCK
The shares of City National Stock issued pursuant to the Merger Agreement
will be freely transferable under the Securities Act except for shares issued to
any shareholder who may be deemed to be an "affiliate" of Ventura for purposes
of Rule 145 under the Securities Act as of the date of the Special Meeting.
Affiliates may not sell their shares of City National Stock acquired in
connection with the Merger except pursuant to an effective registration
statement under the Securities Act covering such shares or in compliance with
Rule 145 under the Securities Act or another applicable exemption from the
registration requirements of the Securities Act. Persons who may be deemed to be
affiliates of Ventura generally include individual or entities that control, are
controlled by or are under common control with Ventura and may include certain
officers and directors of Ventura as well as principal shareholders of Ventura.
Certain persons who Ventura believes to be affiliates of Ventura have
entered into an agreement providing that such persons will not sell, assign,
transfer or otherwise dispose of, or offer to sell, transfer or otherwise
dispose of the City National Stock to be received by such persons in the Merger
except (1) in compliance with the applicable provisions of the Securities Act
and the rules and regulations thereunder or (2) in a transaction that, in the
opinion of independent counsel reasonably satisfactory to City National, is
exempt from registration under the Act.
DESCRIPTION OF CAPITAL STOCK
The following summary does not purport to be complete and is subject in all
respects to the applicable provisions of the Delaware Code and the City National
Certificate of Incorporation. For a fuller discussion of certain rights
associated with the City National Stock, see "Comparison of Rights of Holders of
City National Stock and Ventura Stock."
COMMON STOCK
City National has 75,000,000 authorized shares of Common Stock, of which
approximately 43,826,808 were issued and outstanding as of November 8, 1996 and
an additional 3,833,498 shares were subject to stock options. City National
Stock is traded on the NYSE under the symbol "CYN."
The holders of City National Stock are entitled to one vote per share on all
matters requiring stockholder action. The City National Certificate does not
permit cumulative voting for directors. The holders of City National Stock have
no preemptive or other subscription rights and there are no
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redemption, sinking fund or conversion privileges applicable thereto. The
holders of City National Stock are entitled to receive dividends as and when
declared by the board of directors out of funds legally available therefor,
subject to any restrictions by its regulators. Upon liquidation, dissolution or
winding up of City National, holders of City National Stock are entitled to
share ratably in all assets remaining after payment of liabilities. All
outstanding share of City National Stock are fully paid and nonassessable.
The registrar and transfer agent for City National Stock is Continental
Stock Transfer Trust Company.
PREFERRED STOCK
City National has 5,000,000 authorized shares of preferred stock, of which
none were issued and outstanding as of November 5, 1996. City National's
Certificate of Incorporation provides that the terms, rights and preferences of
any preferred stock issued in the future, including dividend rates, conversion
prices, voting rights, redemption prices, maturity dates, liquidation preference
and similar matters, are to be determined by City National's Board of Directors
at the time such issuance is approved. Management does not presently know
whether any shares of preferred stock will actually be issued or, if issued,
what the terms, rights and preferences thereof will be. Under Delaware law,
however, the holders of such preferred stock will not have any preemptive rights
with respect to the future issuance of shares of common or preferred stock,
unless City National's Certificate of Incorporation is amended to provide for
such rights. Depending on the terms, rights and preferences thereof, the
issuance of any shares of preferred stock may have the effect of diluting the
percentage of stock ownership and voting rights of other shareholders of City
National.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 ("Section 203") of the Delaware Code prevents a Delaware
corporation from engaging in a "Business Combination" (defined to include a
variety of transactions, including mergers, as set forth below) with an
"Interested Stockholder" (generally defined as a person with 15% or more of a
corporation's outstanding voting stock) for three years following the date such
person became an Interested Stockholder unless: (1) before such person became an
Interested Stockholder, the board of directors of the corporation approved
either the Business Combination or the transaction in which the Interested
Stockholder became an Interested Stockholder; (2) upon consummation of the
transaction which resulted in the Interested Stockholder becoming an Interested
Stockholder, the Interested Stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
stock held by directors who ar also officers and employe stock ownership plans
in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tendered or
exchange offer); or (3) following the date on which such person became an
Interested Stockholder, the Business Combination is (x) approved by the board of
directors of the corporation and (y) authorized at a meeting of stockholders by
the affirmative vote of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interest Stockholder.
Under Section 203, the restrictions described above apply to City National
unless, among other things, (1) by the affirmative vote of a majority of shares
entitled to vote, it adopts an amendment to its certificate of incorporation or
bylaws expressly electing not to be governed by Section 203 (such an amendment
would not be effective until 12 months after its adoption and would not apply to
any Business Combination between City National and any person who became an
Interest Stockholder on or prior to such adoption); or (2) no class of City
National's voting stock is (x) listed on a national securities exchange, (y)
authorized for quotation on an inter-dealer quotation system of a registered
national securities association or (z) held of record by more than 2,000
stockholders (unless any of the foregoing results from action taken, directly or
indirectly, by an Interested Stockholder or from a transaction in which a person
becomes an Interested Stockholder).
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A Business Combination is defined in Section 203 as (1) a merger or
consolidation; (2) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition of assets having an aggregate market value equal to 10% or
more of the aggregate market value of either all assets of the corporation
determined on a consolidated basis or all the outstanding stock of a
corporation; (3) any transaction which results in the issuance or transfer by
the corporation, or by certain subsidiaries thereof, of any of its stock to the
Interested Stockholder, except pursuant to (a) the exercise, exchange or
conversion of securities exercisable for, exchangeable for or convertible into
stock of the corporation of any subsidiary which were outstanding prior to the
time the stockholder became an Interested Stockholder or (b) a transaction which
effects a pro rata distribution to all stockholders of the corporation; (4) any
transaction involving the corporation or certain subsidiaries thereof which has
the effect of increasing the proportionate share of the stock of any class or
series, or securities convertible into the stock of any class or series, of the
corporation or any such subsidiary which is owned directly or indirectly by the
Interested Stockholder (except as a result of immaterial changes due to
fractional share adjustment); or (5) any receipt by the Interested Stockholder
of the benefit (except proportionately as a stockholder of such corporation) of
any loans, advances, guarantees, pledges or other financial benefits provided by
or through the corporation.
CHARTER AND BYLAW PROVISIONS
Nominations for the election of directors of City National may be made by
the Board of Directors or by any stockholder entitled to vote for the election
of directors. Stockholders intending to nominate a director candidate for
election must deliver written notice thereof to the Secretary of City National
not later than 60 days in advance of such meeting. Such notice must set forth
certain information concerning such stockholder and the stockholder's
nominee(s).
The City National Certificate provides that the City National Board of
Directors consists of three classes. The directors in each class serve on the
City National Board of Directors for approximately three years each.
Notwithstanding the foregoing, the directors who currently serve in class one
will serve through the 1997 City National shareholders' meeting, the directors
who currently serve in class two will serve through the 1998 City National
shareholders' meeting and the directors who currently serve in class three will
serve through the 1999 City National shareholders' meeting.
The annual meeting of stockholders is required to be held each year on the
third Tuesday in April or at such other date designated by the Board of
Directors. Under City National's Bylaws, a special meeting of stockholders may
be called only by the President of City National or by a majority of the Board
of Directors.
The City National Certificate requires the approval of the holders of at
least 70% of the outstanding Common Stock of City National for certain "Business
Combinations" between City National or any subsidiary and a "Restricted Person"
or its affiliates. Such business combinations include the sale or other
disposition of all, substantially all, or any substantial part of the assets or
business of City National or its subsidiaries; the purchase or other acquisition
of all, substantially all, or any substantially part of the assets or business
of another person; a merger or consolidation; any reclassification of securities
or recapitalization designed to decrease the holders of any class of City
National's voting securities if, immediately thereafter, a Restricted Person
will be the owner of more than 35% of any such class; and the issuance of voting
securities, or rights, warrants or options to acquire any such securities of
City National or a subsidiary, to a Restricted Person. The foregoing stockholder
approval is not required for any business combination approved by the Board of
Directors (1) at a time when such other party was not a restricted Person or (2)
in advance by the affirmative votes of at least the number of directors that is
one less than the entire authorized number of directors of City National, at a
meeting called for such purpose. A "Restricted Person" is any entity or group
which, during any period of 12 consecutive months, directly or indirectly
acquired more than 5% of the shares of any class of voting security of City
National, except if the transaction in which such securities were acquired was
approved in advance by 66 2/3% of the Board of Directors. A party ceases to be a
Restricted Person at the end of 24 months following the most recent
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month in which such securities were acquired which, together with all other
securities acquired in the immediately preceding 11 months, aggregated more than
5% of the outstanding voting securities.
Under Delaware law, a certificate of incorporation can be amended by a
majority of shares entitled to vote thereon, except as the certificate of
incorporation otherwise provides or if the amendment relates to a provision
requiring a greater vote. The foregoing provision contained in the Certificate
of Incorporation of City National with respect to the requirements for a 70%
stockholder vote in certain business combinations can be repealed or amended
only with the approval of the holders of 70% of the outstanding City National
Stock at a meeting called for such purpose, excluding City National Stock owned
or controlled by a "Restricted Person" or its affiliates.
The foregoing provisions of the City National Certificate, the Bylaws and
Section 203 of the Delaware Code have certain anti-takeover effects. The
provisions help ensure that the Board of Directors, if confronted by a surprise
proposal from a third party, will have sufficient time to review the proposal
and alternatives to the proposal. In addition, the provisions help to insure
that the holders of City National's stock are fairly treated in a multi-step
acquisition.
The provisions are intended to encourage persons seeking to acquire control
of City National to initiate such an acquisition through arms-length
negotiations with City National's Board of Directors. The provisions may have
the effect of discouraging a third party from making a tender offer or otherwise
attempting to attain control of City National, even through such an attempt
might be beneficial to City National and its stockholders.
LIMITATION ON DIRECTOR'S LIABILITY
City National has entered into indemnification agreements with certain
officers and directors of City National which provide that City National agrees
to indemnify and hold harmless such officer of director to the fullest extent
permissible under its Certificate of Incorporation, Bylaws and applicable law.
The indemnification agreements provide that rights granted thereunder cannot be
eliminated or lessened by amendment to City National's Certificate of
Incorporation or Bylaws.
In addition, City National's Certificates of Incorporation and City National
Bank's articles of association provide that, to the fullest extent permitted by
the Delaware Code and, in the case of City National Bank, except as prohibited
by rules of the OCC, a director of City National or City National Bank shall not
be liable to City National or City National Bank or their respective
stockholders for monetary damages for breach of fiduciary duty as a director.
The Delaware Code currently provides that a director may be relieved of
liability for a breach of fiduciary duty (including acts constituting gross
negligence), except under certain circumstances, including breach of the
director's duty of loyalty to a corporation or its stockholders, acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law, unlawful payment of a dividend or unlawful stock purchase or
redemption or any transaction from which the director derived an improper
personal benefit.
DISSENTERS' RIGHTS
RIGHTS OF DISSENTING SHAREHOLDERS
Because Ventura Stock is traded on Nasdaq and listed on the list of OTC
margin stocks issued by the Board of Governors of the Federal Reserve System,
dissenters' rights will be available to the shareholders of Ventura only if the
holders of five percent (5%) or more of Ventura Stock make a written demand upon
Ventura for the purchase of dissenting shares in accordance with Chapter 13
("Chapter 13") of the California Code. If this condition is satisfied and the
Merger is consummated, shareholders of Ventura who dissent from the Merger by
complying with the procedures set forth in Chapter 13 would be entitled to
receive an amount equal to the fair market value of their shares as of September
13, 1996, the last trading day before the public announcement of the Merger. The
high, low and closing sales prices for Ventura
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Stock on September 13, 1996 were $3.75, $3.50 and $3.625, respectively. A copy
of Chapter 13 of the California Code is attached hereto as Appendix B and should
be read for more complete information concerning dissenters' rights, THE
REQUIRED PROCEDURE SET FORTH IN CHAPTER 13 OF THE CALIFORNIA CODE MUST BE
FOLLOWED EXACTLY OR ANY DISSENTERS' RIGHTS MAY BE LOST. The information set
forth below is a general summary of dissenters' rights as they apply to Ventura
shareholders and is qualified in its entirety by reference to Appendix B.
In order to be entitled to exercise dissenters' rights, a shareholder of
Ventura must vote "AGAINST" the Merger. Thus, any shareholder who wishes to
dissent and executes and returns a proxy in the accompanying form must specify
that his or her shares are to be voted "AGAINST" the Merger. If the shareholder
returns a proxy without voting instructions or with instructions to vote "FOR"
the Merger, his or her shares will automatically be voted in favor of the Merger
and the shareholder will lose any dissenters' rights. In addition, if the
shareholder abstains from voting his or her shares, the shareholder will lose
his or her dissenters' rights.
Furthermore, in order to preserve his or her dissenters' rights, a
shareholder must make a written demand upon Ventura for the purchase of
dissenting shares and payment to such shareholder of their fair market value,
specifying the number of shares held of record by such shareholder and a
statement of what the shareholder claims to be the fair market value of those
shares as of September 13, 1996. Such demand must be addressed to Ventura County
National Bancorp, 500 Esplanade Drive, Oxnard, California 93030; Attention:
Simone Lagomarsino, and must be received by Ventura not later than the date of
the Meeting. A vote "Against" the Merger does not constitute such written
demand.
If the holders of five percent (5%) or more of the outstanding shares of
Ventura Stock have submitted a written demand for Ventura to purchase their
shares, these demands are received by Ventura on or before the date of the
Meeting and the Merger is approved by the shareholders, Ventura will have ten
days after such approval to send to those shareholders who have voted against
the approval of the Merger written notice of such approval accompanied by a copy
of Chapter 13 of the California Code, a statement of the price determined by
Ventura to represent the fair market value of the dissenting shares as of
September 13, 1996, and a brief description of the procedure to be followed if a
shareholder desires to exercise dissenters' rights. Within 30 days after the
date on which the notice of the approval of the Merger is mailed, the dissenting
shareholder must surrender to Ventura at the office designated in the notice of
approval, the certificates representing the dissenting shares to be stamped or
endorsed with a statement that they are dissenting shares or to be exchanged for
certificates of appropriate denomination so stamped or endorsed. Any shares of
Ventura Stock that are transferred prior to their submission for endorsement
lose their status as dissenting shares.
If Ventura and the dissenting shareholder agree that the surrendered shares
are dissenting shares and agree upon the price of the shares, the dissenting
shareholder will be entitled to the agreed price with interest thereon at the
legal rate on judgments from the date of the agreement. Payment of the fair
market value of the dissenting shares shall be made within 30 days after the
amount thereof has been agreed upon or 30 days after any statutory or
contractual conditions to the Merger have been satisfied, whichever is later,
subject to the surrender of the certificates therefor, unless provided otherwise
by agreement.
If Ventura denies that the shares surrendered are dissenting shares, or
Ventura and the dissenting shareholder fail to agree upon a fair market value of
such shares of Ventura Stock, then the dissenting shareholder of Ventura must,
within six months after the notice of approval is mailed, file a complaint in
the Superior Court of the proper county requesting the court to make such
determinations or intervene in any pending action brought by any other
dissenting shareholder. If the complaint is not filed or intervention in a
pending action is not made within the specified six-month period, the
dissenters' rights are lost. If the fair market value of the dissenting shares
is at issue, the court will determine, or will appoint one or more impartial
appraisers to determine, such fair market value.
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A dissenting shareholder may not withdraw his or her dissent or demand for
payment unless Ventura consents to such withdrawal.
In the event a person who makes a timely written demand for purchase and
votes against the Merger subsequently files an Effective Election Statement
before the Election Deadline, he or she will be deemed to have waived his or her
dissenters' rights, and his or her shares will be converted into City National
Stock or cash or both in accordance with the instructions given in the Effective
Election Statement.
FEDERAL INCOME TAX TREATMENT OF DISSENTERS
Any shareholder of Ventura who effectively dissents from the Merger (see
"Rights of Dissenting Shareholders," above) and who receives cash for his or her
shares will recognize a gain (or loss) for federal income tax purposes equal to
the amount by which the cash received for those shares exceeds (or is less than)
the shareholder's tax basis for the shares. The amount of that gain (or loss),
if any, will be treated as ordinary income (or loss) or long-term or short-term
capital gain (or loss) depending on the length of time the shares are held by
the dissenter, whether the shares are held as a capital asset, and whether the
dissenter is deemed to own shares of Ventura Stock pursuant to the attribution
rules of Section 318 of the Code. In certain circumstances, a dissenter can be
deemed for tax purposes to own shares that are actually owned by a non-dissenter
that is related to the dissenter, with the possible result that the cash
received in the exercise of the dissenter's rights could be treated as a
dividend received pursuant to a corporate distribution rather than an amount
received pursuant to a sale or exchange of Ventura Stock. See "THE MERGER --
Certain Federal Income Tax Consequences."
COMPARISON OF RIGHTS OF HOLDERS OF CITY NATIONAL STOCK AND VENTURA STOCK
City National is incorporated under the laws of the State of Delaware and
Ventura is incorporated under the laws of the State of California. Shareholders
whose rights as shareholders are currently governed by California law and the
Ventura Articles and Ventura Bylaws, will, in the event that such shareholders
receive City National Stock as full or partial consideration in the Merger,
become shareholders of City National, and their rights as such will be governed
by Delaware law and the City National Certificate and City National By-laws.
Certain differences between the rights of holders of shares of City National
Stock and shares of Ventura Stock are summarized below.
The following summary does not purport to be a complete statement of the
rights of shareholders under the applicable California laws and the Ventura
Articles and Ventura Bylaws as compared with the rights of City National
shareholders under the applicable Delaware laws, the City National Certificate
and City National By-laws or a complete description of the specific provisions
referred to herein. The identification of specific differences is not meant to
indicate that other equally or more significant differences do not exist. The
summary is qualified in its entirety by reference to the Delaware Code and the
California Code and the governing corporate instruments of City National and
Ventura, to which such shareholders are referred.
CERTAIN VOTING RIGHTS
California law generally requires approval of any reorganization (which
includes a merger, certain exchange reorganizations and certain sale-of-asset
reorganizations) or sale of all or substantially all of the assets of a
corporation by the affirmative vote of the holders of a majority (unless the
articles of incorporation require a higher percentage) of the outstanding shares
of each class of capital stock of the corporation entitled to vote thereon. The
Ventura Articles do not require a higher percentage.
Under Delaware law, any merger, consolidation or sale of all or
substantially all of the assets of a corporation requires the approval of the
holders of a majority (unless the certificate of incorporation requires a higher
percentage) of the outstanding shares of such corporation entitled to vote
thereon. The
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City National Certificate does not require a higher percentage except with
respect to certain "business combinations" with restricted persons as more
particularly described below.
In general, under California law, no approval of a reorganization is
required by the holders of the outstanding shares in the case of any corporation
if such corporation, or its shareholders immediately before such reorganization,
or both, own, immediately after such reorganization, equity securities (other
than warrants or rights) of the surviving or acquiring corporation, or the
parent of either of the constituent corporations, possessing more than
five-sixths of the voting power of such surviving or acquiring corporation or
such parent.
Delaware law provides that (unless required by the certificate of
incorporation) no authorization by stockholders of a surviving or acquiring
corporation is necessary for a merger if (1) the merger does not amend the
certificate of incorporation of the corporation, (2) each share of stock of the
corporation outstanding prior to the merger remains identical after the merger,
and (3) either no shares of common stock of the surviving corporation and no
shares, securities or obligations convertible into such shares are to be issued
or delivered under the plan of merger or the authorized unissued shares or the
treasury shares of common stock of the corporation to be issued or delivered
under the merger plus shares issuable upon conversion of any other shares,
securities or obligations to be issued or delivered under the merger do not
exceed 20% of the shares of common stock of the corporation outstanding prior to
the merger. The City National Certificate does not require stockholder
authorization for mergers of the type described in the preceding sentence.
Notwithstanding the foregoing, the City National Certificate requires the
approval of the holders of at least 70% of the outstanding shares of City
National Stock for certain "business combinations" between City National or any
subsidiary and a Restricted Person (as hereinafter defined) or its affiliates.
Such business combinations include the sale or other disposition of all,
substantially all, or any substantial part of the assets or business of City
National or its subsidiaries; the purchase or other acquisition of all,
substantially all, or any substantial part of the assets or business of another
person; a merger or consolidation; any reclassification of securities or
recapitalization designed to decrease the holders of any class of City
National's voting securities if, immediately thereafter, a Restricted Person
will be the owner of more than 35% of any such class; and the issuance of voting
securities or rights, warrants or options to acquire any such securities of City
National or a subsidiary to a Restricted Person. The foregoing stockholder
approval is not required for any business combination approved by the Board of
Directors (1) at a time when such other party was not a Restricted Person or (2)
in advance by the affirmative votes of at least the number of directors that is
one less than the entire authorized number of directors of City National, at a
meeting called for such purpose. A "Restricted Person" is any entity or group
which, during any period of 12 consecutive months, directly or indirectly
acquired more than 5% of the shares of any class of voting security of City
National, except if the transaction in which such securities were acquired was
approved in advance by 66 2/3% of the board of directors. A party ceases to be a
Restricted Person at the end of 24 months following the most recent month in
which such securities were acquired which, together with all other securities
acquired in the immediately preceding 11 months, aggregated more than 5% of the
outstanding voting securities.
Under California law, a parent corporation may, without shareholder
approval, merge into itself a subsidiary of which it owns at least 90% of the
outstanding shares of each class of stock.
Similarly, Delaware law permits a merger of a 90% owned subsidiary
corporation into its parent without shareholder approval so long as the
resolution of the Board of Directors of the parent providing for the merger
states the terms and conditions of the merger, including the consideration to be
given by the parent in exchange for the subsidiary shares not owned by the
parent.
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DIVIDENDS
Generally, a California corporation may pay dividends out of retained
earnings or if, after giving effect thereto, (1) the sum of the assets
(excluding goodwill and certain other assets) of the corporation is at least
equal to 1 1/4 times its liabilities (excluding certain deferred credits) and
(2) the current assets of such corporation are at least equal to (A) its current
liabilities or (B) if the average of the earnings of such corporation before
taxes and interest expense for the two preceding fiscal years was less than the
average of the interest expense of such corporation for such fiscal years, 1 1/4
times its current liabilities. In addition, the ability of a California
corporation to pay dividends is restricted by certain limitations for the
benefit of certain preference shares.
Under Delaware law, a corporation may pay dividends out of surplus or, in
the event that no surplus exists, out of its net profits for the fiscal year in
which the dividend is declared or its net profits for the preceding fiscal year,
subject to certain limitations for the benefit of certain preference shares. The
City National Bylaws provide that the Board of Directors may, in accordance with
applicable law, declare dividends.
ELECTION OF DIRECTORS; BOARD OF DIRECTORS
Under California law (unless a listed corporation's articles of
incorporation or bylaws provide otherwise), any shareholder of a corporation is
entitled to cumulate his or her votes for the election of directors provided
that at least one shareholder has given notice at the meeting prior to the
voting of such shareholder's intention to cumulate his or her votes. Cumulative
votes may only be cast for candidates who have been nominated before the voting.
The Ventura Bylaws state that provided that Ventura is a "listed corporation"
within the meaning of Section 301.5 of the California Code, Ventura shall not
have cumulative voting. Ventura is a "listed corporation" within the meaning of
Section 301.5 of the California Code and, accordingly, Ventura does not have
cumulative voting.
Delaware law permits cumulative voting in the election of directors of a
corporation if the certificate of incorporation of such corporation provides for
cumulative voting. The City National Certificate does not provide for cumulative
voting.
Under California law, Ventura, as a listed corporation, is permitted to
provide in its articles of incorporation or bylaws for classification of its
Board of Directors into up to three classes. Pursuant to the Ventura Bylaws, the
Ventura Board of Directors consists of three classes of directors. The directors
in each class serve three year terms.
Under Delaware law, City National is permitted to provide in its certificate
of incorporation or in an initial bylaw for classification of its Board of
Directors into up to three classes. The City National Certificate provides that
the City National Board of Directors consists of three classes. The directors in
each class serve on the City National Board of Directors for approximately three
years each. Notwithstanding the foregoing, the directors who currently serve in
class one will serve through the 1997 City National shareholders' meeting, the
directors who currently serve in class two will serve through the 1998 City
National shareholders' meeting and the directors who currently serve in class
three will serve through the 1999 City National shareholders' meeting.
REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS
Under California law the holders of at least 10% of the number of
outstanding shares of any class of stock may initiate a court action to remove
any director for cause. In addition, any or all of the directors of a California
corporation may be removed without cause by the affirmative vote of a majority
of the outstanding shares entitled to vote. However, no director may be removed
(unless the entire board is removed) when the votes cast against removal would
be sufficient to elect the director if voted cumulatively at an election at
which the same total number of votes were cast and the entire number of the
directors authorized at the time of the director's most recent election were
then being elected.
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Under Delaware law, any or all directors of a corporation may be removed,
with or without cause, by the holders of a majority of the shares entitled to
vote at an election of directors. However, in the case of a corporation whose
board is classified, shareholders may remove directors only for cause, and in
the case of a corporation having cumulative voting, if less than the entire
board is to be removed, no director may be removed without cause if the votes
cast against his removal would be sufficient to elect him if then cumulatively
voted at an election of the entire board of directors, or, if there are classes
of directors, at an election of the class of directors of which he or she is a
part.
Under California law (unless otherwise provided in the articles of
incorporation or bylaws and except for a vacancy created by the removal of a
director), vacancies on the board of directors may be filled by approval of the
board. In addition, any vacancy not filled by the directors may be filled by the
vote of the majority of shares entitled to vote. Neither the Ventura Articles
nor the Ventura Bylaws provide otherwise. Under Delaware law (unless otherwise
provided in the articles of incorporation or bylaws), vacancies and
newly-created directorships resulting from any increase in the authorized number
of directors may be filled by a majority of the directors in office. Neither the
City National Certificate nor the City National Bylaws provides otherwise.
SPECIAL MEETINGS OF SHAREHOLDERS; SHAREHOLDER ACTION BY WRITTEN CONSENT
Under California law, a special meeting of shareholders may be called by the
board of directors, the chairman of the board, the president or the holders of
shares entitled to cast not less than 10% of the votes at the meeting or such
additional persons as may be provided in the articles of incorporation or
bylaws. Neither the Ventura Articles nor the Ventura Bylaws permit any other
person to call a special meeting.
Under Delaware law, a special meeting of shareholders may be called by the
board of directors or such other persons as may be authorized by the certificate
of incorporation or by-laws. The City National Bylaws provide that a special
meeting may be called by the president and shall be called by the president or
secretary at the written request of a majority of the board of directors.
Under California law (unless otherwise provided in the articles) and the
Ventura Bylaws, any action which may be taken at a meeting of shareholders may
also be taken by the written consent of the holders of at least the same
proportion of outstanding shares as would be necessary to take such action at a
meeting at which all shares entitled to vote were present and voted, except that
the election of directors by written consent generally requires the unanimous
consent of all shares entitled to vote for the election of directors. The
Ventura Articles do not provide otherwise.
Under Delaware law (unless otherwise provided in the certificate of
incorporation), any action which is required to be taken or may be taken at a
meeting of stockholders, may be taken by a written consent signed by the holders
of outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting. The City National
Certificate provides that such action may be taken by the written consent of the
holders of not less than a majority of the stock entitled to vote upon such
action if a meeting were held.
AMENDMENT OF BYLAWS
Under California law, bylaws may be adopted, amended or repealed either by
the vote of a majority of the outstanding shares entitled to vote thereon or
(subject to any restrictions in the articles of incorporation or bylaws) by the
approval of the board of directors, except that amendments to the bylaws
specifying or changing a fixed number of directors or the maximum or minimum
number or changing from a fixed to a variable board or vice versa may only be
adopted by approval of the affirmative vote of a majority of the outstanding
shares entitled to vote.
Under Delaware law, the power to adopt, amend or repeal by-laws is vested in
the stockholders entitled to vote unless the certificate of incorporation
confers the power to adopt, amend or repeal by-laws
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upon the directors as well. The City National Certificate provides that the City
National Bylaws may be made, altered, amended or repealed by the board of
directors.
AMENDMENT OF CHARTER
Under California and Delaware law, amendments to the charter of a
corporation generally require approval by vote of the board of directors and the
holders of a majority of outstanding shares entitled to vote thereon and, where
their rights are affected, by the holders of a majority of the outstanding
shares of a class, whether or not such class is entitled to vote thereon by the
provision of the charter.
DISSENTERS' RIGHTS
Under California law, in the event of a merger of a corporation for which
the approval of outstanding shares is required, dissenting shareholders of such
corporation who follow prescribed statutory procedures are entitled to receive
payment of the fair market value of their shares. For a more complete
description of such rights, see "DISSENTERS' RIGHTS."
Under Delaware law, appraisal rights are generally available for the shares
of any class or series of stock of a corporation in a merger or consolidation;
provided that no appraisal rights are available for the shares of any class or
series of stock which, at the record date for the meeting held to approve such
transaction, were either (1) listed on a national securities exchange or (2)
held of record by more than 2,000 stockholders. Further, no appraisal rights are
available to stockholders of the surviving corporation if their vote is not
required in connection with the merger. Notwithstanding the foregoing provisos,
appraisal rights are available if stockholders receive in the merger or
consolidation consideration other than: (1) shares of stock of the corporation
surviving or resulting from such merger or consolidation; (2) shares of stock of
any other corporation which at the effective date of the merger or consolidation
is either listed on a national securities exchange or held of record by more
than 2,000 stockholders; (3) cash in lieu of fractional shares; or (4) any
combination of the foregoing.
CERTAIN BUSINESS COMBINATIONS AND REORGANIZATIONS
Generally, Delaware law would prevent an Interested Stockholder (as defined
in the Delaware Code) from engaging in a Business Combination (as defined in
Section 203 of the Delaware Code) with a corporation for three years following
the date such person became an Interested Stockholder unless: (1) before such
person became an Interested Stockholder, the board of directors of such
corporation approved either the business combination or the transaction in which
the Interested Stockholder became an Interested Stockholder; (2) upon
consummation of the transaction which resulted in the Interested Stockholder
becoming an Interested Stockholder, the Interested Stockholder owned at least
85% of the voting stock of such corporation outstanding at the time the
transaction commenced (excluding stock held by (A) directors who are also
officers and (B) employee stock ownership plans in which employee participants
do not have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer), or (3) at or
subsequent to such time, the Business Combination is (x) approved by the board
of directors of such corporation and (y) authorized at a meeting of stockholders
by the affirmative vote of the holders of at least 66 2/3% of the outstanding
voting stock of such corporation not owned by the Interested Stockholder.
Under California law, if a tender offer or written proposal to acquire a
corporation by a reorganization or certain sales of assets is made to a
corporation's shareholders by an Interested Party (as hereinafter defined) (each
an "Interested Party Proposal"), (1) an affirmative opinion in writing as to the
fairness of the consideration to the shareholders of such corporation must be
delivered to shareholders of such corporation (or, in the event that no
shareholder approval is required for the consummation of the transaction, to the
corporation's board of directors) and (2) such shareholders must be (a) informed
of certain later tender offers or written proposals for a reorganization or sale
of assets made by other persons
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and (b) afforded a reasonable opportunity to withdraw any vote, consent or proxy
previously given or shares previously tendered in connection with the Interested
Party Proposal. For the purposes of this paragraph, "Interested Party" shall
mean a person who is a party to the transaction and (x) directly or indirectly
controls the corporation that is the subject of the tender offer or proposal;
(y) is, or is directly or indirectly controlled by, an officer or director of
the subject corporation; or (z) is an entity in which a material financial
interest (as defined in Section 310 of the California Code) is held by any
director or executive officer of the subject corporation.
In addition, in connection with any merger transaction, California law
generally requires that, unless all shareholders of a class or series consent
(and except with respect to fractional shares), each share of such class or
series must be treated equally with respect to any distribution of cash,
property, rights or securities. California law also provides generally that if a
corporation that is party to a merger, or its parent, owns more than 50% but
less than 90% of the voting power of the other corporation that is party to such
merger, the nonredeemable shares of common stock of the controlled corporation
may be converted only into nonredeemable shares of the surviving corporation or
a parent party unless all of the shareholders of the class consent.
VALIDITY OF CITY NATIONAL STOCK
Certain legal matters concerning the City National Stock will be passed upon
for City National by Richard H. Sheehan, Jr. Senior Vice President and General
Counsel of City National. As of November 8, 1996, Mr. Sheehan owned
beneficially, directly or indirectly, 2,000 shares of City National Stock and
owned options exercisable for 5,375 shares of such stock.
EXPERTS
The financial statements of Ventura incorporated by reference in this Proxy
Statement/Prospectus have been audited by Deloitte & Touche LLP, independent
auditors, for the periods indicated in their report thereon which is included in
Ventura's Annual Report on Form 10-K for the year ended December 31, 1995. The
financial statements audited by Deloitte & Touche LLP have been incorporated
herein by reference in reliance on their report given on the authority of said
firm as experts in accounting and auditing. Representatives of Deloitte & Touche
LLP are expected to be present at the Special Meeting and are expected to be
available to respond to appropriate questions.
The consolidated financial statements of City National as of December 31,
1995 and 1994 and for each of the years in the three year period ended December
31, 1995 incorporated by reference in this Proxy Statement/Prospectus have been
incorporated herein by reference and in this Proxy Statement/Prospectus in
reliance on the report of KPMG Peat Marwick LLP, independent certified public
accountants and upon the authority of said firm as experts in accounting and
auditing.
OTHER MATTERS
The Board of Directors of Ventura does not know of any matter to be
presented at the Special Meeting other than that set forth above. However, if
other matters come before the Meeting, it is the intention of the persons named
in the accompanying Proxy to vote the shares represented by the Proxy in their
discretion, taking into account any recommendations of the Board of Directors of
Ventura on such matters, and discretionary authority to do so is included in the
Proxy.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
CITY NATIONAL CORPORATION
AND
VENTURA COUNTY NATIONAL BANCORP
SEPTEMBER 15, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
ARTICLE I THE MERGER AND RELATED TRANSACTIONS....................................................... A-1
1.1 Structure of the Merger................................................................... A-1
1.2 Closing................................................................................... A-1
1.3 Effective Time............................................................................ A-2
1.4 Effects of the Merger..................................................................... A-2
1.5 The Bank Merger........................................................................... A-2
1.6 California Requirements................................................................... A-2
ARTICLE II EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS................. A-2
2.1 Effect on Capital Stock................................................................... A-2
2.2 Conversion of VCNB Common Stock........................................................... A-3
2.3 Election and Proration Procedures......................................................... A-3
2.4 Stock Options............................................................................. A-5
2.5 Adjustments for Dilution and Other Matters................................................ A-6
2.6 Conversion of Dissenting Common Stock..................................................... A-6
ARTICLE III EXCHANGE OF SHARES........................................................................ A-6
3.1 Exchange Procedures....................................................................... A-6
3.2 Voting and Dividends...................................................................... A-7
3.3 No Liability.............................................................................. A-7
3.4 Withholding Rights........................................................................ A-7
ARTICLE IV CONDUCT PENDING THE MERGER................................................................ A-8
4.1 Conduct of VCNB's and Each Bank's Business Prior to the Effective Time.................... A-8
4.2 Forbearance by VCNB and its Subsidiaries.................................................. A-8
4.3 Timeliness of CNC's Consent............................................................... A-10
4.4 Conduct by CNC Prior to the Effective Time................................................ A-11
ARTICLE V REPRESENTATIONS AND WARRANTIES............................................................ A-11
5.1 Representations and Warranties of VCNB and the Bank....................................... A-11
(a) Recitals True.................................................................. A-11
(b) Capital Stock.................................................................. A-11
(c) Authority...................................................................... A-11
(d) Subsidiaries................................................................... A-11
(e) Approvals...................................................................... A-11
(f) No Violations.................................................................. A-12
(g) Community Reinvestment Act..................................................... A-12
(h) Reports........................................................................ A-12
(i) Financial Statements........................................................... A-13
(j) Absence of Certain Changes or Events........................................... A-13
(k) Taxes.......................................................................... A-13
(l) Absence of Claims; Litigation.................................................. A-14
(m) Regulatory Actions............................................................. A-14
(n) Certain Agreements............................................................. A-14
(o) Labor Matters.................................................................. A-14
(p) Employee Benefit Plans......................................................... A-14
(q) Insider Loans; Other Transactions.............................................. A-15
(r) Title to Assets................................................................ A-15
(s) Knowledge as to Conditions..................................................... A-16
</TABLE>
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<TABLE>
<S> <C> <C> <C>
(t) Compliance with Laws........................................................... A-16
(u) Fees........................................................................... A-16
(v) Environmental.................................................................. A-16
(w) Allowance for Possible Loan Losses............................................. A-18
(x) Performance of Obligations..................................................... A-18
(y) Insurance...................................................................... A-18
(z) Listing of Loans............................................................... A-18
(aa) Derivative Transactions........................................................ A-18
(bb) Trust Administration........................................................... A-18
(cc) Contingent Liabilities......................................................... A-19
(dd) Statements True and Correct.................................................... A-19
(ee) Timeliness and Compliance of Reports and Filings............................... A-19
5.2 Representations and Warranties of CNC..................................................... A-19
(a) Recitals True.................................................................. A-19
(b) Capital Stock.................................................................. A-19
(c) Authority...................................................................... A-20
(d) Approvals...................................................................... A-20
(e) No Violations.................................................................. A-20
(f) Financial Statements........................................................... A-20
(g) Absence of Certain Changes or Events........................................... A-20
(h) Absence of Claims.............................................................. A-21
(i) Regulatory Actions............................................................. A-21
(j) Knowledge as to Conditions..................................................... A-21
(k) Compliance with Laws........................................................... A-21
(l) Fees........................................................................... A-21
(m) Community Reinvestment Act..................................................... A-21
(n) Statements True and Correct.................................................... A-21
(o) Timeliness and Compliance of Reports and Filings............................... A-22
(p) Tax Representation............................................................. A-22
ARTICLE VI COVENANTS................................................................................. A-22
6.1 Regulatory Matters........................................................................ A-22
6.2 Stockholders' Approvals................................................................... A-23
6.3 Legal Conditions to Merger................................................................ A-23
6.4 Information............................................................................... A-23
6.5 Employee Benefits......................................................................... A-24
6.6 Certain Filings, Consents and Arrangements................................................ A-25
6.7 Additional Agreements; Parties............................................................ A-25
6.8 Publicity................................................................................. A-25
6.9 Notification of Certain Matters........................................................... A-26
6.10 Pre-Closing Adjustments................................................................... A-26
6.11 Director Resignations..................................................................... A-26
6.12 Human Resources Issues.................................................................... A-26
6.13 Assistance with Third-Party Agreements.................................................... A-26
6.14 Notices and Communications................................................................ A-27
6.15 Insurance Policies Assignment............................................................. A-27
6.16 Additional Agreements; Officers and Directors............................................. A-28
6.17 Affiliates and Five Percent Shareholders.................................................. A-28
6.18 Cooperation............................................................................... A-28
6.19 Indemnification and Directors and Officers................................................ A-28
</TABLE>
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<TABLE>
<S> <C> <C> <C>
6.20 Shareholders' Agreement................................................................... A-28
ARTICLE VII CONDITIONS TO CONSUMMATION................................................................ A-29
7.1 Conditions to Each Party's Obligations.................................................... A-29
7.2 Conditions to Obligations of CNC.......................................................... A-29
7.3 Conditions To Obligations of VCNB......................................................... A-30
ARTICLE VIII TERMINATION............................................................................... A-31
8.1 Termination............................................................................... A-31
8.2 Effect of Termination..................................................................... A-32
ARTICLE IX OTHER MATTERS............................................................................. A-32
9.1 Certain Definitions; Interpretations...................................................... A-32
9.2 Non-Survival of Representations, Warranties and Covenant.................................. A-33
9.3 Waiver and Modification................................................................... A-34
9.4 Counterparts.............................................................................. A-34
9.5 Governing Law, Jurisdiction and Venue..................................................... A-34
9.6 Notices................................................................................... A-34
9.7 Entire Agreement.......................................................................... A-35
9.8 Binding Effect; Assignment................................................................ A-35
9.9 Severability.............................................................................. A-35
9.10 No Third Party Beneficiaries.............................................................. A-35
9.11 Specific Performance...................................................................... A-35
9.12 Expenses.................................................................................. A-35
</TABLE>
iii
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of the 15th day of September,
1996 (the "AGREEMENT"), by and between City National Corporation ("CNC"), a
Delaware corporation, and Ventura County National Bancorp, a California
corporation ("VCNB"), is entered into with reference to the following:
A. CNC and VCNB are bank holding companies registered under the Bank
Holding Company Act of 1956, as amended (the "BHCA") and subject to
regulation and supervision by the Board of Governors of the Federal Reserve
System (the "BOARD OF GOVERNORS");
B. The Boards of Directors of CNC and VCNB have determined that it is
in the best interests of their respective companies and shareholders to
consummate the business combination transaction provided for in this
Agreement;
C. The parties hereto desire to effect a business combination through a
merger (the "MERGER"), which will be structured so that VCNB will be merged
into CNC and that CNC will be the surviving corporation in the Merger;
D. As a condition and inducement to CNC's willingness to enter into this
Agreement, VCNB and CNC are entering into, immediately after the execution
and delivery hereof, a Stock Option Agreement (the "STOCK OPTION AGREEMENT")
dated as of the date hereof, pursuant to which VCNB shall grant to CNC an
option to purchase shares of the common stock, no par value, of VCNB (the
"VCNB COMMON STOCK");
E. The Merger requires certain shareholder and regulatory approvals and
may be effected only after the necessary approvals have been obtained;
F. For federal income tax purposes, it is intended that the Merger
shall qualify as a "reorganization" within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "CODE");
G. The parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger; and
H. Subject to any specific provisions of this Agreement, it is the
intent of the parties that CNC by reason of this Agreement shall not (until
consummation of the Merger) control, and shall not be deemed to control VCNB
or any of its subsidiaries, directly or indirectly, and shall not exercise
or be deemed to exercise, directly or indirectly, a controlling influence
over the management or policies of the VCNB or any of its subsidiaries;
NOW, THEREFORE, in consideration of the promises and the mutual agreements
contained herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER AND RELATED TRANSACTIONS
SECTION 1.1 STRUCTURE OF THE MERGER. At the effective time of the Merger,
VCNB will merge with and into CNC, with CNC being the surviving corporation
(hereinafter sometimes called the "SURVIVING CORPORATION"), pursuant to the
provisions of, and with the effect provided in, the Delaware General Corporation
Law ("DGCL") and shall continue its corporate existence under the laws of the
State of Delaware. The name of the Surviving Corporation shall be "City National
Corporation". Upon consummation of the Merger, the separate corporate existence
of VCNB shall cease.
SECTION 1.2 CLOSING. The closing of the Merger (the "CLOSING") will take
place at 6:00 P.M. Pacific time, on the first Friday (unless such date is a
holiday, in which case it will be the preceding
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Business Day (as defined in Section 9.1)) that is both (a) after satisfaction of
each of the conditions set forth in Article VII; and (b) no less than four
Business Days after the occurrence of the Election Deadline (as defined in
Section 2.3).
SECTION 1.3 EFFECTIVE TIME. The Merger shall become effective as set forth
in the certificate of merger (the "CERTIFICATE OF MERGER") which shall be filed
with the Secretary of State of the State of Delaware on the date of Closing. The
term "EFFECTIVE TIME" shall be the date and time when the Merger becomes
effective, as set forth in the Certificate of Merger.
SECTION 1.4 EFFECTS OF THE MERGER.
(a) At the Effective Time, (i) VCNB shall be merged with and into CNC and
the separate existence of VCNB shall cease, (ii) the Certificate of
Incorporation of CNC as in effect immediately prior to the Effective Time shall
be the Certificate of Incorporation of Surviving Corporation, and (iii) the
Bylaws of CNC as in effect immediately prior to the Effective Time shall remain
the Bylaws of Surviving Corporation.
(b) At and after the Effective Time, the Merger will have the effects set
forth in the DGCL.
SECTION 1.5 THE BANK MERGER. After the Merger, and at CNC's discretion,
Ventura County National Bank ("VENTURA BANK") and/or Frontier Bank, N.A.
("FRONTIER") (collectively, the "BANKS") shall be merged with or into City
National Bank ("CNB"), a wholly-owned subsidiary of CNC, pursuant to the Bank
Merger Act and other applicable federal and state laws and regulations (the
"BANK MERGERS").
SECTION 1.6 CALIFORNIA REQUIREMENTS. CNC and VCNB shall each execute,
deliver and/or certify each and every document, certificate or other instrument
required under the California General Corporation Law (the "CGCL") to be filed
with the Secretary of State of the State of California in order for the
effectiveness of the Merger to be recognized in California. CNC shall file such
items no later than three Business Days following the Effective Time.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL
STOCK OF THE CONSTITUENT CORPORATIONS
SECTION 2.1 EFFECT ON CAPITAL STOCK. Subject to the other provisions of
this Article II, at the Effective Time, by virtue of the Merger and without any
action on the part of the holders of shares of stock of VCNB and CNC:
(a) COMMON STOCK OF CNC. Each share of common stock; $1.00 par value per
share of CNC (the "CNC COMMON STOCK") issued and outstanding immediately prior
to the Effective Time shall remain an issued and outstanding share of common
stock of the Surviving Corporation, and shall not be affected by the Merger;
(b) COMMON STOCK OF VCNB. Each share of common stock, no par value per share
of VCNB ("VCNB Common Stock") issued and outstanding immediately prior to the
Effective Time, shall be converted into the right to receive CNC Common Stock or
cash as provided in Section 2.2(a);
(c) DISSENTING COMMON STOCK. Each share of VCNB Common Stock that is a
"dissenting share" within the meaning of Chapter 13 of the CGCL ("DISSENTING
COMMON STOCK") shall not be converted into or represent a right to receive CNC
Common Stock or cash hereunder unless and until such shares have lost their
status as dissenting shares under Chapter 13 of the CGCL, at which time such
shares shall either be converted into cash or CNC Common Stock pursuant to
Section 2.6.
(d) CANCELLATION OF CERTAIN SHARES. Any shares of VCNB Common Stock held by
CNC (or any of its wholly owned Subsidiaries) or VCNB (or any of its wholly
owned Subsidiaries), other than those held in a
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<PAGE>
fiduciary capacity or as a result of debts previously contracted, shall be
canceled and retired at the Effective Time and no consideration shall be issued
in exchange therefor.
SECTION 2.2 CONVERSION OF VCNB COMMON STOCK.
(a) Subject to the other provisions of this Article II, each share of VCNB
Common Stock issued and outstanding immediately prior to the Effective Time
(other than Dissenting Common Stock and Common Stock described in Section
2.1(d)) shall, by virtue of the Merger, be converted into the right to receive,
at the election of the holder thereof as provided in Section 2.3, either:
(i) a fraction of a share of CNC Common Stock equal to the quotient
(such quotient, the "EXCHANGE RATIO") of (i) $5.03, divided by (ii) the
average of the daily closing prices of a share of CNC Common Stock on the
New York Stock Exchange as reported in the WALL STREET JOURNAL for the
twenty consecutive trading days ending on the third trading day immediately
prior to the Effective Time (such average, the "FINAL CNC STOCK PRICE");
provided, in the event that the Final CNC Stock Price shall be more than
$19.10, the Exchange Ratio shall be 0.2634, and in the event that the Final
CNC Stock Price shall be less than $15.65, the Exchange Ratio shall be
0.3214; or
(ii) cash in the amount of $5.03 (such amount, the "PER SHARE CASH
CONSIDERATION"); or
(iii) a combination of CNC Common Stock and cash in the amounts as set
forth in Subsections 2.2(a)(i) and (a)(ii) above.
(b) At the Effective Time, the stock transfer books of VCNB shall be closed
as to holders of VCNB Common Stock immediately prior to the Effective Time and
no transfer of VCNB Common Stock by any such holder shall thereafter be made or
recognized. If, after the Effective Time, certificates are properly presented in
accordance with Article III of this Agreement to the Exchange Agent (as defined
in Section 2.3), such certificates shall be canceled and exchanged for
certificates representing the number of whole shares of CNC Common Stock, if
any, and/or a check representing the amount of cash, if any, into which the VCNB
Common Stock represented thereby was converted in the Merger, plus any payment
for a fractional share of CNC Common Stock.
SECTION 2.3 ELECTION AND PRORATION PROCEDURES.
(a) ELECTION FORMS AND TYPES OF ELECTIONS. An election form and other
appropriate and customary transmittal materials (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
theretofore representing shares of Common Stock shall pass, only upon proper
delivery of such certificates to an exchange agent selected by CNC and
reasonably acceptable to VCNB (the "EXCHANGE AGENT")) in such form as CNC and
VCNB shall mutually agree ("ELECTION FORM") shall be mailed no less than
thirty-five days prior to the anticipated Effective Time or on such other date
as VCNB and CNC shall mutually agree ("MAILING DATE") to each holder of record
of VCNB Common Stock as of five Business Days prior to the Mailing Date
("ELECTION FORM RECORD DATE"). CNC shall make available one or more Election
Forms as may be reasonably requested by all persons who become holders (or
beneficial owners) of VCNB Common Stock after the Election Form Record Date and
prior to the Election Deadline (as defined herein), and VCNB shall provide to
the Exchange Agent all information reasonably necessary for it to perform its
obligations as specified herein. Each Election Form shall permit the holder (or
the Beneficial Owner through appropriate and customary documentation and
instructions) to elect (an "ELECTION") to receive either (i) CNC Common Stock (a
"STOCK ELECTION") with respect to all of such holder's VCNB Common Stock, or
(ii) cash (a "CASH ELECTION") with respect to all of such holder's VCNB Common
Stock, or (iii) a specified number of shares of VCNB Common Stock to receive CNC
Common Stock (a "COMBINATION STOCK ELECTION") and a specified number of shares
of VCNB Common Stock to receive cash (a "COMBINATION CASH ELECTION"). Any VCNB
Common Stock (other than Dissenting Common Stock) with respect to which the
holder (or the Beneficial Owner, as the case may be) shall not have submitted to
the Exchange Agent, an effective, properly completed Election Form received
prior to the Election Deadline shall be deemed to be "UNDESIGNATED SHARES"
hereunder.
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(b) PROPER AND TIMELY ELECTION. Any Election shall have been properly made
and effective only if the Exchange Agent shall have actually received a properly
completed Election Form by 5:00 P.M. on the later of the 30th day following the
Mailing Date or the 31st day following the mailing of any notice required by
1301 of the CGCL (or such other time and date as CNC and VCNB may mutually
agree) (the "ELECTION DEADLINE"). An Election Form shall be deemed properly
completed only if an Election is indicated for each share of VCNB Common Stock
covered by such Election Form and if accompanied by one or more certificates (or
customary affidavits and indemnification regarding the loss or destruction of
such certificates or the guaranteed delivery of such certificates) representing
all shares of VCNB Common Stock covered by such Election Form, together with
duly executed transmittal materials included in or required by the Election
Form. Any Election Form may be revoked or changed by the person submitting such
Election Form at or prior to the Election Deadline. In the event an Election
Form is revoked prior to the Election Deadline, the shares of VCNB Common Stock
represented by such Election Form shall automatically become Undesignated Shares
unless and until a new Election is properly made with respect to such shares on
or before the Election Deadline, and CNC shall cause the certificates
representing such shares of VCNB Common Stock to be promptly returned without
charge to the person submitting the revoked Election Form upon written request
to that effect from the holder who submitted such Election Form. Subject to the
terms of this Agreement and of the Election Form, the Exchange Agent shall have
reasonable discretion to determine whether any election, revocation or change
has been properly or timely made and to disregard immaterial defects in the
Election Forms, and any decisions of CNC and VCNB required by the Exchange Agent
and made in good faith in determining such matters shall be binding and
conclusive. Neither CNC nor the Exchange Agent shall be under any obligation to
notify any person of any defect in an Election Form.
(c) PRORATION. As promptly as practicable but not later than ten calendar
days after the Effective Time, CNC shall cause the Exchange Agent to effect the
allocation among the holders of VCNB Common Stock of rights to receive CNC
Common Stock or cash in the Merger in accordance with the Election Forms as
follows:
(i) if the aggregate number of shares of VCNB Common Stock as to which
Stock Elections and Combination Stock Elections shall have effectively been
made exceeds, and is not approximately equal to, 55% of the issued and
outstanding shares of VCNB Common Stock as of the Effective Time (the "STOCK
AMOUNT"), then:
(A) All Undesignated Shares and Dissenting Common Stock shall be
deemed to have made Cash Elections; and
(B) A stock proration factor (the "STOCK PRORATION FACTOR") shall be
determined by dividing the Stock Amount by the total number of shares of
VCNB Common Stock with respect to which effective Stock Elections and
Combination Stock Elections were made. Each holder of VCNB Common Stock
who made an effective Stock Election or Combination Stock Election shall
be entitled to:
(I) the number of shares of CNC Common Stock equal to the product of
(x) the Exchange Ratio, multiplied by (y) the number of shares of
VCNB Common Stock covered by such Stock Election or Combination
Stock Election, multiplied by (z) the Stock Proration Factor; and
(II) cash in an amount equal to the product of (x) the Per Share Cash
Consideration, multiplied by (y) the number of shares of VCNB
Common Stock covered by such Stock Election or Combination Stock
Election, multiplied by (z) one minus the Stock Proration Factor.
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(ii) if the aggregate number of shares of VCNB Common Stock as to which
Stock Elections and Combination Stock Elections shall have effectively been
made shall be less than, and not approximately equal to, the Stock Amount,
then:
(A) the Exchange Agent shall select by lot such number of holders of
Undesignated Shares to receive CNC Common Stock as shall be necessary so
that the number of shares for which a Stock Election and Combination
Stock Election has been made or is deemed to be made shall be
approximately equal to the Stock Amount. If all the Undesignated Shares
plus all shares as to which Stock Elections and Combination Stock
Elections have been made together are less than, and not approximately
equal to, the Stock Amount, then:
(B) a cash proration factor (the "CASH PRORATION FACTOR") shall be
determined by dividing the Stock Amount (less the (i) shares for which an
effective Stock Election and Combination Stock Election has been made,
and (ii) all the Undesignated Shares) by the sum of the total number of
shares of VCNB Common Stock with respect to which effective Cash
Elections and Combination Cash Elections were made. Each holder of VCNB
Common Stock who made an effective Cash Election or Combination Cash
Election shall be entitled to:
(I) cash equal to the product of (x) the Per Share Cash
Consideration, multiplied by (y) the number of shares of VCNB
Common Stock covered by such Cash Election or Combination Cash
Election, multiplied by (z) one minus the Cash Proration Factor;
and
(II) the number of shares of CNC Common Stock equal to the product of
(x) the Exchange Ratio, multiplied by (y) the number of shares of
VCNB Common Stock covered by such Cash Election or Combination
Cash Election, multiplied by (z) the Cash Proration Factor.
(d) CALCULATIONS. The calculations required by Section 2.2(a)(i) shall be
prepared by CNC prior to the Effective Time and shall be set forth in a
certificate executed by the Chief Financial Officer of CNC and furnished to VCNB
two Business Days prior to the Effective Time showing the manner of calculation
in reasonable detail. Any calculation of a portion of a share of CNC Common
Stock shall be rounded to the nearest ten-thousandth of a share, and any cash
payment shall be rounded to the nearest cent. For purposes of this Section 2.3,
the shares of VCNB Common Stock for which CNC Common Stock is to be issued as
consideration in the Merger shall be deemed to be "approximately equal" to the
Stock Amount if such number is within 25,000 shares (of VCNB Common Stock) of
the Stock Amount.
(e) NO FRACTIONAL SHARES. Notwithstanding any other provisions of this
Agreement, each holder of shares of VCNB Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of CNC Common Stock (after taking into account all certificates delivered by
such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to such fractional part of a share of CNC Common Stock multiplied
by the Final CNC Stock Price (as defined in Section 2.2). No holder will be
entitled to dividends, voting rights or any other rights as a stockholder in
respect of any fractional share of CNC Common Stock.
SECTION 2.4 STOCK OPTIONS. Prior to the Effective Time, VCNB shall take
appropriate action such that each option granted pursuant to the 1991 Stock
Option Plan (the "OPTION PLAN") by VCNB to purchase shares of the VCNB Common
Stock that is outstanding and unexercised immediately prior to the Effective
Time shall be cancelled by VCNB in consideration of the payment by VCNB to each
holder of such options of an aggregate amount in cash equal to the positive
difference, if any, between (a) the Per Share Cash Consideration times the
number of shares of VCNB Common Stock as to which such holder has options, and
(b) the aggregate exercise price of such options. At the Effective Time, each
option to purchase a share of Common Stock pursuant to the Option Plan shall
terminate and be of no further force or effect, and any rights thereunder to
purchase shares of VCNB Common Stock or CNC Common Stock shall also terminate
and be of no further force or effect.
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SECTION 2.5 ADJUSTMENTS FOR DILUTION AND OTHER MATTERS. If prior to the
Effective Time, (a) VCNB shall declare a stock dividend or distribution on the
VCNB Common Stock, or subdivide, split up, reclassify or combine the VCNB Common
Stock, or declare a dividend, or make a distribution, on the VCNB Common Stock,
in any security convertible into Common Stock (provided that no such action may
be taken by VCNB without CNC's prior written consent as provided in Section 4.2
(b)), or (b) the outstanding shares of CNC Common Stock shall have been
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities, in each case as a result of a reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar change in CNC's capitalization, then an appropriate
adjustment or adjustments will be made to the Exchange Ratio (including the
Final CNC Stock Price and the Final CNC Stock Prices below and above which the
Exchange Ratio is a specified amount pursuant to Section 2.2).
SECTION 2.6 CONVERSION OF DISSENTING COMMON STOCK.
(a) VCNB shall give CNC prompt notice upon receipt by VCNB of any written
demands for appraisal rights, withdrawal of such demands, and any other
documents received or instruments served pursuant to Chapter 13 of the CGCL and
shall give CNC the opportunity to direct all negotiations and proceedings with
respect to such demands. VCNB shall not voluntarily make any payment with
respect to any demands for appraisal rights and shall not, except with the prior
written consent of CNC, settle or offer to settle such demands. Each holder of
Common Stock who becomes entitled, pursuant to provisions of said Chapter 13 of
the CGCL, to payment for his or her shares of Dissenting Common Stock under the
provisions of said Chapter shall receive payment therefor from CNC and such
shares of Common Stock shall be canceled.
(b) If prior to the Election Deadline any shareholder of VCNB shall fail to
perfect, or shall effectively withdraw or lose, his or her rights under Chapter
13 of the CGCL, the Dissenting Common Stock of such holder shall be treated for
purposes of this Article II as any other shares of outstanding Common Stock. If,
after the Election Deadline, any holder of Common Stock shall fail to perfect,
or shall effectively withdraw or lose, his or her right to appraisal of and
payment for his or her Dissenting Common Stock under Chapter 13 of the CGCL,
each share of Dissenting Common Stock of such holder shall be converted into the
right to receive the Per Share Cash Consideration pursuant to this Article II.
ARTICLE III
EXCHANGE OF SHARES
SECTION 3.1 EXCHANGE PROCEDURES.
(a) EXCHANGE AGENT. No later than the Effective Time, CNC shall deposit
with the Exchange Agent the number of shares of CNC Common Stock issuable in the
Merger and the amount of cash payable in the Merger. The Exchange Agent shall
not be entitled to vote or exercise any rights of ownership with respect to CNC
Common Stock held by it from time to time hereunder, except that it shall
receive and hold all dividends or other distributions paid or distributed with
respect to such shares for the account of the persons entitled thereto.
(b) EXCHANGE OF CERTIFICATES AND CASH. After completion of the allocation
procedure set forth in Section 2.3, each holder of a certificate formerly
representing VCNB Common Stock (other than Dissenting Common Stock) who
surrenders or has surrendered such certificate (or customary affidavits and
indemnification regarding the loss or destruction of such certificate), together
with duly executed transmittal materials included in or required by the Election
Form, to the Exchange Agent shall, upon acceptance thereof, be entitled to a
certificate representing CNC Common Stock and/or cash into which the shares of
Common Stock shall have been converted pursuant hereto, as well as cash in lieu
of any fractional shares of CNC Common Stock to which such holder would
otherwise be entitled. The Exchange Agent shall accept such VCNB certificate
upon compliance with such reasonable and customary terms and
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conditions as the Exchange Agent may impose to effect an orderly exchange
thereof in accordance with normal practices. Until surrendered as contemplated
by this Section 3.1, each certificate representing VCNB Common Stock shall be
deemed from and after the Effective Time to evidence only the right to receive
cash and/or CNC Common Stock, as the case may be, upon such surrender. CNC shall
not be obligated to deliver the consideration to which any former holder of
Common Stock is entitled as a result of the Merger until such holder surrenders
his certificate or certificates representing shares of VCNB Common Stock for
exchange as provided in this Article III. If any certificate for shares of CNC
Common Stock, or any check representing cash and/or declared but unpaid
dividends, is to be issued in a name other than that in which a certificate
surrendered for exchange is issued, the certificate so surrendered shall be
properly endorsed and otherwise in proper form for transfer and the person
requesting such exchange shall affix any requisite stock transfer tax stamps to
the certificate surrendered or provide funds for their purchase or establish to
the satisfaction of the Exchange Agent that such taxes are not payable.
(c) AFFILIATES. Certificates surrendered for exchange by any person
constituting an "affiliate" of VCNB for purposes of Rule 144(a) under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), shall not be
exchanged for certificates representing whole shares of CNC Common Stock until
CNC has received a written agreement from such person as provided in Section
6.17.
SECTION 3.2 VOTING AND DIVIDENDS. Former shareholders of record of VCNB
shall be entitled to vote after the Effective Time at any meeting of CNC
stockholders the number of whole shares of CNC Common Stock into which their
respective shares of Common Stock are converted, regardless of whether such
holders have exchanged their certificates representing Common Stock for
certificates representing CNC Common Stock in accordance with the provisions of
this Agreement. Until surrendered for exchange in accordance with the provisions
of Section 3.1 of this Agreement, each certificate theretofore representing
shares of Common Stock (other than shares to be canceled pursuant to Section
2.1(d) of this Agreement) shall from and after the Effective Time represent for
all purposes only the right to receive shares of CNC Common Stock, cash in lieu
of fractional shares and/or cash, as set forth in this Agreement. No dividends
or other distributions declared or made after the Effective Time with respect to
CNC Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered certificate of Common Stock with respect to the
shares of CNC Common Stock represented thereby, until the holder of such
certificate of Common Stock shall surrender such certificate. Subject to the
effect of applicable laws, following surrender of any such certificates of
Common Stock for which shares of CNC Common Stock are to be issued, there shall
be paid to the holder of the certificates, without interest, (i) the amount of
any cash payable with respect to a fractional share of CNC Common Stock to which
such holder is entitled pursuant to Section 2.1(e) and the amount of dividends
or other distributions with a record date after the Effective Time theretofore
paid with respect to such whole shares of CNC Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of CNC Common
Stock.
SECTION 3.3 NO LIABILITY. Neither CNC, VCNB nor the Exchange Agent shall
be liable to any holder of shares of Common Stock for any shares of CNC Common
Stock (or dividends or distributions with respect thereto) or cash delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
SECTION 3.4 WITHHOLDING RIGHTS. CNC or the Exchange Agent shall be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of Common Stock such amounts
as CNC or the Exchange Agent is required to deduct and withhold with respect to
the making of such payment under the Code, or any provision of state, local or
foreign tax law. To the extent that amounts are so withheld by CNC or the
Exchange Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Common Stock in
respect of which such deduction and withholding was made by CNC or the Exchange
Agent.
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ARTICLE IV
CONDUCT PENDING THE MERGER
SECTION 4.1 CONDUCT OF VCNB'S AND EACH BANK'S BUSINESS PRIOR TO THE
EFFECTIVE TIME. Except as expressly provided in this Agreement, during the
period from the date of this Agreement to the Effective Time, VCNB shall, and
shall cause each of the Banks to, (a) conduct its business in the usual, regular
and ordinary course, consistent with past practices and consistent with prudent
banking practices; (b) use its commercially reasonable efforts to maintain and
preserve intact its business organization, employees and advantageous customer
relationships and to continue to develop such customer relationships and retain
the services of its key officers and key employees; (c) maintain and keep its
properties in as good repair and condition as at present except for obsolete
properties and for deterioration due to ordinary wear and tear; (d) use its
commercially reasonable efforts to maintain in full force and effect insurance
comparable in amount and scope of coverage to that now maintained by it; (e)
perform in all material respects all of its obligations under material
contracts, leases and documents relating to and affecting its assets, properties
and businesses except such obligations as it may in good faith reasonably
dispute; (f) charge off all loans receivable and other assets, or portions
thereof, deemed uncollectible in accordance with GAAP, RAP or applicable law or
regulation, classified as "loss", or as directed by its regulators; (g) maintain
the ALLL in accordance with past practices, GAAP and RAP; (h) substantially
comply with and perform all material obligations and duties imposed upon it by
all federal and state laws, and rules, regulations and orders imposed by
federal, state and local Governmental Authorities; and (i) take no action which
would reasonably be expected to adversely affect or delay the ability of CNC,
VCNB or one or both of the Banks to obtain any necessary approvals, consents or
waivers of any Governmental Authority or other parties required for the Merger
or to perform its covenants or agreements under this Agreement on a timely
basis.
SECTION 4.2 FORBEARANCE BY VCNB AND ITS SUBSIDIARIES. Except as expressly
provided in this Agreement or as set forth on the Disclosure Schedule, during
the period from the date of this Agreement to the Effective Time, VCNB shall
not, and shall cause Banks and each of its and Banks' Subsidiaries not to,
without the prior written consent of CNC:
(a) incur any indebtedness for borrowed money or assume, guaranty, endorse
or otherwise as an accommodation become responsible for the obligations of any
other person, except for (i) in connection with banking transactions with
banking customers in the ordinary course of business, or (ii) short-term
borrowings (A) not in excess of the longer of thirty days or until May 31, 1997,
(B) in amounts not greater than $12,500,000 in the aggregate for VCNB and its
Subsidiaries and (C) made at prevailing market rates and terms;
(b) issue any capital stock; adjust, split, combine or reclassify any
capital stock; make, declare or pay any dividend or make any other distribution
on any capital stock; directly or indirectly, redeem, purchase or otherwise
acquire any shares of its capital stock or any securities or obligations
convertible into or exchangeable for any shares of its capital stock; grant any
stock appreciation rights; grant any person any right to acquire any shares of
its capital stock (whether pursuant to an option, warrant, right or otherwise);
or issue any additional shares of capital stock; provided, however, that VCNB
may make a cash payment equal to the difference between the Per Share Cash
Consideration and the exercise price of any option granted pursuant to the
Option Plan, issue VCNB Common Stock pursuant to exercise of an option granted
pursuant to the Option Plan, and receive or redeem shares of VCNB Common Stock
pursuant to the exercise of such an option;
(c) sell, transfer, mortgage, encumber or otherwise dispose of any of its
properties or assets with a book value of $250,000 or more, or cancel, release
or assign any indebtedness of any person or any claim held by any person, except
pursuant to contracts or agreements in full force and effect at the date of this
Agreement or the sale of OREO or similarly held properties other than at a cash
price of at least 80% of book value of such property at June 30, 1996;
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(d) except as permitted under Subsection (l) of this Section 4.2, make any
material investment either by purchase of stock or securities, contributions to
capital, or purchase of any properties or assets of any other person, other than
contributions by VCNB to the capital of one or both of the Banks;
(e) enter into, renew or terminate any material contract or agreement, or
make any material change in any of its material leases or contracts, other than
(i) entering into deposit agreements or loan agreements or (ii) in the ordinary
course of business consistent with past practice with respect to contracts,
agreements or leases terminable on not more than 90 days notice or involving
payment or payments of not more than $50,000 per annum;
(f) alter its method of establishing interest rates for deposits;
(g) except as required by applicable law, increase in any manner the
compensation (including, without limitation, bonuses) or fringe benefits of any
of its directors, employees, former employees or retirees, or pay any pension or
retirement allowance, not required by any existing plan or agreement to any such
directors, employees, former employees or retirees; become a party to, amend or
commit to any pension, retirement, retention, "golden parachute" or other
severance (other than in accordance with Section 6.5(c)), deferred compensation,
profit sharing or welfare benefit plan or agreement or employment agreement with
or for the benefit of any employee, former employee or retiree other than annual
salary and bonus increases made in the ordinary course of business not exceeding
2% in the aggregate (based upon June 30, 1996 aggregate salary figures) or 6%
for any employee; or voluntarily accelerate the vesting of any employee
benefits, except for the acceleration of the vesting of options granted pursuant
to the Option Plan;
(h) settle any claim, action or proceeding involving any liability for
material monetary damages (except to the extent fully reserved against on its
books and records) or enter into any settlement agreement containing material
obligations;
(i) hire additional officers or employees (except that non-officer employees
may be hired to fill vacancies in existing positions), or enter into new
employment arrangements or relationships with new or existing employees which
have the legal effect of any relationship other than at-will employment;
(j) sell any securities;
(k) sell Small Business Administration Loans for an aggregate gain in excess
of $1,000,000;
(l) purchase any securities other than United States Treasury securities or
United States government agency securities, which in either case have maturities
of three years or less;
(m) engage in trading with respect to any securities issued by VCNB;
(n) amend its Articles of Incorporation, Articles of Association or Bylaws,
or change in any material way its material policies and procedures or make any
material changes to its tax or financial accounting policies (except as to
changes to its tax or financial accounting policies as may be required by GAAP
or RAP);
(o) introduce any new service or products, institute any new advertising
campaign, open, or apply to open or close any branch or facility, or, in
general, change in any material respects its products and services from those in
effect at the date of this Agreement;
(p) (i) renew, extend the maturity of, or materially alter any of the
material terms of, any loan or forbearance agreement for a period of greater
than six months, or (ii) make, acquire a participation in, or reacquire an
interest in a participation sold of, any loan or forbearance agreement, without
regard to the term thereof, which, in the case of (i) or (ii), when aggregated
with all other loans or extensions of credit to, or forbearance agreements with,
such borrower and its related interests, result in total obligations that may be
outstanding following such renewal, extension or reacquisition or for which a
material term may be altered in excess of: (A) if any such loans are rated
"substandard" or below, $125,000, or (B) if all such
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loans are rated "pass," $750,000 for unsecured obligations or $1,000,000 for
secured obligations except for an increase of 10% over the previously existing
commitment for such borrower and related interests;
(q) make, acquire a participation in, or reacquire an interest in a
participation sold of, any loan that is not in compliance with its normal credit
underwriting standards, policies and procedures as in effect on June 30, 1996,
as modified, if necessary, to become or remain in accordance with GAAP or RAP or
in conformity with the recommendations of the Bank's regulators; or renew,
extend the maturity of, or alter any of the material terms of any such loan for
a period of greater than six months;
(r) reallocate or reduce any material accrual or reserve, except for the
reserve reversals listed on the Disclosure Schedule, including, without
limitation, any contingency reserve, litigation reserve, tax reserve, or the
ALLL, by reversal or booking a negative provision, or generally change the
methodology by which such accounts have been handled in past periods, unless
required to do so by GAAP or RAP;
(s) file a 1996 or 1997 (short year) income tax return on Form 1120 with the
Internal Revenue Service ("IRS") or any state taxing agency or authority;
(t) take any action that would reasonably be expected to adversely affect
VCNB's ability to perform its covenants or agreements made herein on a timely
basis;
(u) consummate a foreclosure proceeding with respect to non-residential land
or properties, unless (i) a Phase I environmental report has been obtained and
(ii) CNC consents in writing, which consent shall not be unreasonably withheld;
(v) sell any charged-off loan or settle any loan with a contractual balance
of $125,000 or more for less than 50% of the amount of the total obligation;
(w) authorize or permit any of its officers, directors, employees or agents
to directly or indirectly solicit, initiate or encourage any inquiries relating
to, or the making of any proposal which constitutes a Takeover Proposal (as
defined below), or recommend or endorse any Takeover Proposal, or participate in
any discussions or negotiations, or provide third parties with any nonpublic
information, relating to any such inquiry or proposal or otherwise facilitate
any effort or attempt to make or implement a Takeover Proposal, PROVIDED,
HOWEVER, that VCNB may, and may authorize and permit its officers, directors,
employees or agents to, provide third parties with nonpublic information,
otherwise facilitate any effort or attempt by any third party to make or
implement a Takeover Proposal, recommend or endorse any Takeover Proposal with
or by any third party, and participate in discussions and negotiations with any
third party relating to any Takeover Proposal, if its Board of Directors, after
having consulted with and considered the advice of counsel, has reasonably
determined in good faith that the failure to do so would cause the members of
its Board of Directors to breach their fiduciary duties under applicable laws.
VCNB will immediately cease and cause to be terminated any activities,
discussions or negotiations conducted prior to the date of this Agreement with
any parties other than CNC with respect to any of the foregoing. VCNB shall
immediately advise CNC following the receipt by it of any Takeover Proposal and
the details thereof, and advise CNC of any developments with respect to such
Takeover Proposal immediately upon the occurrence thereof. As used in this
Agreement, "Takeover Proposal" shall mean, with respect to any person, any
tender or exchange offer, proposal for a merger, consolidation or other business
combination involving VCNB or any of its Subsidiaries or any proposal or offer
to acquire in any manner a substantial equity interest in, or a substantial
portion of the assets of, VCNB or any of its Subsidiaries other than the
transactions contemplated or permitted by this Agreement;
(x) take any action that would prevent or impede the Merger from qualifying
as a reorganization with the meaning of Section 368(c) of the Code; and
(y) agree to, or make any commitment to, take any of the actions prohibited
by this Section 4.2.
SECTION 4.3 TIMELINESS OF CNC'S CONSENT. For purposes of Section 4.2, any
consent required from CNC, unless earlier given or denied, shall be deemed to
have been given three Business Days after
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the time VCNB or one or both of the Banks shall have requested such consent in
writing, unless during such three-day period CNC shall have promptly requested
further information in writing reasonably necessary to allow the decision to be
made, in which case such consent, unless earlier given or denied, shall be
deemed to have been given two Business Days after the time such reasonably
requested information has been furnished; provided, however, with respect to any
consent requested pursuant to Section 4.2(p), CNC shall give or deny such
request by the end of the business day following the business day on which such
request was made by VCNB.
SECTION 4.4 CONDUCT BY CNC PRIOR TO THE EFFECTIVE TIME. Except as
expressly provided in this Agreement, during the period from the date of this
Agreement to the Effective Time, CNC shall (a) not take any action which would
reasonably be expected to adversely affect or delay the ability of CNC, VCNB or
one or both of the Banks to obtain any necessary approvals, consents or waivers
of any Governmental Authority required for the transactions contemplated by this
Agreement or to perform its covenants or agreements on a timely basis under this
Agreement, (b) amend its Certificate of Incorporation in any respect that
materially and adversely affects the rights and privileges attendant to the CNC
Common Stock, or (c) agree to, or make any commitment to, take any of the
actions prohibited by this Section 4.4.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1 REPRESENTATIONS AND WARRANTIES OF VCNB AND THE BANK. VCNB
represents and warrants to CNC that, except as set forth in the Disclosure
Schedule;
(a) RECITALS TRUE. The information set forth in the recitals of this
Agreement with respect to VCNB and each Bank is true and correct.
(b) CAPITAL STOCK. VCNB is authorized to issue 20,000,000 shares of Common
Stock, no par value, and is not authorized to issue any other class or series of
capital stock, or any other securities giving the holder thereof the right to
vote on any matters on which stockholders of the VCNB can vote. As of the date
hereof, 9,228,723 shares of Common Stock are issued (of which none were held as
treasury stock and treated as issued but not outstanding), and 636,000 shares
are reserved for issuance under the Option Plan. No shares are reserved for
issuance pursuant to any other stock options, restricted stock, stock
appreciation rights, dividend reinvestment or similar plan or plans. All
outstanding shares of capital stock of VCNB are duly authorized, validly issued
and outstanding, fully paid and, nonassessable, and are subject to no preemptive
rights.
(c) AUTHORITY. Each of VCNB and the Banks has the power and authority, and
is duly qualified in all jurisdictions where such qualification is required
(except for such qualifications the absence of which, individually or in the
aggregate, would not have a Material Adverse Effect on VCNB or either of the
Banks), to carry on its business as it is now being conducted and to own all of
its material properties and assets. VCNB and each of the Banks has all federal,
state, local and foreign governmental authorizations necessary for it to own or
lease its properties and assets and to carry on its business as it is now being
conducted, except for such powers and authorizations the absence of which,
either individually or in the aggregate, would not have a Material Adverse
Effect on the VCNB or either of the Banks.
(d) SUBSIDIARIES. VCNB has no Subsidiaries, other than the Banks, each of
which is a wholly-owned subsidiary of VCNB. VCNB does not own, directly or
indirectly, any equity portion or voting interest in any corporation,
partnership or other entity, except as received in satisfaction of a debt
previously contracted in good faith.
(e) APPROVALS. The execution by VCNB of this Agreement has been authorized
by all necessary corporate action, including, but not limited to, a vote by its
board of directors (which approval includes a resolution recommending that this
Agreement and the Merger be approved by the stockholders of VCNB) subject to
adoption of this Agreement by the affirmative vote of the holders of a majority
of the
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outstanding shares of VCNB as required under the CGCL. Subject to shareholder
approval and to receipt of required approvals, consents or waivers of
Governmental Authorities referred to in Section 7.1 (b), this Agreement is a
valid and binding agreement of VCNB, enforceable against it in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights, general equitable principles, and the rights of
the FDIC.
(f) NO VIOLATIONS. The execution, delivery and performance of this
Agreement by VCNB does not, and the consummation of the Merger will not,
constitute (i) a breach or violation of, or a default under any applicable law,
rule or regulation or any material judgment, decree, order, governmental permit
or license, or material indenture, agreement or instrument of VCNB, or to which
it (or any of its respective properties) is subject, which breach, violation or
default would have a Material Adverse Effect on VCNB or would materially hinder
or delay the Merger, or (ii) a breach or violation of, or a default under, its
Articles of Incorporation or Bylaws; and the consummation of the Merger will not
require any approval, consent or waiver under any such law, any rule,
regulation, judgment, decree, order, governmental permit or license or the
approval, consent or waiver of any other party to any such agreement, indenture
or instrument, other than (A) the shareholder approval referred to in Section
7.1(a), (B) the required approvals, consents and waivers of Governmental
Authorities referred to in Section 7.1(b), (C) the approvals, consents or
waivers as are required under the federal and state securities or Blue Sky laws,
(D) any other material approvals or consents or waivers of third parties as set
forth in the Disclosure Schedule, and (E) any other approvals, consents or
waivers the absence of which, individually or in the aggregate, would not result
in a Material Adverse Effect on VCNB or would not materially hinder or delay the
Merger.
(g) COMMUNITY REINVESTMENT ACT. Each of the Banks received a rating of
"satisfactory" in its most recent examination or interim review with respect to
the Community Reinvestment Act. VCNB has not been advised of any supervisory
concerns regarding any Bank's compliance with the Community Reinvestment Act.
(h) REPORTS. VCNB and each of the Banks have timely filed all material
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that it was required to file since January 1, 1991
with (i) the Board of Governors, (ii) the Office of the Comptroller of the
Currency (the "OCC"), (iii) any state regulatory authority, (iv) the Securities
and Exchange Commission (the "SEC"), (v) the Federal Deposit Insurance
Corporation (the "FDIC") and (vi) any self-regulatory organization (collectively
"GOVERNMENTAL AUTHORITIES") and have paid all fees and assessments due and
payable in connection therewith. Except for normal examinations conducted by a
Governmental Authority in the regular course of the business of VCNB and the
Banks, the Consent Order entered into by Frontier with the OCC on March 29, 1993
which was terminated by the OCC on , 199 the Memorandum of
Understanding entered into by VCNB with the Federal Reserve Bank of San
Francisco, the Formal Agreement entered into by Ventura Bank with the OCC, which
Formal Agreement was terminated by the OCC as of November 30, 1995 or as set
forth in the Disclosure Schedule, (i) no Governmental Authority has initiated
any proceeding or, to the best knowledge of VCNB, investigation, into the
business or operations of VCNB or either of the Banks since January 1, 1991 and
(ii) neither VCNB nor either of the Banks is a party to any cease and desist
order, written agreement, memorandum of understanding or any similar regulatory
action or order with any Federal or state governmental authorities, nor a
recipient of any extraordinary supervisory letter from, nor has it adopted any
board resolution at the request of, any of its regulators, nor been advised that
any such issuance or request is contemplated. Except as set forth in the
Disclosure Schedule, there is no material unresolved violation, criticism or
exception by any Governmental Authority with respect to any report or statement
relating to any examinations of VCNB by any Governmental Authority with respect
to any report or statement relating to any examinations of VCNB or either of the
Banks. The deposits of Frontier and Ventura Bank are insured by the FDIC in
accordance with the Federal Deposit Insurance Act, up to applicable limits.
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(i) FINANCIAL STATEMENTS. As of their respective dates, none of VCNB's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (the
"1995 10-K")or Quarterly Report on Form 10-Q for the quarters ended March 31,
1996 and June 30, 1996, nor any other document filed subsequent to December 31,
1995 under Section 13(a), 13(d), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), each in the form (including exhibits)
filed with the SEC (collectively, the "VCNB REPORTS"), contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Each of the balance
sheets or statements of condition contained or incorporated by reference in the
VCNB Reports (including any related notes and schedules) fairly present the
financial position of the entity or entities to which it relates as of its date
and each of the statements of operations and retained earnings and of cash flows
or equivalent statements contained or incorporated by reference in the VCNB
Reports (including any related notes and schedules) fairly present the results
of operations, retained earnings and cash flows, as the case may be, of the
entity or entities to which it relates for the periods set forth therein
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments that are not material in amount or effect), in each case in
accordance with the published rules and regulations of the SEC and generally
accepted accounting principles ("GAAP") consistently applied and applicable to
bank holding companies during the periods involved, except as may be noted
therein. The books and records of VCNB and its Subsidiaries have been, and are
being, maintained in all material respects in accordance with GAAP and RAP and
other applicable legal and accounting requirements and reflect only actual
transactions.
(j) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in the June
30, 1996 10-Q, since December 31, 1995, there have not been (i) any changes in
the business, assets, financial condition or results of operations of VCNB and
its Subsidiaries that, individually or in the aggregate, have had a Material
Adverse Effect on VCNB and its Subsidiaries; (ii) any amendments to the Articles
of Incorporation or Bylaws of VCNB; (iii) any declarations, setting aside or
payment of any dividend or any other distribution in respect of the capital
stock of VCNB; or (iv) any changes by VCNB in accounting principles or methods
or tax methods, except as required or permitted by, the Financial Accounting
Standards Board or by any Governmental Authorities having jurisdiction over the
Bank.
(k) TAXES. Except as prohibited by Section 4.2(s), VCNB has, or will have,
timely filed all Tax Returns required to have been filed prior to the Effective
Time (taking into account valid extensions), and all such returns and reports
are correct and complete in all material respects. VCNB has delivered or made
available to CNC true and complete copies of all such Tax Returns for 1992, 1993
and 1994 and, when available, will deliver to CNC true and complete copies of
such Tax Returns for 1995. The Disclosure Schedule sets forth those California
Tax Returns and Federal Tax Returns that have been audited, those Tax Returns
that currently are the subject of audit, and those Tax Returns for which the
statute of limitations for the assessment of Taxes has not run. All Taxes
(including, but not limited to, any interest, penalty or addition thereto) due,
or required to be withheld and paid over as of the date hereof as shown on such
returns have been paid. To VCNB's knowledge, VCNB has not requested any
extension of time within which to file a return or report that has not since
been timely filed. No deficiency in any Taxes, assessments or governmental
charges have been proposed, asserted or assessed against VCNB that has not been
settled and paid. Except as set forth in the Disclosure Schedule, no waiver of
time to assess any Taxes is in effect and no request for such waiver is pending.
The Disclosure Schedule identifies the amount and expiration dates for all net
operating loss carryforwards and gross timing differences of VCNB as of December
31, 1995. VCNB has not undergone an ownership change within the meaning of
Section 382 of the Code. To VCNB's knowledge, VCNB has no liability for Taxes,
including employment taxes, of any person under Treasury Regulation Section
1.1502-6, as a transferee or successor, or otherwise. Except as set forth in the
Disclosure Schedule, VCNB has not made, nor is it obligated to make, nor is it a
party to any agreement that could reasonably be expected to obligate it to make,
any payments that are not deductible pursuant to Code Section 280G. VCNB is not
a dealer within the meaning of Code Section 475 and the applicable Treasury
Regulations.
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<PAGE>
(l) ABSENCE OF CLAIMS; LITIGATION. No legal, administrative, arbitration or
other proceedings, claims, actions or governmental or regulatory investigations
of any nature are pending or to its knowledge, threatened against VCNB or either
of the Banks which are reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on VCNB or to materially hinder or delay
consummation of the Merger. Neither VCNB nor either of the Banks is in default
with respect to any material judgment, order, writ, injunction, decree,
regulatory restriction or award of any court, arbitrator or governmental agency,
authority or instrumentality. The Disclosure Schedule contains a complete
listing of litigation pending or, to VCNB's knowledge, threatened against VCNB
or either of the Banks as of August 31, 1996, to which VCNB is a party and which
names VCNB as a defendant or cross-defendant and the amount reserved for
litigation matters in the aggregate.
(m) REGULATORY ACTIONS. As of the date hereof and to VCNB's actual
knowledge, neither VCNB nor either of the Banks is the subject of a referral to
either the United States Department of Justice or the Department of Housing and
Urban Development for alleged violations of the Fair Lending Acts. Except as set
forth in the Disclosure Schedule, to the knowledge of VCNB, each material
violation, criticism, or exception by any governmental authority with respect to
any examinations of VCNB or either of the Banks has been resolved or is in the
process of resolution.
(n) CERTAIN AGREEMENTS. Neither VCNB nor either of the Banks is a party to
an oral or written (i) consultant agreement, not terminable on 90 days' or less
notice and involving the payment of more than $50,000 per annum, (ii) agreement
with any executive officer or other key employee, the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving it of the nature contemplated by this Agreement, (iii)
agreement with or with respect to any executive officer providing any term of
employment or compensation guarantee extending for a period longer than six
months, or (iv) agreement or plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of the Merger or the value of any of the benefits of which will be
calculated on the basis of the Merger. CNC has been provided with a complete and
accurate listing of the names and current annual salary rates of all persons
employed by VCNB and each of its Subsidiaries, showing for each such person the
amounts paid or payable as salary, bonus payments and any indirect compensation
for the year ended December 31, 1995, the names of all of the directors and
officers of VCNB and each of its Subsidiaries, and the names of all persons, if
any, holding tax or other powers of attorney for the VCNB and each of its
Subsidiaries.
(o) LABOR MATTERS. Neither VCNB nor any of its Subsidiaries, is party to,
or is bound by, any collective bargaining agreement, contract, or other
agreement or understanding with a labor organization, nor is any of them the
subject of any proceeding asserting that it has committed an unfair labor
practice or seeking to compel it to bargain with any labor organization as to
wages and conditions of employment, nor is there any strike or labor dispute
involving VCNB or any of its Subsidiaries. VCNB considers its employee relations
and those of each of its Subsidiaries to be satisfactory.
(p) EMPLOYEE BENEFIT PLANS. A list of all Employee Plans (as hereinafter
defined) is set forth in the Disclosure Schedule. VCNB has delivered or made
available to CNC true and complete copies of the following documents, as they
may have been amended to the date hereof, embodying or relating to Employee
Plans: Each of the Employee Plans, including all amendments thereto, any related
trust agreements, insurance policies or any funding agreements; the most recent
determination letter from the IRS with respect to each of the Employee Plans;
the actuarial evaluation, if any, for the most recent plan year prepared for
each of the Employee Plans; the current summary plan description of each of the
Employee Plans; and the most recent annual return/report on IRS Forms 5500,
5500-C or 5500-R for each of the Employee Plans for which such report was
prepared.
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<PAGE>
Except as set forth in the Disclosure Schedule:
(i) the written terms of each of the Employee Plans and, if controlled
by VCNB or any of its Subsidiaries, any related trust agreement, group
annuity contract, insurance policy or other agreement, have been
administered in substantial compliance with the applicable requirements of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and the Code;
(ii) each of the Employee Plans for which VCNB has claimed a deduction
under Code Section 404, as if such Employee Plan were qualified under Code
Section 401(a), has received a favorable determination letter from the IRS
as to the tax qualification of such Employee Plan, and to the knowledge of
VCNB such favorable determination has not been modified, revoked or limited
by failure to satisfy any condition thereof or by a subsequent amendment to,
or failure to amend, such Employee Plan;
(iii) to VCNB's knowledge, neither VCNB nor any of its Subsidiaries, nor
any other "disqualified person" or "party in interest" (as defined in Code
Section 4975 and Section 3(14) of ERISA, respectively) with respect to an
Employee Plan has engaged in any "prohibited transaction" (as defined in
Code Section 4975 or Sections 406 or 407 of ERISA) that could reasonably be
expected to subject VCNB or any of its Subsidiaries to any material tax,
penalty or liability under Code Section 4975 or Title I of ERISA;
(iv) no Employee Plan is a Multiple Employer Plan within the meaning of
Code Section 413 or a Multiemployer Plan within the meaning of Section 3(37)
of ERISA;
(v) neither VCNB nor any of its Subsidiaries has incurred, or has any
knowledge of, any pending material tax, penalty or liability under Code
Section 4972 with respect to any Employee Plan;
(vi) continuation health care coverage requirements and notice
requirements under Code Section 4980B and Sections 601 through 608 of ERISA
have been satisfied in all material respects with respect to all current or
prior employees of VCNB and any Subsidiaries and any "qualified beneficiary"
of any such employees (within the meaning of Code Section 4980B(g)); and
(vii) no Employee Plan provides for retiree medical benefits.
For purposes hereof, the term "Employee Plan" means any "employee benefit
plan" (as defined in Section3(3) of ERISA) as well as any other material written
or formal plan or contract involving direct or indirect compensation under which
VCNB or any Subsidiary has any present or future obligations or liability on
behalf of its employees or former employees or their dependents or
beneficiaries, including, but not limited to, each retirement, employee stock
ownership, cash or deferred, each other deferred or incentive compensation,
bonus, stock option, employee stock purchase, "phantom" stock or stock
appreciation right plan, each other program providing payment or reimbursement
for or of medical, dental or visual care, counselling, or vacation, sick,
disability or severance pay and each other "fringe benefit" plan or arrangement.
(q) INSIDER LOANS; OTHER TRANSACTIONS. VCNB has previously provided CNC
with a listing, current as of June 30, 1996, of all extensions of credit made to
VCNB and each of its Subsidiaries and each of its and their executive officers
and directors and their related interests (all as defined under Federal Reserve
Board Regulation "O"), all of which have been made in compliance with Regulation
O, which listing is true, correct and complete in all material respects. Neither
VCNB nor any Subsidiary owes any amount to, or has any contract or lease with or
commitment to, any of the present executive officers or directors of VCNB or any
Subsidiary (other than for compensation for current services not yet due and
payable, and reimbursement of expenses arising in the ordinary course of
business).
(r) TITLE TO ASSETS. VCNB and each of its Subsidiaries has good and
marketable title to all of its material properties and assets (other than (i)
property as to which it is lessee and (ii) real estate owned as a result of
foreclosure, transfer in lieu of foreclosure or other transfer in satisfaction
of a debtor's obligation
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previously contracted), including, without limitation, all personal and
intangible properties reflected in the audited financial statements included in
the 1995 10-K or the June 30, 1996 10-Q, or acquired subsequently thereto,
subject to no liens, mortgages, security interests, encumbrances or charges of
any kind except (1) as noted in the audited financial statements included in the
1995 10-K or the June 30, 1996 10-Q or as set forth in the Disclosure Schedule,
(2) statutory liens not yet delinquent which are being contested in good faith
by appropriate proceedings, and liens for Taxes not yet due, (3) pledges of
assets in the ordinary course of business to secure public deposits, (4) for
those assets and properties disposed of for fair value in the ordinary course of
business since the date of the 1995 10-K or the June 30, 1996 10-Q, (5) defects
and irregularities of title and encumbrances that do not materially impair the
use thereof for the purpose for which they are held, and (6) any other liens,
mortgages, security interests, encumbrances or charges of any kind, which
individually do not exceed $50,000 in amount. Without limiting the above, VCNB
and each of its Subsidiaries owns or possesses valid and binding licenses and
other rights to itself use without payment all material patents, copyrights,
trade secrets, trade names, service marks, logos and trademarks used in its
business, and none of them has received any notice of conflicts with respect
thereto that asserts the rights of others.
(s) KNOWLEDGE AS TO CONDITIONS. VCNB and each of its Subsidiaries knows of
no reason why the approvals, consents and waivers of Governmental Authorities
referred to in Section 7.1 (b) should not be obtained without the imposition of
any condition of the type referred to in the provisos thereto.
(t) COMPLIANCE WITH LAWS. Neither VCNB nor any of its Subsidiaries is in
material violation in respect of any federal, state or local laws, rules,
regulations or orders applicable to it or by which its properties may be bound,
except such violations as would not have a Material Adverse Effect on VCNB.
Without limiting the scope of the previous sentence, VCNB and each of its
Subsidiaries is not in material violation of Regulations B, D, E, Z or DD
adopted by the Board of Governors; the Equal Credit Act (15 U.S.C. Section1691,
ET SEQ.), the Fair Housing Act (420 U.S.C. Section3601, ET SEQ.), the Bank
Secrecy Act (31 U.S.C. Section5322, ET SEQ.), the Home Mortgage Disclosure Act
(12 U.S.C. Section2801, ET SEQ.) (collectively, the "FAIR LENDING ACTS"), or
those provisions of the United States Code providing penalties for the
laundering of monetary instruments (18 U.S.C. Section1956) or engaging in
monetary transactions in property derived from specified unlawful activity (18
U.S.C. Section1957).
(u) FEES. Other than financial advisory services performed for VCNB by
Sandler, O'Neill & Partners, L.P., neither VCNB nor any of its Subsidiaries nor
any of its or their officers, directors, employees or agents, has employed any
broker or finder or incurred any liability for any financial advisory fees,
brokerage fees, commissions or finder's fees in connection with this Agreement
or the transactions contemplated hereby.
(v) ENVIRONMENTAL.
(i) To VCNB's knowledge, all of the properties and operations of VCNB
and each of its Subsidiaries are in compliance in all material respects with
all material Environmental Laws (as defined below) applicable to such
properties and operations.
(ii) To VCNB's knowledge, VCNB and each of its Subsidiaries has obtained
all material permits, licenses, and authorizations which are required for
VCNB's operations under Environmental Laws.
(iii) Except as set forth in the Disclosure Schedule, to VCNB's
knowledge, no Hazardous Substances (as defined below) exist on, about, or
within or have been used, generated, stored, transported, disposed of on, or
released from, any of the properties of VCNB or any of its Subsidiaries
except in accordance in all material respects with Environmental Laws.
Neither VCNB nor any of its Subsidiaries has any actual knowledge that any
prior owners, occupants or operators of any such property or any other
property in which it has a security interest, ever deposited, disposed of,
or allowed to be deposited or disposed of, in, on, or under or handled or
processed on, or released, emitted or discharged from, such properties any
Hazardous Materials except in accordance in all
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material respects with Environmental Laws, or that any prior or present
owners, occupants or operators of any properties in which it holds a
security interest, mortgage or other lien or interest, deposited or disposed
of, in, on or under or handled and/or processed on, or released, emitted or
discharged from, such properties any Hazardous Material except in accordance
in all material respects with Environmental Laws. The use which VCNB and
each of its Subsidiaries has made, makes and intends to make of its
properties will not result in the use, generation, storage, transportation,
accumulation, disposal or release of any Hazardous Substance on, in, or from
any of such properties except in accordance in all material respects with
applicable Environmental Laws.
(iv) There is no action, suit, proceeding, investigation, or inquiry
before any court, administrative agency or other governmental authority
pending, or, to the knowledge of VCNB or any of its Subsidiaries, threatened
against VCNB or any of its Subsidiaries relating in any way to any material
violation of any applicable Environmental Law. To the knowledge of VCNB,
none of VCNB or its Subsidiaries has any material liability for remedial
action with respect to a violation of an Environmental Law, nor has it
received any written requests for information relating to any material
violations of any Environmental Law from any governmental authority with
respect to the condition, use, or operation of any of its properties nor has
any of them received any notice from any governmental authority or any
written notice from any other person with respect to any material violation
of or material liability for any remedial action under any Environmental
Law.
(v) As used in this Section, the term "Environmental Law" means any and
all Federal, state and local laws, regulations, and requirements pertaining
to health, safety and the environment, including, without limitation, the
Comprehensive Environmental Response Compensation and Liability Act of 1980,
42 U.S.C. Section9601, et seq. ("CERCLA"), the Resource Conservation and
Recovery Act of 1975, 42 U.S.C. Section6901, et seq. ("RCRA"), the
Occupational Safety and Health Act, 29 U.S.C. Section651, et seq. (as it
relates to the use of, or exposure to, Hazardous Substances), the Clean Air
Act, 42 U.S.C. Section7401, et seq., the Clean Water Act, 33 U.S.C.
Section1251, et seq., the Toxic Substance Control Act, 15 U.S.C.
Section2601, et seq., the Carpenter-Presley-Tanner Hazardous Substance
Account Act, as amended, Chapter 6.8 of the California Health and Safety
Code, Section25300, et seq., and the Hazardous Waste Control Law, Chapter
6.5 of the California Health and Safety Code, Section25100, et seq. (the
latter two statutes being referred to herein as the State Acts), and any and
all regulations promulgated thereunder, and all similar laws, regulations,
and requirements of any governmental authority, agency having jurisdiction
over the environmental activities of VCNB or any of its Subsidiaries, or of
its or their properties, as such laws, regulations, and requirements may be
in effect on the date hereof.
(vi) As used in this Section, the term "properties" shall include: all
real estate property now or previously owned or leased by VCNB and each of
its Subsidiaries, property as to which VCNB or any of its Subsidiaries holds
any security interest, deed of trust, mortgage or other lien, and any
property to which VCNB or any of its Subsidiaries could be deemed an "owner"
or "operator" under any applicable Environmental Law.
(vii) As used in this Section, the term "Hazardous Substance" shall mean
(1) any "hazardous waste" as defined by CERCLA and the State Acts, as such
acts are in effect on the date hereof, and any and all regulations
promulgated thereunder; (2) any "hazardous substance" as such term is
defined by CERCLA; (3) any "regulated substance" as defined by the State
Acts; (4) asbestos requiring abatement, removal or encapsulation pursuant to
the requirements of governmental authorities; (5) polychlorinated biphenyls;
(6) petroleum products; (7) "hazardous chemicals" or "extremely hazardous
substances" in quantities sufficient to require reporting, registration,
notification and/or optional treatment or handling under the Emergency
Planning and Community Right to Know Act of 1986; (8) any "hazardous
chemical" in levels that would result in exposure greater than is allowed by
permissible exposure limits established pursuant to the Occupational Safety
and Health Act of 1970; (9) any substance that requires reporting,
registration, notification, removal, abatement and/or special treatment,
storage, handling or disposal, under SectionSection6, 7 and 8 of the Toxic
Substance Control Act (15
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U.S.C. Section2601); (10) any toxic or hazardous chemical described in 29
C.F.R. 1910.1000-1047 in levels that would result in exposure greater than
those allowed by the permissible exposure limits pursuant to such
regulations; and (11) any (A) "hazardous waste", (B) "solid waste" capable
of causing a "release or threatened release" that present an "imminent and
substantial endangerment" to the public health and safety of the
environment, (C) "solid waste" that is capable of causing a "hazardous
substance incident" (D) "solid waste" with respect to which special
requirements are imposed by applicable governmental authorities upon the
generation, transportation thereof as such terms are defined and used within
the meaning of the State Acts or (E) any "pollutant" or "toxic pollutant" as
such term is defined in the Federal Clean Water Act, 33 U.S.C.
SectionSection1251-1376, as amended, by Public Law 100-4, February 4, 1987,
and the regulations promulgated thereunder, including 40 C.F.R.
SectionSection122.1 and 122.26.
(w) ALLOWANCE FOR POSSIBLE LOAN LOSSES. The ALLL for each of the Banks is
adequate in accordance with GAAP and RAP.
(x) PERFORMANCE OF OBLIGATIONS. VCNB and each of its Subsidiaries has
performed in all material respects all of the obligations required to be
performed by it to date, and is not in default under, or in breach of, any term
or provision of any material contract, lease, indenture or any other material
agreement to which it is a party, is subject or is otherwise bound and no event
has occurred that, with the giving of notice or the passage of time, or both,
would constitute such default or breach. The Disclosure Schedule contains a list
of all contracts to which VCNB and each of its Subsidiaries is a party, except
for contracts terminable without penalty on not more than 90 days' notice or
involving the payment of not more than $50,000 per annum, deposit agreements and
loan agreements.
(y) INSURANCE. VCNB and each of its Subsidiaries has in effect policies of
insurance with respect to its assets and business against such casualties and
contingencies and in such types and forms as in the judgment of its management
are appropriate for its business, operations, properties and assets. VCNB has
made available to CNC, copies of all policies of insurance and bonds carried and
owned by VCNB or any of its Subsidiaries as of the date hereof, which copies are
complete and accurate in all material respects, and which are listed in the
Disclosure Schedule. Neither VCNB nor any of its Subsidiaries is in default
under any such policy of insurance or bond such that it is reasonably likely to
be cancelled. No notice of cancellation or material amendments has been received
with respect to existing material policies and no coverage thereunder with
respect to any material claims is being disputed.
(z) LISTING OF LOANS. Copies, in writing, have been made available to CNC
of the detailed listing of all loans and notes receivable of VCNB and each of
its Subsidiaries as of June 30, 1996, including participations, with the
outstanding principal balance of each such loan and note receivable, and the
past due status of any loan or note receivable, and such copies reflect
correctly the detail of trial balance totals in all material respects as of the
date of such reports.
(aa) DERIVATIVE TRANSACTIONS. Neither VCNB nor any of its Subsidiaries is
a party to a transaction in or involving forwards, futures, options on futures,
swaps or other derivative instruments.
(bb) TRUST ADMINISTRATION. Neither VCNB nor any Subsidiary presently
exercises trust powers, including, but not limited to, trust administration, and
has not exercised such trust powers for a period of at least 3 years prior to
the date hereof. The term "trusts" as used in this Subsection 5.1(bb) includes
(i) any and all common law or other trusts between an individual, corporation or
other entities and VCNB or any of its Subsidiaries, as trustee or co-trustee,
including, without limitation, pension or other qualified or nonqualified
employee benefit plans, compensation, testamentary, INTER VIVOS, and charitable
trust indentures; (ii) any and all decedents' estates where VCNB or any of its
Subsidiaries is serving or has served as a co-executor or sole executor,
personal representative or administrator, administrator DE BONIS NON,
administrator DE BONIS NON with will annexed, or in any similar fiduciary
capacity; (iii) any and all guardianships, conservatorships or similar positions
where VCNB or any of its Subsidiaries is serving or has served as a co-grantor
or a sole grantor or a conservator or a co-conservator of the estate, or any
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similar fiduciary capacity, and (iv) any and all agency and/or custodial
accounts and/or similar arrangements, including plan administrator for employee
benefit accounts, under which VCNB or any of its Subsidiaries is serving or has
served as an agent or custodian for the owner or other party establishing the
account with or without investment authority.
(cc) CONTINGENT LIABILITIES. VCNB has no actual knowledge of any facts,
other than those reflected in the financial statements included in the VCNB
Reports or the contracts, litigation and other matters listed in the Disclosure
Schedules, that indicate the existence of a contingent liability of VCNB or any
of its Subsidiaries (whether or not disclosure or accrual is required pursuant
to GAAP) as to which there is more than a remote possibility of a material
adverse impact on VCNB.
(dd) STATEMENTS TRUE AND CORRECT. None of the information supplied or to
be supplied by VCNB for inclusion in the S-4 (as defined in Section 6.1(a)) or
the Proxy Statement/Prospectus (as defined in Section 6.1(a)), or incorporated
by reference therein, or any other document to be filed with any governmental
agency or regulatory authority in connection with the transactions contemplated
hereby will, in the case of the Proxy Statement/Prospectus, when it is first
mailed to the shareholders of VCNB, contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which such
statements are made, not misleading or, in the case of the S-4, when it becomes
effective, be false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements therein not
misleading, or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the meeting of shareholder of VCNB, be false
or misleading with respect to any material fact or omit to state any material
fact necessary to correct any statement or remedy any omission in any earlier
communication with respect to the solicitation of any proxy of the VCNB
shareholders' meeting.
(ee) TIMELINESS AND COMPLIANCE OF REPORTS AND FILINGS. VCNB agrees that
through the Effective Time of the Merger, each of its reports, and other filings
required to be filed with any applicable Governmental Authority will be filed on
a timely basis and will comply in all material respects with all of the
applicable statutes, rules and regulations enforced or promulgated by the
Governmental Authority with which it will be filed and none will contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they will be made, not misleading. Any financial
statement contained in any such report, or other filing that is intended to
present the financial position of VCNB and/or any of its Subsidiaries will
fairly present the financial position of such entities or entity and will be
prepared in accordance with generally accepted accounting principles or
applicable banking regulations consistently applied during the periods involved.
Notwithstanding anything to the contrary set forth in this Section 5(ee), VCNB
makes no representation or warranty with respect to any information supplied by
CNC or CNB or any of CNC's Reports.
SECTION 5.2 REPRESENTATIONS AND WARRANTIES OF CNC. CNC represents and
warrants to VCNB that:
(a) RECITALS TRUE. The information set forth in the recitals of this
Agreement with respect to CNC are true and correct.
(b) CAPITAL STOCK. CNC is authorized to issue 75,000,000 shares of Common
Stock, $1,00 par value, and is not authorized to issue any other class or series
of capital stock, or any other securities giving the holder thereof the right to
vote on any matters on which stockholders of the CNC can vote. As of August 31,
1996, 46,088,181 shares of CNC Common Stock were issued and outstanding, and
2,211,200 shares are held as treasury stock. All outstanding shares of CNC
Common Stock outstanding are and all shares to be issued pursuant to the Merger
will be, duly authorized, validly issued, fully paid and nonassessable, and are
not, or will not be, subject to no preemptive rights. CNC has provided VCNB with
true and correct copies of its Certificate of Incorporation and Bylaws.
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(c) AUTHORITY. CNC has the power and authority, and is duly qualified in
all jurisdictions where such qualification is required (except for such
qualifications the absence of which, individually or in the aggregate, would not
have a Material Adverse Effect on CNC), to carry on its business as it is now
being conducted and to own all of its material properties and assets. CNC has
all federal, state, local and foreign governmental authorizations necessary for
it to own or lease its properties and assets and to carry on its business as it
is now being conducted, except for such powers and authorizations the absence of
which, either individually or in the aggregate, would not have a Material
Adverse Effect on CNC.
(d) APPROVALS. The execution by CNC of this Agreement has been authorized
by all necessary corporate actions of CNC, including, but not limited to, a vote
by its board of directors. No vote, consent or approval of the shareholder of
CNC or the shareholders of CNC is required to authorize this Agreement or the
consummation of the Merger. Subject to receipt of the required approvals,
consents or waivers of Governmental Authorities referred to in Section 7.1(b),
this Agreement is a valid and binding agreement of CNC enforceable against CNC
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditor's rights, general equity principles, and the
rights of the FDIC.
(e) NO VIOLATIONS. The execution, delivery and performance of this
Agreement by CNC does not, and consummation of the Merger will not, constitute
(i) a breach or violation of, or a default under, any applicable law, rule or
regulation or any material judgment, decree, order, governmental permit or
license, or material indenture, agreement or instrument of CNC, or to which CNC
(or its property) is subject, which breach, violation or default would have a
Material Adverse Effect on CNC or would materially hinder or delay the Merger or
(ii) a breach or violation of, or a default under, the Certificate of
Incorporation or Bylaws of CNC; and the consummation of the Merger will not
require any approval, consent or waiver under any such law, rule, regulation,
judgment, decree, order, governmental permit or license or the approval, consent
or waiver of any other party to any such agreement, indenture or instrument,
other than (1) the required approvals, consents and waivers of Governmental
Authorities referred to in Section 7.1 (b); and (2) any other approvals,
consents or waivers, the absence of which, individually or in the aggregate,
would not result in a Material Adverse Effect on CNC or would not materially
hinder or delay the Merger.
(f) FINANCIAL STATEMENTS. As of their respective dates, none of CNC's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995 or
Quarterly Report on Form 10-Q for the quarters ended March 31, 1996 and June 30,
1996, nor any other document filed subsequent to December 31, 1993 under Section
13(a), 13(d), 14 or 15(d) of the Exchange Act, each in the form (including
exhibits) filed with the SEC (collectively, the "CNC REPORTS"), contained or
will contain any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading. Each of the balance sheets or statements of condition contained or
incorporated by reference in the CNC Reports (including any related notes and
schedules) fairly present the financial position of the entity or entities to
which it relates as of its date and each of the statements of operations and
retained earnings and of cash flows or equivalent statements contained or
incorporated by reference in the CNC Reports (including any related notes and
schedules) fairly present the results of operations, retained earnings and cash
flows, as the case may be, of the entity or entities to which it relates for the
periods set forth therein (subject, in the case of unaudited interim statements,
to normal year-end audit adjustments that are not Material in amount or effect),
in each case in accordance with the published rules and regulations of the SEC
and GAAP consistently applied and applicable to bank holding companies during
the periods involved, except as may be noted therein. The books and records of
CNC have been, and are being maintained in all material respects in accordance
with GAAP and RAP and other applicable legal and accounting requirements and
reflect only actual transactions.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in CNC's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, since
December 31, 1995, there have not been any
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changes in the business, assets, financial condition or results of operations of
CNC and its Subsidiaries that, individually or in the aggregate, have had a
Material Adverse Effect on CNC.
(h) ABSENCE OF CLAIMS. No litigation, proceeding or controversy before any
court or governmental agency or authority is pending against CNC or its
Subsidiaries which is reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on CNC or to materially hinder or delay
consummation of the Merger, and, to its knowledge, no such litigation,
proceeding, controversy, claim or action has been threatened.
(i) REGULATORY ACTIONS. Neither CNC nor CNB is a party to any cease and
desist order, written agreement, memorandum of understanding or any similar
regulatory action or order with any Federal or state governmental authorities,
nor a recipient of any extraordinary supervisory letter from, nor has it adopted
any board resolution at the request of any of its regulators, nor been advised
that any such issuance or request is contemplated. As of the date hereof, and to
CNC's actual knowledge, CNC is not the subject of a referral to either the
United States Department of Justice or the Department of Housing and Urban
Development for alleged violations of the Fair Lending Acts. Each material
violation, criticism, or exception by any governmental authority with respect to
any examinations of CNC has been resolved or is in the process of resolution.
(j) KNOWLEDGE AS TO CONDITIONS. CNC knows of no reason why the approvals,
consents and waivers of Governmental Authorities referred to in Section 7.1(b)
should not be obtained without the imposition of any condition of the type
referred to in the provisos thereto.
(k) COMPLIANCE WITH LAWS. CNC and its Subsidiaries are not in material
violation in any respect of any material Federal, state or local laws, rules,
regulations or orders applicable to them or by which their properties may be
bound, except such violations as would not have a Material Adverse Effect on
CNC. Without limiting the scope of the previous sentence, neither CNC nor CNB is
in material violation of Regulations B, D, E, Z or DD adopted by the FRB, the
Fair Lending Acts, or those provisions of the United States Code providing
penalties for the laundering of monetary instruments (18 U.S.C. Section1956) or
engaging in monetary transactions in property derived from specified unlawful
activity (18 U.S.C. Section1957).
(l) FEES. Neither CNC, nor any of its officers, directors, employees or
agents, has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finder's fees in
connection with this Agreement or the transactions contemplated hereby.
(m) COMMUNITY REINVESTMENT ACT. CNB received a rating of "satisfactory" in
its most recent examination or interim review with respect to the Community
Reinvestment Act. CNC has not been advised of any supervisory concerns regarding
CNB' compliance with the Community Reinvestment Act.
(n) STATEMENTS TRUE AND CORRECT. None of the information supplied or to be
supplied by CNC for inclusion in the S-4 (as defined in Section 6.1(a)) or the
Proxy Statement/Prospectus, or incorporated by reference therein, or any other
document to be filed with any governmental agency or regulatory authority in
connection with the transactions contemplated hereby will, in the case of the
Proxy Statement/ Prospectus (or incorporated by reference therein), when it is
first mailed to the shareholders of VCNB, contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which such
statements are made, not misleading or, in the case of the S-4, when it becomes
effective, be false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements therein not
misleading, or, in the case of the Proxy Statement/Prospectus or any amendment
thereof or supplement thereto, at the time of the meeting of shareholders of
VCNB, be false or misleading with respect to any material fact or omit to state
any material fact necessary to correct any statement or remedy any omission in
any earlier communication with respect to the solicitation of any proxy of the
VCNB shareholders' meeting.
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(o) TIMELINESS AND COMPLIANCE OF REPORTS AND FILINGS. CNC agrees that
through the Effective Time of the Merger, each of its reports, and other filings
required to be filed with any applicable Governmental Authority will comply in
all material respects with all of the applicable statutes, rules and regulations
enforced or promulgated by the Governmental Authority with which it will be
filed and none will contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they will be made,
not misleading. Any financial statement contained in any such report, or other
filing that is intended to present the financial position of CNC and its
Subsidiaries will fairly present the financial position of CNC and its
Subsidiaries, will be prepared in accordance with generally accepted accounting
principles or applicable banking regulations consistently applied during the
periods involved. Notwithstanding anything to the contrary set forth in this
Section 5.2(o), CNC makes no representation or warranty with respect to any
information supplied by VCNB or VCNB's Subsidiaries (or any of the VCNB
Reports).
(p) TAX REPRESENTATION. It is the present intention of CNC to continue at
least one significant historic business line of each of VCNB, Ventura Bank and
Frontier, or to use at least a significant portion of each of VCNB's, Ventura
Bank's and Frontier's historic business assets in a business, in each case
within the remaining of Treasury Regulation Section 1.368-1(d).
ARTICLE VI
COVENANTS
SECTION 6.1 REGULATORY MATTERS.
(a) CNC and VCNB shall promptly prepare and file with the SEC a registration
statement on Form S-4, including the definitive proxy statement and prospectus
(the "Proxy Statement/Prospectus") to be mailed to the VCNB Shareholders to vote
upon the Merger (the "S-4"). CNC shall use all reasonable efforts to have the
S-4 declared effective under the Securities Act as promptly as practicable after
such filing, and VCNB shall thereafter mail the Proxy Statement/Prospectus to
its shareholders. CNC shall also use all reasonable efforts to obtain all
necessary state securities law or "Blue Sky" permits and approvals required to
carry out the transactions contemplated by this Agreement, and obtain the
approval for listing on the New York Stock Exchange of the shares of CNC Common
Stock to be issued to holders of Common Stock in the Merger. VCNB shall furnish
all information concerning VCNB and the holders of VCNB Common Stock as may be
reasonably requested in connection with any such action.
(b) The parties hereto shall cooperate with each other and use reasonable
best efforts to promptly prepare and file all necessary documentation, to effect
all applications, notices, petitions and filings, to obtain as promptly as
practicable all permits, consents, approvals and authorizations of all third
parties and Governmental Authorities which are necessary or advisable to
consummate the transactions contemplated by this Agreement (including, without
limitation, the Merger and Bank Mergers), and to comply with the terms and
conditions of all such permits, consents, approval and authorizations to review
in advance, and to the extent practicable each will consult the other on, in
each case subject to applicable laws relating to the exchange of information,
all the information relating to VCNB or CNC, as the case may be, and any of
their respective Subsidiaries which appear in any filing made with, or written
materials submitted to, any third party or any Governmental Authority in
connection with the transactions contemplated by this Agreement. In exercising
the foregoing right, each of the parties hereto shall act reasonably and as
promptly as practicable. The parties hereto agree that they will consult with
each other with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Authorities necessary or
advisable to consummate the transactions contemplated by this Agreement and each
party will keep the other apprised of the status of matters relating to
completion of the transactions contemplated herein.
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(c) CNC and VCNB shall, upon request, furnish each other with all
information concerning themselves, their Subsidiaries, directors, officers and
stockholders and such other matters as may be reasonably necessary or advisable
in connection with the Proxy Statement/Prospectus the S-4 or any other
statement, filing, notice or application made by or on behalf of CNC, VCNB or
any of their respective Subsidiaries to any Governmental Authority in connection
with the transactions contemplated by this Agreement.
(d) CNC and VCNB shall promptly advise each other upon receiving any
communication from any Governmental Authority whose consent or approval is
required for consummation of the transactions contemplated by this Agreement
which causes such party to believe that there is a reasonable likelihood that
the approval of any Governmental Authority required pursuant to Section 7.1(b)
will not be obtained or that the receipt of any such approval will be materially
delayed beyond March 31, 1997.
SECTION 6.2 STOCKHOLDERS' APPROVALS. VCNB shall duly call, give notice of,
convene and hold a meeting of its shareholders to be held as soon as practicable
following the date hereof for the purpose of obtaining the requisite shareholder
approvals required in connection with this Agreement and the Merger. Subject to
the provisions of the next sentence, VCNB shall, through its Board of Directors,
recommend to its stockholders approval of such matters. VCNB's Board of
Directors may fail to make such recommendation, or withdraw, modify or change
any such recommendation in a manner adverse to CNC if such Board of Directors,
after having consulted with and considered the advice of counsel, has reasonably
determined in good faith that the making of such recommendation, or the failure
to withdraw, modify or change its recommendation, would constitute a breach of
the fiduciary duties of the members of such Board of Directors under applicable
law.
SECTION 6.3 LEGAL CONDITIONS TO MERGER.
(a) Each of CNC and VCNB shall, and shall cause each of its Subsidiaries to,
use its reasonable best efforts (i) to take, or cause to be taken, all actions
necessary, proper or advisable to comply promptly with all legal requirements
which may be imposed on such party or its Subsidiaries with respect to the
Merger and, subject to the conditions set forth in Article VII hereof, to
consummate the transactions contemplated by this Agreement and (ii) to obtain
(and to cooperate with the other party to obtain) any consent, authorization,
order or approval of, or any exemption by, any Governmental Authority and any
other third party which is required to be obtained by VCNB or CNC or any of
their respective Subsidiaries in connection with the Merger and the other
transactions contemplated by this Agreement, and to comply with the terms and
conditions of any such consent, authorization, order or approval.
(b) Each of CNC and VCNB agrees to use reasonable best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective, as soon as
practicable after the date of this Agreement, the transactions contemplated
hereby, including, without limitation, using reasonable efforts to lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties to consummate the transactions contemplated hereby
and using reasonable efforts to defend any litigation seeking to enjoin, prevent
or delay the consummation of the transactions contemplated hereby or seeking
material damages.
SECTION 6.4 INFORMATION.
(a) CNC'S RIGHT TO ACCESS AND INFORMATION. Upon reasonable notice, VCNB
shall, and shall cause each of its Subsidiaries to, afford to CNC and its
representatives (including, without limitation, directors, officers, and
employees, and their affiliates, and counsel, accountants and other
professionals retained) such reasonable access during normal business hours
throughout the period prior to the Effective Time to the books, records
(including, without limitation, Tax Returns and work papers of independent
auditors), properties, policies, files, personnel and to such other information
as such persons may reasonably request, permit such persons to inspect and make
copies of all stock records, minute books, books of account, contracts,
commitments and other records, furnish to CNC such counterpart originals or
certified or other
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copies of such documents or such information with respect to its businesses and
affairs as CNC may reasonably request and that VCNB and its Subsidiaries may
provide without violation of applicable law or regulation or jeopardy to any
attorney-client or similar privilege to which the Bank may be entitled as
against third parties other than CNC. Without limiting the foregoing, VCNB shall
promptly provide CNC (i) monthly unaudited balance sheets and operating
statements, loan delinquency reports, investment reports and such other reports
and materials as are normally prepared and provided to the Board of Directors or
senior management of the VCNB and (ii) each month and on the date that is five
days prior to the Effective Time, a list of loans for which a Notice of Default
has been filed or for which discussions have commenced that have a reasonable
possibility of leading to a deed in lieu of foreclosure by the obligor
thereunder. VCNB shall provide CNC with as much information concerning any exit
interview or similar meetings held in connection with any regulatory
examinations of VCNB and its Subsidiaries and, with respect to the examination
findings and results, as VCNB can provide without violation of law. Without
limiting the generality of the foregoing, CNC shall have the right to (i)
conduct a full due diligence review of the operations and assets of VCNB and its
Subsidiaries, (ii) conduct a full credit review of VCNB and its Subsidiaries and
(iii) conduct a specific credit review of VCNB and its Subsidiaries during the
thirty days prior to the Effective Time.
(b) VCNB'S RIGHT TO ACCESS AND INFORMATION. Upon reasonable request by VCNB,
CNC shall (i) make its Chief Financial Officer and Controller available to
discuss with VCNB and its representatives CNC's ongoing diligence and review of
VCNB's operations and (ii) shall provide VCNB with written information which is
(a) similar to the written information that VCNB reviewed in connection with
this Agreement, and (b) related to CNC's and its Subsidiaries' business
condition, operations and prospects.
(c) CUSTOMER CALLS. Prior to the Effective Time, representatives of CNC will
be permitted to conduct joint calls upon customers of the Banks, if accompanied
by representatives of the Banks, on a schedule to be agreed upon between the
parties; provided, however, that in the event that either party terminates this
Agreement in accordance with the terms hereof, CNC shall not, for a period of
one (1) year from the date of the termination of this Agreement contact any
customer of the Banks contacted pursuant to this Section 6.4(c).
(d) CONFIDENTIALITY. Neither party shall, and each shall cause its
representatives not to, use any information obtained pursuant to this Section
6.4 for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement. Subject to the requirements of law, each party
shall keep confidential, and shall cause its representatives to keep
confidential, all information, documents and trade secrets obtained pursuant to
this Section 6.4 unless such information (i) becomes or has become available to
such party from other sources not known by such party to be bound by a
confidentiality obligation, (ii) is disclosed with the prior written approval of
the party to which such information pertains or (iii) is or becomes readily
ascertainable from published information or trade sources. In the event that
this Agreement is terminated or the Merger shall otherwise fail to be
consummated, each party shall promptly cause all copies of documents or extracts
thereof containing information and data as to another party hereto to be
returned to the party that furnished the same.
SECTION 6.5 EMPLOYEE BENEFITS.
(a) All employees of VCNB continuing in the employ of CNC shall be entitled
to participate in stock plans, bonus plans and all other benefit plans of CNC on
the same basis as other similarly situated employees of CNC. Each of these
employees will be credited for eligibility, participation, vesting and accrual
purposes (provided that no more than 1,080 hours of sick leave may be carried
over into CNC's sick leave program), with such employee's respective years of
past service with VCNB (or other prior service so credited by VCNB) as though
they had been employees of CNC.
(b) VCNB and each of its Subsidiaries has furnished to CNC its severance
policies applicable to its employees (other than as set forth in the Disclosure
Schedule) and a schedule indicating the amount that would be due as a severance
payment to each such employee if he or she is not offered continued
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employment in an equivalent or substantially similar position by CNC following
the Effective Time. To the extent CNC fails to offer an employee identified on
such schedule continued employment in an equivalent or substantially similar
position following the Effective Time, CNC shall be responsible for paying the
severance payments due such employee as set forth on such schedule.
(c) Provided such agreement is listed on the Disclosure Schedule and a
complete copy of such agreement has been provided to CNC prior to the date
hereof, CNC hereby agrees to honor, in accordance with their terms, any existing
individual employment, severance, deferred compensation and similar agreements
between VCNB or any of its Subsidiaries and any current or former officer,
director, employee or consultant of VCNB or such Subsidiary; provided, however
at the close of business on the last day of the month preceding the Effective
Time, VCNB and its Subsidiaries shall have paid or accrued at least $510,000 for
severance benefits payable to employees of VCNB and its subsidiaries pursuant to
this Section 6.5(c). In the event that payments or accruals made pursuant to
this Section exceed $510,000, such excess shall not be included in determining
Book Value Per Share of VCNB pursuant to Section 7.2(e). Notwithstanding any
other provision of this Agreement, no employee shall receive duplicative
benefits by reason of this Section.
(d) VCNB shall pay or accrue, up to $100,000 in retention bonuses or other
similar incentives for employees of VCNB or one of the Banks, the selection of
such employees and the amounts of such payments to be mutually acceptable to the
parties. In the event that payments or accruals are made pursuant to this
Section, such amount shall not be included in determining Book Value Per Share
of VCNB pursuant to Section 7.2(e).
SECTION 6.6 CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. CNC, VCNB and each
of their respective Subsidiaries shall (a) promptly make any filings and
applications required to be filed in order to obtain all approvals, consents and
waivers of the Board of Governors, the OCC, the FDIC and any other Governmental
Authorities or government entities necessary or appropriate for the consummation
of the transactions contemplated hereby, (b) cooperate with one another (i) in
promptly determining what filings are required to be made or approvals, consents
or waivers are required to be obtained under any relevant Federal, state or
foreign law or regulation, (ii) in providing the other a reasonable opportunity
to review and comment upon the publicly available portions of such filings, and
(iii) in promptly making any such filings, furnishing information required in
connection therewith and seeking timely to obtain any such approvals, consents
or waivers and (c) deliver to the other copies of publicly available portions of
all such filings and applications promptly after they are filed.
SECTION 6.7 ADDITIONAL AGREEMENTS; PARTIES. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
commercially reasonable efforts to take promptly, or cause to be taken promptly,
all actions and to do promptly or cause to be done promptly, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement as
promptly as practicable, including using commercially reasonable efforts to
obtain all necessary actions or nonactions, extensions, waivers, consents and
approvals from all applicable Governmental Authorities, affecting all necessary
registrations, applications and filings and obtaining any required contractual
consents (including consent to assignment of leases where required) and
regulatory approvals.
SECTION 6.8 PUBLICITY. The initial press release announcing this Agreement
shall be a joint press release and thereafter CNC and VCNB shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and in making any filings
with any governmental authority or with any national securities exchange with
respect thereto. If any party hereto, on the advice of counsel, determines that
a disclosure is required by law, it may make such disclosure without the consent
of the other parties, but only after affording the other parties a reasonable
opportunity to review and comment upon the disclosure.
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SECTION 6.9 NOTIFICATION OF CERTAIN MATTERS. VCNB shall give CNC, and CNC
shall give VCNB, prompt notice of: (a) any material change in its business,
operations, or prospects, (b) any complaints, investigations or hearings (or
communications indicating that same may be contemplated) of any governmental
agency or Governmental Authority, (c) the institution or the threat of material
litigation, or (d) any event or condition that constitutes a breach of this
Agreement, or that might be reasonably expected to cause its representations or
warranties set forth herein not to be true and correct in all material respects
as of the Effective Time.
SECTION 6.10 PRE-CLOSING ADJUSTMENTS. At or before the Closing, VCNB shall
make, and shall cause its Subsidiaries to make, and the Subsidiaries shall make,
such accounting entries or adjustments, including charge-offs of loans, as CNC
shall direct in order to implement its plans for the Subsidiaries following the
Closing or to reflect expenses and costs related to the Bank Merger; PROVIDED,
HOWEVER, that (a) VCNB and its Subsidiaries shall not be required to take such
actions more than one day prior to the Effective Time or prior to the time CNC
agrees in writing that all of the conditions to its obligation to close as set
forth in Section 7.2 have been satisfied or waived, and (b) based upon
consultation with counsel and accountants for VCNB and its Subsidiaries, no such
adjustment shall (i) require any filing with any governmental agency or
authority, (ii) violate any law, rule or regulation applicable to VCNB or its
Subsidiaries, or (iii) otherwise materially disadvantage VCNB or its
Subsidiaries if the Acquisition were not consummated; PROVIDED that in any
event, no accrual or reserve made by VCNB or its Subsidiaries pursuant to this
Section 6.10, or any litigation or regulatory proceeding arising out of any such
accrual or reserve, shall constitute or be deemed to be a breach, violation of
or failure to satisfy any representation, warranty, covenant, condition or other
provision of this Agreement or otherwise be considered in determining whether
any such breach, violation or failure to satisfy shall have occurred. The
recording of such adjustments shall not be deemed to imply any misstatement of
previously furnished financial statements or information, shall not be construed
as concurrence of VCNB's or its Subsidiaries' management with any such
adjustments, and shall not affect the Exchange Ratio or the Per Share Cash
Consideration.
SECTION 6.11 DIRECTOR RESIGNATIONS. VCNB and its Subsidiaries shall use
reasonable efforts to cause to be delivered to CNC at the Closing, the
resignations of the members of the Board of Directors of VCNB and its
Subsidiaries.
SECTION 6.12 HUMAN RESOURCES ISSUES. VCNB and each of its Subsidiaries
agree to cooperate with CNC with respect to any formal meetings or interviews
with one or more employees called or arranged by it and held for the purpose of
discussing the transactions contemplated by this Agreement or their effect on
such employees, with CNC given the opportunity to participate in such meetings
or interviews. This section is not intended to apply to casual conversations
about the transaction or informal meetings initiated by employees, or to
prohibit discussion in general, but rather to allow CNC a role in the formal
presentation of the transaction to employees, and an opportunity to participate
in the significant, formal meetings at which the transaction is explained and
discussed.
SECTION 6.13 ASSISTANCE WITH THIRD-PARTY AGREEMENTS.
(a) VCNB and its Subsidiaries shall cooperate with and use all reasonable
efforts to assist CNC in (a) gaining access to all of their third-party vendors,
landlords of all of their leased properties and other parties to material
agreements, promptly after the date of this Agreement, (b) obtaining the
cooperation of such third parties in a smooth transition in accordance with
CNC's timetable at or after the Effective Time.
(b) Without limiting Section 6.13(a), VCNB and its Subsidiaries shall use
all reasonable efforts to provide data processing and other processing support,
including support from outside contractors, to assist CNC in performing all
tasks reasonably required to result in a successful conversion of their data and
other files and records to CNC's production environment, when requested by CNC
and sufficient to ensure that a successful conversion can occur at such time as
CNC requests at or after the Effective Time. Among other things, VCNB and its
Subsidiaries shall:
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(i) cooperate with CNC to establish a mutually agreeable project plan to
effectuate the conversion;
(ii) use their commercially reasonable efforts to have VCNB's and its
Subsidiaries' outside contractors continue to support both the conversion
effort and its needs until the conversion can be established;
(iii) provide, or use its commercially reasonable efforts to obtain from
any outside contractors, all data or other files and layouts requested by
CNC for use in planning the conversion, as soon as possible;
(iv) provide reasonable access to personnel at corporate headquarters,
data and other processing centers, all branches and, with the consent of
outside contractors, at outside contractors, to enable the conversion effort
to be completed on schedule; and
(v) to the extent reasonably practicable, give notice of termination,
conditioned upon the completion of the transactions contemplated hereby, of
the contracts of outside data and other processing contractors or other
third-party vendors when directed to do so by CNC.
Notwithstanding the foregoing, neither VCNB nor the Banks shall be required
to give any notice of termination required by this Section 6.13 (x) more than
thirty days prior to the Effective Time and (y) unless CNC states in writing
that, to the best of its knowledge, all conditions to Closing set forth in
Article VII have been or will be satisfied or waived; provided, however, that
VCNB and the Banks shall take action as directed by CNC at any time (1) to
terminate any contract other than that described in clause (2) hereof, if CNC
indemnifies VCNB and the Banks for the incremental costs of obtaining a
replacement contract in the event that the Merger is not consummated other than
due to breaches of this Agreement by VCNB; and (2) to terminate any of the
Bank's outside data processing contracts (the "DP CONTRACTS") if (A) CNC
provides an undertaking to VCNB and the Banks in form and substance reasonably
satisfactory to VCNB and the Banks to the effect that CNC shall, in the event
that the Merger is not consummated, indemnify VCNB and the Banks against all
losses, claims, damages or liabilities resulting from such action, and (B) CNC
agrees to compensate VCNB or the Banks for arrangements through a third-party
provider reasonably acceptable to VCNB providing service levels reasonably
comparable to those provided under the DP Contracts under terms no more
burdensome and at a price no higher to VCNB and the Banks than is provided in
the DP Contracts for their respective needs in the event such contracts are
terminated and the Merger is not consummated, other than as a result of a
failure to consummate the Merger due to breaches of this Agreement by VCNB and
further provided, that CNC's obligations under the foregoing proviso are limited
to payments for one year in an aggregate amount not greater than 150% of that
paid by VCNB or the Banks pursuant to the DP Contracts for the last twelve
months for which such DP Contracts were in effect.
(c) CNC agrees that all actions taken pursuant to this Section 6.13 shall be
taken in a manner intended to minimize disruption to the customary business
activities of VCNB and its Subsidiaries.
SECTION 6.14 NOTICES AND COMMUNICATIONS. VCNB and its Subsidiaries shall,
if requested to do so by CNC (a) cooperate with CNC by sending necessary or
appropriate customer notifications and communications as drafted by CNC to
advise such customers of the impending transaction and of CNC's plans following
the Effective Time, and (b) take or cause to be taken at the direction of and as
agent for CNC, following the receipt of all approvals of Governmental
Authorities pursuant to Section 7.1(b) all actions necessary to comply with the
provisions of the Worker Adjustment and Retraining Notification Act, as amended
(12 U.S.C 2101, et seq.), with respect to all employees of VCNB and its
Subsidiaries covered by such act who are to be terminated by CNC within sixty
days following the effective time, including the issuance of notices to such
employees.
SECTION 6.15 INSURANCE POLICIES ASSIGNMENT. VCNB and its Subsidiaries
agree to make commercially reasonable efforts to obtain consent to partial or
complete assignments of any of their insurance
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policies if requested to do so by CNC, to the extent necessary to maintain the
benefits to CNC of such policies as they apply to VCNB and its Subsidiaries.
VCNB and its Subsidiaries shall also inform CNC no later than the Effective Time
of any material unfiled insurance claims of which they have knowledge and for
which they believe coverage exists.
SECTION 6.16 ADDITIONAL AGREEMENTS; OFFICERS AND DIRECTORS. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement or to vest CNB with full title to all
properties, assets, rights, approvals, immunities and franchises of either CNC
or VCNB, the proper officers and directors of each party to this Agreement shall
take all necessary or appropriate action.
SECTION 6.17 AFFILIATES AND FIVE PERCENT SHAREHOLDERS.
(a) At least 40 days prior to the Effective Time, VCNB shall deliver to CNC
a letter identifying all persons who are, at the time this Agreement is
submitted for approval to the stockholders of VCNB, "affiliates" of VCNB for
purposes of Rule 145 under the Securities Act. VCNB shall use commercially
reasonable efforts to cause each such affiliate to deliver to CNC prior to the
Effective Time a written "Affiliates" agreement, in customary form, providing
that such person shall dispose of the CNC Common Stock to be received by such
person in the Merger only in accordance with applicable law.
(b) Prior to the Effective Time, VCNB shall use commercially reasonable
efforts to cause each person or group of persons who holds more than five
percent (5%) of VCNB's Common Stock (regardless of whether such person is an
"affiliate") to deliver to the law firm delivering the opinion pursuant to
Section 7.3(d) a letter stating that such stockholder(s) have no present
intention to dispose of the CNC Common Stock he or she or they will receive in
the Merger, and committing that he, she or they will not dispose of such CNC
Common Stock in such a manner as to cause a violation of the "continuity of
shareholder interest" requirements of Treasury Regulation 1.368-1.
SECTION 6.18 COOPERATION. VCNB shall and shall cause the Banks to
cooperate with CNC and CNB in all reasonable respects in accomplishing the Bank
Mergers.
SECTION 6.19 INDEMNIFICATION AND DIRECTORS AND OFFICERS. CNC agrees that
all rights to indemnification or exculpation now existing in favor of the
directors, officers, employees and agents of VCNB and its Subsidiaries as
provided in their respective articles of incorporation, bylaws, indemnification
agreements or otherwise in effect as of the date hereof with respect to matters
occurring prior to the Effective Time, shall survive the Merger and Bank Mergers
and shall continue in full force and effect. CNC further agrees that, following
consummation of the Merger and Bank Mergers: to the greatest extent permitted by
Delaware law, and the organizational documents or bylaws of CNC as in effect of
the date hereof, it shall indemnify, defend and hold harmless individuals who
were officers and directors of VCNB and its Subsidiaries as of the date hereof
or immediately prior to the Effective Time for any claim or loss arising out of
their actions while a director or officer, including any acts relating to this
Agreement, and shall pay the expenses, including attorneys' fees, of such
individual in advance of the final resolution of any claim, provided such
individuals shall first execute an undertaking acceptable to the Bank to return
such advances in the event it has finally concluded such indemnification is not
allowed under applicable law.
SECTION 6.20 SHAREHOLDERS' AGREEMENT. VCNB will use all reasonable efforts
to cause the directors of VCNB, to execute and deliver to CNC one or more
shareholders' agreements substantially in the form of Exhibit 6.20 hereto,
committing such persons, among other things, to vote their shares of VCNB Common
Stock in favor of the Merger at the shareholders' meeting held for that purpose,
granting a proxy for such shares to CNC, and to certain representations
concerning the ownership of VCNB Common Stock and the CNC Common Stock to be
received in the Merger, within five (5) days after the date of this Agreement.
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ARTICLE VII
CONDITIONS TO CONSUMMATION
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS. The respective
obligations of CNC on the one hand, and of VCNB on the other hand, to close the
Merger shall be subject to the satisfaction or waiver by both parties prior to
the Effective Time of the following conditions:
(a) The Agreement and the Merger shall have been approved by VCNB and CNC in
accordance with applicable law, including the approval and adoption by the
requisite affirmative votes of the holders of VCNB Common Stock entitled to vote
thereon.
(b) CNC shall have procured, as necessary, the required approval, consent or
waiver with respect to the Agreement and the Merger by the Board of Governors,
the OCC, and the FDIC and, in all such cases, all applicable statutory waiting
periods shall have expired; the parties shall have procured all other regulatory
approvals, consents or waivers of Governmental Authorities that are necessary or
appropriate to the consummation of the Merger; and no approval, consent or
waiver referred to in this Section 7.1(b) shall be deemed to have been received
if it shall include any condition or requirement that would, in the good faith
determination of CNC, be a Burdensome Condition on CNC.
(c) No party hereto shall be subject to any order, decree or injunction or a
court or agency of competent jurisdiction which enjoins or prohibits the
consummation of the Merger, the Bank Mergers or any other transactions
contemplated by this Agreement.
(d) No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated or enforced by any Governmental Authority
which prohibits, restricts or makes illegal consummation of the Merger, the Bank
Mergers or any other transactions contemplated by this Agreement.
(e) The Form S-4 covering all of the shares of CNC Common Stock to be issued
in the Merger shall have become effective under the Securities Act and no stop
order suspending the effectiveness of such Form S-4 shall have been issued and
no proceedings for that purpose shall have been initiated.
(f) The shares of CNC Common Stock to be issued in the Merger shall be
approved for listing on the New York Stock Exchange, subject to notice of
issuance.
SECTION 7.2 CONDITIONS TO OBLIGATIONS OF CNC. The obligations of CNC to
close the Merger shall be subject to the satisfaction or waiver prior to the
Effective Time of the following additional conditions:
(a) Each of the representations and warranties of VCNB contained in this
Agreement shall, in all material respects, be true at the Effective Time as if
made on such date (or on the date when made in the case of any representation or
warranty which relates to an earlier date). The Disclosure Schedule shall be
updated and made current to such date as close to the Effective Time as is
reasonable for each type of disclosure and as are agreed upon by the parties
hereto no later than thirty (30) days prior to the Effective Time; such update
of the Disclosure Schedule shall not in any way affect the representations and
warranties set forth in Section 5.1. VCNB shall have performed, in all material
respects, each of its covenants and agreements contained in this Agreement and
CNC shall have received a certificate signed by the Chief Executive Officer and
the Chief Financial Officer of VCNB, at the Effective Time, to the foregoing
effect.
(b) No litigation or proceeding shall be pending against VCNB or any of its
Subsidiaries, brought by any Governmental Authority seeking to prevent
consummation of the transactions contemplated hereby.
(c) CNC shall have received the opinion of Manatt, Phelps & Phillips, LLP,
special counsel to VCNB, in form and substance reasonably satisfactory to CNC,
to the effect that this Agreement has been duly authorized, executed and
delivered by VCNB, and constitutes the valid and legally binding obligation of
VCNB enforceable in accordance with its terms, subject to customary exceptions.
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(d) At least two days prior to the Effective Time, all attorneys,
accountants, investment bankers and other advisors and agents for VCNB and its
Subsidiaries shall have submitted to VCNB (with a copy to CNC) estimates of
their fees and expenses for all services rendered in any respect in connection
with the transactions contemplated hereby to the extent not already paid, and
based on such estimates, VCNB shall have prepared and submitted to CNC a summary
of such fees and expenses for the transaction. At the Effective Time (i) such
advisors shall have submitted their final bills for such fees and expenses to
VCNB and its Subsidiaries for services rendered, with a copy to be delivered to
CNC, and based on such summary, VCNB shall have prepared and submitted to CNC a
final calculation of such fees and expenses (ii) VCNB shall have accrued and
paid, and have caused its Subsidiaries to have accrued and paid, the amount of
such fees and expenses as calculated above, after CNC has been given an
opportunity to review all such bills and calculation of such fees and expenses,
and (iii) such advisors shall have released CNC from liability for any fees and
expenses. CNC shall not be liable for any such fees and expenses.
(e) At least five Business Days prior to the Effective Time, VCNB shall
provide CNC with VCNB's financial statements as of the close of business on the
last day of the month prior to the Effective Time. Such financial statements
shall have been prepared in all material respects in accordance with GAAP and
RAP and other applicable legal and accounting requirements, and reflect all
period-end accruals and other adjustments. At the close of business on the last
day of the month preceding the Effective Time, the Book Value Per Share of VCNB
shall be not less than $3.12. "Book Value Per Share", for purposes of this
Section 7.2(e) shall mean Adjusted Stockholders' Equity, divided by the number
of shares of VCNB Common Stock outstanding on the date of calculation. Adjusted
Stockholders' Equity shall mean the stockholders' equity of VCNB as reflected on
the financial statement delivered pursuant to this Section 7.2(e) plus the sum
of (a)(i) all severance benefits paid or accrued pursuant to Section 6.5(b),
(ii) any severance benefits in excess of $510,000 paid or accrued pursuant to
Section 6.5(c), (iii) all amounts paid or accrued pursuant to Section 6.5(d);
(iv) all amounts paid or accrued in connection with the cancellation of options
granted pursuant to the Option Plan as permitted by Sections 2.4 and 4.2(b), (v)
all amounts paid or accrued in connection with taking any actions pursuant to
Section 6.13, and (vi) all amounts paid or accrued in connection with the cold
comfort letter provided for in Section 7.2(h), in each case, net of applicable
taxes, and (b) as adjusted to eliminate any amount related to unrealized loss
(gain) on securities, available for sale, net of tax as reflected on the
financial statements delivered pursuant to this Section 7.2(e) and including
instead on such financial statements the amount of VCNB's unrealized loss on
securities, available for sale, net of tax as of June 30, 1996.
(f) At the close of business on the last day of the month preceding the
Effective Time, total deposits of VCNB and its Subsidiaries, calculated pursuant
to RAP and GAAP, shall be not less than eighty-five percent (85%) of the average
of total deposits for VCNB and its Subsidiaries for the six month period ending
on the last day of the same month in the preceding year.
(g) Between the date of this Agreement and the Effective Time, there shall
not have occurred any event related to the business condition (financial or
otherwise), prospects, operations or properties of VCNB and its Subsidiaries
that has had a Material Adverse Effect on VCNB.
(h) CNC and its directors and officers who sign the S-4 shall have received
from VCNB's independent certified public accountants "cold comfort" letters,
dated (i) the date of the mailing of the Proxy Statement/Prospectus to VCNB's
shareholders, and (ii) shortly prior to the Effective Time, with respect to
certain financial information regarding VCNB in the form customarily issued by
such accountants at such times in transactions of this type.
(i) CNC shall have received shareholders' agreements executed and delivered
by each of the directors as contemplated by Section 6.20.
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF VCNB. The obligations of VCNB
hereunder shall be subject to the satisfaction or waiver prior to the Effective
Time of the following additional conditions:
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(a) Each of the representations, warranties and covenants of CNC contained
in this Agreement shall, in all material respects, be true at the Effective Time
as if made on such date (or on the date when made in the case of any
representation or warranty which specifically relates to an earlier date); CNC
shall have performed, in all material respects, each of its covenants and
agreements contained in this Agreement; and VCNB shall have received
certificates signed by the Chief Financial Officer or other authorized senior
officers of CNC at the Effective Time, to the foregoing effect.
(b) No litigation or proceeding shall be pending against CNC or any of its
Subsidiaries brought by any Governmental Authority seeking to prevent
consummation of the transactions contemplated thereby.
(c) VCNB shall have received the opinion of Richard H. Sheehan, Jr., General
Counsel to CNC, in form and substance reasonably satisfactory to VCNB, to the
effect that (i) this Agreement has been duly authorized, executed and delivered
by CNC and constitutes the valid and legally binding obligation of CNC
enforceable in accordance with its terms, subject to customary exceptions and
(ii) the shares of CNC Common Stock issued as consideration in the Merger have
been duly authorized, validly issued, fully paid and non-assessable.
(d) VCNB shall have received the opinion of Manatt, Phelps & Phillips, LLP,
special counsel to VCNB, no later than thirty (30) days from the date hereof, in
form and substance reasonably satisfactory to VCNB, and confirmed immediately
prior to the Effective Time by such counsel (or, if such counsel cannot give
such opinion or confirmation, by other tax counsel of a prominent law firm
designated by CNC and acceptable to VCNB), substantially to the effect that, on
the basis of facts, representations and assumptions set forth in such opinion,
which are consistent with the state of facts existing at the Effective Time,
that the state of facts existing at the Effective Time, that the Merger will
qualify as a reorganization under Section 368 of the Code; provided, that this
condition shall be deemed to have been met if such opinion (or confirmation)
cannot be given due to the inability of the directors of VCNB to make or deliver
to such counsel representations or agreements reasonably required by such
counsel in order to deliver such opinion (or confirmation).
(e) VCNB shall have received an updated fairness opinion of Sandler O'Neill
& Partners L.P. within five (5) days prior to the mailing of the Proxy
Statement/Prospectus to the shareholders of VCNB confirming that the
consideration to be paid to the VCNB shareholders in the Merger is fair from a
financial point of view to such shareholders.
(f) Between the date of this Agreement and the Effective Time there shall
not have occurred any event related to the business condition (financial or
otherwise), prospects, operations or properties of CNC and its Subsidiaries that
has had a Material Adverse Effect on CNC.
ARTICLE VIII
TERMINATION
SECTION 8.1 TERMINATION. This Agreement may be terminated, and the Merger
abandoned, prior to the Effective Time:
(a) by the mutual agreement of VCNB and CNC, if the board of the directors,
or duly authorized committee thereof, or duly authorized officers, of each so
determines;
(b) by CNC or VCNB in the event of a material breach by the other party
hereto of any representation, warranty, covenant or agreement contained herein,
which is not cured within 30 days after written notice of such breach is given
to the party committing such breach by the other party;
(c) by CNC or VCNB by written notice to the other party if either (i) any
approval, consent or waiver of a Governmental Authority required to permit
consummation of the Merger shall have been denied or (ii) any Governmental
Authority or court shall have issued a final, non-appealable order enjoining or
otherwise prohibiting consummation of the Merger;
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(d) by CNC or VCNB in the event that the Merger is not consummated by May
31, 1997, unless the failure to so consummate by such time is due to the breach
of any covenant or obligation contained in this Agreement by the party seeking
to terminate;
(e) by CNC or VCNB if any approval of the stockholders of VCNB contemplated
by this Agreement shall not have been obtained by reason of the failure to
obtain the required vote at a duly held meeting of stockholders or any
adjournments or postponement thereof;
(f) by CNC if the Board of Directors of VCNB shall have withdrawn, modified
or changed in a manner adverse to CNC its approval or recommendation of this
Agreement and the Merger;
(g) by VCNB, if the Final CNC Stock Price is less than $13.90;
(h) by CNC, if (i) VCNB shall have exercised a right specified in the
proviso set forth in Section 4.2(w) with respect to any Takeover Proposal and
shall, directly or through agents or representatives, continue discussions with
any third party concerning such Takeover Proposal for more than 10 Business Days
after the date of receipt of such Takeover Proposal; or (ii) a Takeover Proposal
that is publicly disclosed shall have been commenced, publicly proposed or
communicated to VCNB which contains a proposal as to price (without regard to
the specificity of such price proposal) and VCNB shall not have rejected such
proposal within 10 Business Days of its receipt or the date its existence first
becomes publicly disclosed, if earlier; or
(i) by VCNB if a Takeover Proposal exists and the Board of Directors of
VCNB, after having consulted with and considered the advice of outside legal
counsel, reasonably determine in good faith that such action is necessary in the
exercise of its fiduciary duties under applicable law.
SECTION 8.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement by either CNC or VCNB, as provided above, this Agreement shall
thereafter become void and there shall be no liability on the part of any party
hereto or their respective officers or directors, except that any such
termination shall (i) be without prejudice to the rights of any party hereto
arising out of the willful breach by any party of any covenant or willful
misrepresentation contained in this Agreement (ii) not affect Sections 6.4(d),
6.13 and 9.12 hereof which shall survive such termination and (iii) not affect
any provision of this Agreement which expressly survives the termination of this
Agreement. The Stock Option Agreement shall be governed by its own terms as to
termination.
ARTICLE IX
OTHER MATTERS
SECTION 9.1 CERTAIN DEFINITIONS; INTERPRETATIONS. As used in this
Agreement, the following terms shall have the meanings indicated:
"ACTUAL KNOWLEDGE" shall mean facts and other information which as of the
date of this Agreement any executive vice president, chief financial officer,
controller (and, after the date of this Agreement, shall also include any Senior
Vice President), and any officer senior to any of the foregoing of a party
actually knows.
"ALLL" shall mean the allowance for loan and lease losses, as determined in
accordance with GAAP and RAP.
"BURDENSOME CONDITION" shall mean any condition or requirement included in
any required regulatory approval, consent or waivers of Government Authorities
which imposes (a) any condition or restriction on CNC or CNB, including without
limitation, requirements relating to the raising of additional capital or the
disposition of assets, which in the good faith judgment of CNC would be
materially burdensome in the context of the transactions contemplated by this
Agreement, or (b) the Memorandum of Understanding between the Federal Reserve
Bank of San Francisco and VCNB on CNC.
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"BUSINESS DAY" shall mean any day other than a Saturday, Sunday, national
holiday or any other day on which national banks operating in California are
permitted or required to close.
"CONTROL" shall have the meaning ascribed thereto in Section 2(a) of the
Bank Holding Company Act of 1956, as amended.
"KNOWLEDGE" or "BEST KNOWLEDGE" shall mean facts and other information which
as of the date of this Agreement any executive vice president, chief financial
officer, superior officer, controller (and, after the date of this Agreement,
shall also include any Senior Vice President), and any officer superior to any
of the foregoing of a party knows as a result of the performance of his or her
duties, or that a senior executive officer of a bank or bank holding company
similar to such party with similar duties reasonably should know in the normal
course of his or her duties, and includes such diligent inquiry as is reasonable
under the circumstances.
"MATERIAL" means material to CNC or VCNB (as the case may be) and its
respective Subsidiaries, taken as a whole.
"MATERIAL ADVERSE EFFECT", with respect to a person, means a material
adverse effect upon (A) business, financial condition, operations, or prospects
of such person and its Subsidiaries, taken as a whole, or (B) the ability of
such person to timely perform its obligations under, and to timely consummate
the Merger provided, however, that in determining whether a Material Adverse
Effect has occurred there shall be excluded any effect on the referenced party
the cause of which is (i) any change in banking or similar laws, rules or
regulations of general applicability or interpretations thereof by courts or
governmental authorities, (ii) any change in GAAP or RAP applicable to banks or
their holding companies generally, (iii) any action or omission of CNC or VCNB
or any subsidiary of either of them taken with the prior written consent of CNC
or VCNB, as applicable or permitted by this Agreement, and (iv) any changes in
general economic conditions affecting banks or their holding companies
generally.
"PERSON" includes an individual, corporation, partnership, association,
trust, limited liability company or partnership or unincorporated organization.
"RAP" shall mean regulatory accounting principles, if any, applicable to a
particular person.
"SUBSIDIARY", with respect to a person, means any other person the stock or
equity of which is more than 50% owned by such person.
"TAXES" shall mean any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other taxes, or assessments in the nature of taxes, of
any kind whatsoever, including any interest, penalty, or addition thereto,
whether disputed or not.
"TAX RETURN" shall mean any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
The table of contents and headings contained in this Agreement offer ease of
reference only and shall not affect the meaning or interpretation of this
Agreement. Whenever the words "include", "includes", or "including" are used in
this Agreement, they shall be deemed followed by the words "without limitation".
Any singular term in this Agreement shall be deemed to include the plural, and
any plural term, the singular.
SECTION 9.2 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS. Except for Articles II and III and Sections 6.4(d), 6.5, 6.18, and
6.19, none of the respective representations, warranties, obligations,
covenants, and agreements of the parties shall survive the Effective Time.
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SECTION 9.3 WAIVER AND MODIFICATION. Prior to the Effective Time, any
provision of this Agreement may be (a) waived by the party benefited by the
provision or by both parties or (b) amended or modified at any time (including
the structure of the transaction) by an agreement in writing between the parties
hereto, approved by their respective boards of directors, PROVIDED HOWEVER, that
any amendment which reduces the amount or changes the form of the consideration
to be delivered to the VCNB Shareholders in the Merger shall not be valid after
the Agreement is approved by the stockholders of VCNB without any subsequent
approval by the stockholders of VCNB.
SECTION 9.4 COUNTERPARTS. This Agreement may be executed in counterparts
each of which shall be deemed to constitute an original, but all of which
together shall constitute one and the same instrument.
SECTION 9.5 GOVERNING LAW, JURISDICTION AND VENUE. This Agreement shall be
governed by, and interpreted in accordance with, the laws of the State of
Delaware (however, not to the exclusion of any applicable Federal law), without
regard to Delaware statutes or judicial decisions regarding choice of law
questions. The prevailing party shall be entitled to recover all reasonable
costs and expenses, including attorneys' fees, or charges and disbursements
incurred in connection with such suit.
SECTION 9.6 NOTICES. All notices, requests, acknowledgements and other
communications hereunder (collectively, "NOTICES") to a party shall be in
writing and delivered by hand, federal express (or other reputable overnight
delivery service), telecopy, registered mail or certified mail to such party at
its address set forth below or to such other address as such party may specify
by notice to the other party hereto. All Notices given by telecopy shall be
deemed to have been given upon receipt of confirmation by the sender of such
Notice; all other Notices shall be deemed to have been given when received. If
to VCNB to:
Ventura County National Bancorporation
500 Esplanade Drive
Oxnard, California 93030
Telecopy: (805) 981-2786
Attention: Richard S. Cupp
with a copy to:
Manatt, Phelps & Phillips
11355 West Olympic Boulevard
Los Angeles, California 90064
Telecopy: (310) 312-4224
Attention: William T. Quicksilver
If to CNC, to:
City National Corporation
400 North Roxbury Drive
Beverly Hills, California 90210-5021
Telecopy: (310) 888-6704
Attention: Mr. Frank P. Pekny
with a copy to:
City National Corporation
400 North Roxbury Drive
Beverly Hills, California 90210-5021
Telecopy: (310) 888-6232
Attention: Richard H. Sheehan
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SECTION 9.7 ENTIRE AGREEMENT. Except for the agreements entered into as of
this date or contemplated by this Agreement, the Stock Option Agreement, the
Shareholders' Agreement and the Confidentiality Agreements between CNC and VCNB
dated April 22, 1996 and September 4, 1996, this Agreement (including the
Disclosure Schedule attached hereto and incorporated herein) represents the
entire understanding of the parties hereto with respect to the transactions
contemplated hereby and supersedes any and all other oral or written agreements
heretofore made;
SECTION 9.8 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, this Agreement may not be assigned by
either party hereto without the written consent of the other party.
SECTION 9.9 SEVERABILITY. If any provision of this Agreement or the
application of any such provision to any person or circumstance shall be held
invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision hereof.
SECTION 9.10 NO THIRD PARTY BENEFICIARIES. Except with respect to Sections
6.5 and 6.19 which are intended to benefit the officers and employees of VCNB
and its Subsidiaries, this Agreement is made solely for the benefit of the
parties to this Agreement and their respective successors and permitted assigns,
and no other person or entity shall have or acquire any right by virtue of this
Agreement.
SECTION 9.11 SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the U.S. or
any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
SECTION 9.12 EXPENSES. Subject to Section 7.2(d) hereof, each party hereto
shall pay its own costs and expenses incurred in connection with the Merger,
including, without limitation, attorneys' fees, charges and disbursements and
filing or other fees payable in connection with all applications, notifications
and report forms and notices to be filed with any Governmental Authority
pursuant to the terms of this Agreement; provided, however, that the costs and
expenses of printing and mailing the S-4 and the Proxy Statement/Prospectus
shall be borne by CNC, unless the Merger does not occur (other than due to a
termination of this Agreement pursuant to Section 8.1(b)), in which event such
costs and expenses shall be borne equally by the parties hereto. All filing and
other fees paid to the SEC in connection with the Merger shall be borne by CNC.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
<TABLE>
<S> <C> <C> <C>
VENTURA COUNTY NATIONAL CITY NATIONAL CORPORATION
BANCORP
By: /s/ RICHARD S. CUPP By: /s/ RUSSELL GOLDSMITH
Richard S. Cupp Russell Goldsmith
PRESIDENT AND CHIEF EXECUTIVE OFFICER VICE CHAIRMAN AND CHIEF EXECUTIVE
OFFICER
</TABLE>
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APPENDIX B
CALIFORNIA GENERAL CORPORATION LAW
DISSENTERS' RIGHTS--CHAPTER 13
SECTION 1300. RIGHT TO REQUIRE PURCHASE--"DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(a) If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or short-form merger
either (A) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of
the Federal Reserve System, and the notice of meeting of shareholders to act
upon the reorganization summarizes this section and Sections 1301, 1302,
1303 and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares described
in subparagraph (A) or (B) if demands for payment are filed with respect to
5 percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of shareholders
entitled to vote on the reorganization and (A) were not voted in favor of
the reorganization or, (B) if described in subparagraph (A) or (B) of
paragraph (1) (without regard to the provisos in that paragraph), were voted
against the reorganization, or which were held of record on the effective
date of a short-form merger; provided, however, that subparagraph (A) rather
than subparagraph (B) of this paragraph applies in any case where the
approval required by Section 201 is sought by written consent rather than a
meeting.
(3) Which the dissenting shareholder has demanded that the corporation purchase
at their fair market value, in accordance with Section 301.
(4) Which the dissenting shareholder has submitted the endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the recordholder of
dissenting shares and includes a transferee of record.
SECTION 1301. DEMAND FOR PURCHASE
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a
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brief description of the procedure to be followed if the shareholder desires to
exercise the shareholder's rights under such sections. The statement of price
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subsection (b) of Section 1300, unless they lose
their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. ENDORSEMENT OF SHARES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303. AGREED PRICE--TIME FOR PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with he secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after the amount thereof has been agreed or
within 30 days after any statutory or contractual conditions to the
reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SECTION 1304. DISSENTERS' ACTION TO ENFORCE PAYMENT
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding
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purchase of such shares as dissenting shares or any interested corporation,
within six months after the date on which notice of the approval by the
outstanding shares (Section 152) or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder, but not thereafter, may file a
complaint in the superior court of the proper county praying the court to
determine whether the shares are dissenting shares or the fair market value of
the dissenting shares or both or may intervene in any action pending on such a
complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determined, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. APPRAISERS' REPORT--PAYMENT--COSTS
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against he total amount to be paid by the corporation
therefor.
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SECTION 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SECTION 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
(b) The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT OF PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Section 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
SECTION 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
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(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of transaction except upon 10 days' prior
notice to the corporation and upon a determination by the court that clearly no
other remedy will adequately protect the complaining shareholder or the class of
shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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APPENDIX C
TAX OPINION
Manatt, Phelps & Phillips, LLP
11355 West Olympic Boulevard
Los Angeles, California 90064-1614
310-312-4000
FAX 310-312-4224
October 15, 1996
Board of Directors
Ventura County National Bancorp
500 Esplanade Drive
Oxnard, California 93030
Re: Certain Federal Income Tax Consequence of the Merger of Ventura County
National Bancorp with and into City National Corporation
Ladies and Gentlemen:
In accordance with your request, we provide the following analysis and
opinions relating to certain federal income tax consequences of the transaction
(the "Merger") whereby Ventura County National Bancorp ("Ventura") will merge
with and into City National Corporation ("City National") pursuant to that
certain Agreement and Plan of Merger dated as of September 15, 1996 (the
"Agreement"). Terms used herein have the same meaning as in the Agreement.
In the Merger, Ventura shall be merged with and into City National by a
statutory merger in accordance with the Delaware General Corporation Law and the
California General Corporation Law. The separate existence of Ventura shall
cease and City National shall be the surviving entity. City National shall
succeed, without other transfer, to all the rights and property of Ventura and
shall be subject to all the debts and liabilities of Ventura in the same manner
as if City National had itself incurred them.
Subject to the provisions of the Agreement, each share of Ventura Stock
which shall be outstanding immediately prior to the Merger shall automatically
be converted to shares of City National Stock, cash, or a mixture of City
National Stock and cash pursuant to certain shareholder elections permitted
under the Agreement. Each share of Ventura Stock which shall be outstanding
immediately prior to the Merger (other than shares which are dissenting shares
within the meaning of the California General Corporation Law) shall, without any
action on the part of the holder thereof, cease to be outstanding and be
converted into and exchanged for the right to receive shares of City National
Stock, cash, or a mixture of City National Stock and cash, in a ratio specified
in the Agreement. Dissenting shares shall not be converted into the right to
receive shares of City National Stock, but shall be entitled to such rights as
are granted under the California General Corporation Law. No fractional shares
of City National Stock shall be issued in the Merger, but instead fractional
shares shall be converted to cash under a formula in the Agreement.
The Agreement also refers to possible mergers of Ventura's wholly-owned
subsidiaries Ventura County National Bank and/or Frontier Bank, N.A., with or
into City National's wholly-owned subsidiary City National Bank at some time or
times after the Merger ("Bank Mergers"). These transactions are said to be
undertaken at City National's discretion. The Agreement does not specify the
timing, conditions, form, or any other facets of these potential
subsidiary-level transactions. This letter addresses solely the Merger and
assumes that, if one or more Bank Mergers occur, such Bank Mergers will not have
the effect of disqualifying the Merger as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
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Our analysis and the opinions set forth herein are based upon the facts as
set forth in that certain Agreement referred to above, including the exhibits
thereto. Our opinions are also based on certain representations in the Agreement
and the Shareholders' Agreement, certain written representations to us from
Ventura and City National in letters of even date herewith, and certain written
representations to us in letters from the person who is a Ventura shareholder
holding at least 5% of Ventura's issued and outstanding stock. The facts
contained in the above-referenced documents are incorporated herein by reference
as the operative facts underlying the tax opinions set forth herein. One of our
key assumptions for purposes of this letter is that the facts set forth in those
documents are accurate on the date of this analysis and remain accurate to the
date of the closing of the Merger and are otherwise true, complete, and correct.
Any change or inaccuracy in such facts may adversely affect our opinions.
We have acted as special counsel to Ventura in connection with the Merger
and are rendering these opinions to Ventura at its request. In rendering these
opinions, we have examined such documents, laws, regulations and other legal
matters as we have considered necessary or appropriate for purposes of the
opinions expressed herein. We have not made any independent investigation in
rendering these opinions other than as described herein.
Our opinions are based upon the Code as of the date hereof and currently
applicable Treasury Regulations promulgated under the Code (including proposed
Treasury Regulations), published administrative positions of the Internal
Revenue Service in revenue rulings and revenue procedures, and judicial
decisions. Such legal authorities are all subject to change, either
prospectively or retroactively. No assurance can be provided as to the effect of
any such change upon our opinions.
The opinions set forth herein have no binding effect on the Internal Revenue
Service or the courts. No assurance can be given that, if contested, a court
would agree with the opinions set forth herein. The opinions set forth herein
represent rather our best legal judgment as to the likely outcome of the issues
addressed herein if such issues were litigated.
In the case of a transaction as complex as the Merger, many federal, state
and local income and other tax consequences arise. We have been asked only to
address the issues specifically set forth below. No opinion is expressed
regarding any other issues.
This letter is being issued solely for the benefit of Ventura and for the
benefit of the Ventura shareholders as of the date of the Merger. It may not be
relied upon by any other person without our prior written consent.
Subject to the foregoing, it is our opinion that the Merger qualifies as a
reorganization within the meaning of Section 368(a) of the Code, and that
Ventura and City National are parties to the reorganization within the meaning
of Section 368(b) of the Code.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to a Registration Statement on Form S-4 to be
filed in connection with the Merger.
Very truly yours,
/s/ MANATT, PHELPS & PHILLIPS, LLP
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APPENDIX D
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, dated as of September 15, 1996 (the
"AGREEMENT"), is made and entered into by and between City National Corporation,
a Delaware corporation ("CNC"), and Ventura County National Bancorp, a
California corporation ("VCNB").
WHEREAS, CNC and VCNB are concurrently herewith entering into an Agreement
and Plan of Merger with respect to a business combination of CNC and VCNB (the
"MERGER AGREEMENT"); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, CNC has requested that VCNB agree, and in order to induce CNC to
enter into the Merger Agreement, VCNB has agreed, to grant an option to CNC to
purchase certain shares of common stock, no par value, of VCNB (the "VCNB COMMON
STOCK");
NOW, THEREFORE, in consideration of the foregoing, and the representations,
warranties, covenants and agreements set forth herein and in the Merger
Agreement, and intending to be legally bound, the parties hereto agree as
follows:
1. GRANT OF OPTION. VCNB hereby grants to CNC an irrevocable option (the
"OPTION") to purchase, subject to the terms hereof, up to 1,836,516 fully paid
and nonassessable shares (the "OPTION SHARES") of VCNB Common Stock, exercisable
as set forth herein by payment of the Option Price, as defined in Section 4
hereof. The number of shares of VCNB Common Stock that may be received upon the
exercise of the Option and the Option Price are subject to adjustment as set
forth herein.
2. EXERCISE OF OPTION.
(a) CNC may, subject to the provisions of this Section 2 and subject to the
conditions of exercise contained in Section 3 hereof, exercise the Option, in
whole or in part, at any time following the occurrence of an Exercise Event, but
prior to the Expiration Date (as defined in Section 3 hereof).
(b) Notwithstanding any other provision of this Agreement to the contrary,
in no event shall CNC purchase under the terms of this Agreement that number of
Option Shares which have a Spread Value in excess of $2,000,000. In the event
the Spread Value exceeds $2,000,000 the number of Option Shares which CNC is
entitled to purchase at the Closing Date shall be reduced to the extent required
such that the Spread Value following such reduction is equal to or less than
$2,000,000.
3. CONDITIONS OF EXERCISE; EXPIRATION.
(a) It shall be a condition to CNC's exercise of the Option that, at the
time of such exercise (i) CNC is not in breach in any material respect of any
covenant or obligation set forth in the Merger Agreement and (ii) there is not
in effect any preliminary or permanent injunction or other order by any court of
competent jurisdiction which prevents or restrains the issuance and delivery of
the Option Shares.
(b) The right to exercise any part of the Option not previously exercised
shall expire, terminate and be of no further force and effect upon the earliest
to occur of (such earliest date, the "EXPIRATION DATE") (i) the Effective Time
of the Merger, (ii) the date the Merger Agreement is terminated pursuant to
Sections 8.1(a) or (g); (iii) the date the Merger Agreement is terminated by
VCNB or CNC pursuant to Sections 8.1(b), (c), (d), (e) or (f) if such date is
prior to the occurrence of an Exercise Event or Preliminary Acquisition
Transaction; or (iv) 18 months following the earliest to occur of (A) the date
of any termination of the Merger Agreement other than as described in clauses
(ii) and (iii) of this sentence or (B) the date of the first occurrence of an
Exercise Event.
4. MANNER OF EXERCISE.
(a) In the event that CNC wishes to exercise the Option, in whole or in
part, CNC shall send a written notice (the date of which being herein referred
to as the "NOTICE DATE") to VCNB, specifying the
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number of Option Shares to be purchased and a place and date not earlier than
two nor later than ten business days following any such Notice Date for the
closing of such purchase (the "CLOSING"); provided that if prior notification to
or approval of the Federal Reserve Board, the Office of the Comptroller of the
Currency (the "OCC") or any other regulatory agency is required in connection
with such purchase, each party shall cooperate with the other in the filing of
the required notice or application for approval and shall expeditiously process
the same and use its reasonable best efforts, in good faith, to obtain any
required approval; and the period of time that otherwise would run pursuant to
this sentence shall run instead from the date on which any required notification
periods have expired or been terminated or such approvals have been obtained and
any requisite waiting period or periods shall have passed.
(b) At any Closing, CNC will make payment to VCNB for the Option Shares so
purchased at such date by delivery of immediately available funds to VCNB of
$3.93 per Option Share (the "OPTION PRICE"). If the Option is exercised in part
only, CNC shall also deliver this Agreement to VCNB at the Closing in exchange
for a new agreement duly authorized and executed by VCNB identical to this
Agreement evidencing the right to purchase the remaining balance of the Option
Shares.
(c) Upon payment of the Option Price, VCNB will immediately deliver to CNC a
certificate or certificates representing such Option Shares registered in the
name of CNC or its assignee or designee.
(d) Certificates for Option Shares delivered at a Closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the
registered holder hereof and the issuer and to resale restrictions
arising under the Securities Act of 1933, as amended. A copy of
such agreement is on file at the principal office of the issuer
and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "SECURITIES ACT"),
in the above legend shall be removed by delivery of substitute certificate(s)
without such reference if CNC shall have delivered to VCNB a copy of a letter
from the staff of the Securities and Exchange Commission ("SEC"), or an opinion
of counsel, in form and substance reasonably satisfactory to VCNB, to the effect
that such legend is not required for purposes of the Securities Act; (ii) the
reference to the provisions of this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
shares have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
5. REGISTRATION OF SHARES.
(a) In the event that the Option has become exercisable in accordance with
Section 2 hereof, then, as promptly as practicable upon CNC's request, but, in
any event, within six months from the date of CNC's request, VCNB agrees to
prepare and file a registration statement ("REGISTRATION EVENT") under the
Securities Act, and any applicable state securities laws, with respect to any
proposed disposition by CNC of any or all of the Option Shares and to use its
best efforts to cause such registration statement to become effective as
expeditiously as possible and to keep such registration effective for a period
of not less than ninety days, unless, in the written opinion of counsel to VCNB,
addressed to CNC and which shall be satisfactory in form and substance to CNC
and its counsel, registration is not required for such proposed disposition of
the Option Shares. Notwithstanding the foregoing, VCNB shall have the right to
delay (the "DELAY RIGHT") a Registration Event for a period of up to sixty (60)
days in the event it receives a request from CNC to effect a Registration Event
if VCNB (i) is involved in a material transaction, or (ii) determines, in the
good faith exercise of its reasonable business judgment, that such registration
and offering could adversely effect or interfere with BONA FIDE material
financing plans of VCNB or would
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require disclosure of information, the premature disclosure of which could
materially adversely affect VCNB or any transaction under active consideration
by VCNB. For purposes of this Agreement, the term "material transaction" shall
mean a transaction which would require VCNB to file a current report on Form 8-K
with the SEC. VCNB shall have the right to exercise two (2) Delay Rights in any
twelve (12) month period. All fees, expenses and charges of any kind or nature
whatsoever incurred in connection with the registration of the Option Shares
pursuant to this Section 5 shall be borne and paid by VCNB. VCNB shall indemnify
and hold harmless CNC, its affiliates and its officers, directors, attorneys and
agents from and against any and all losses, claims, damages, liabilities and
expenses (including, without limitation, all out-of-pocket expenses,
investigation expenses, expenses incurred with respect to any judgment and fees,
charges and disbursements of counsel and accountants) arising out of or based
upon any statements contained in, or omissions or alleged omissions from, each
registration statement (and related prospectus) required to be filed pursuant to
this Section 5.
(b) CNC shall be limited to the benefit of two effective demand
registrations as described in Section 5(a) to be requested during the three (3)
years following the date of the first Exercise Event, but shall have an
unlimited number of so-called "piggyback" registration rights. VCNB agrees to
enter into a Registration Rights agreement with CNC containing customary terms,
including appropriate indemnities, which shall only allow underwriters the
ability to cut back the number of shares CNC seeks to have registered on pro
rata basis.
6. REPRESENTATIONS AND WARRANTIES OF VCNB. VCNB hereby represents and
warrants to, and agrees with, CNC as follows:
(a) AUTHORITY RELATIVE TO THIS AGREEMENT. VCNB has full corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of VCNB and no other corporate
proceedings on the part of VCNB are necessary to authorize this Agreement or to
consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by VCNB and, assuming that this Agreement has
been duly and validly authorized, executed and delivered by CNC, this Agreement
constitutes a valid and binding agreement of VCNB, enforceable against VCNB in
accordance with its terms.
(b) OPTION SHARES. VCNB has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the date
hereof through the Expiration Date will have reserved for issuance upon exercise
of the Option, 1,836,516 shares of Common Stock, each of which, upon delivery
pursuant hereto, shall be duly authorized, validly issued, fully paid and
nonassessable, and shall be delivered free and clear of all claims, liens,
encumbrances and security interests and not be subject to any preemptive rights.
VCNB will take all necessary corporate action to authorize and reserve for
issuance upon exercise of the Option such additional shares as may be required
pursuant to Section 9 hereof. VCNB will not take, and will refrain from taking,
any action which could have the effect of preventing or disabling VCNB from (i)
delivery of the Option Shares to CNC upon exercise of the Option or (ii) from
otherwise performing its obligations under this Agreement.
(c) CONFLICTING INSTRUMENTS; CONSENTS. Neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
will violate or result in any violation of or be in conflict with or constitute
a default under any term of the Articles of Incorporation or Bylaws of VCNB, or
of any material agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to VCNB. No consent or approval by any
governmental authority, other than compliance with applicable federal and state
securities and banking laws, and regulations of the Federal Reserve Board and
the OCC, is required of VCNB in connection with the execution and delivery by
VCNB of this Agreement or the consummation by VCNB of the transactions
contemplated hereby.
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(d) NOTICE. VCNB shall give notice to CNC promptly, but in any event
within 10 days of VCNB's first obtaining knowledge of any Exercise Event or
Repurchase Event.
7. REPRESENTATIONS AND WARRANTIES OF CNC. CNC hereby represents and
warrants to VCNB as follows:
(a) AUTHORITY RELATIVE TO THIS AGREEMENT. CNC has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by the Board of Directors of CNC and no other corporate
proceedings on the part of CNC are necessary to authorize this Agreement or to
consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by CNC and, assuming this Agreement has been duly
and validly authorized, executed and delivered by VCNB, this Agreement
constitutes a valid and binding agreement of CNC, enforceable against CNC in
accordance with its terms.
(b) NO DISTRIBUTION. CNC will acquire the Option Shares issued upon
exercise of the Option for its own account, without a view toward the
distribution thereof, and will not sell such Option Shares unless such sale is
registered under the Securities Act or unless an exemption from such
registration is available.
8. NOTIFICATION OF RECORD DATE; POSTPONEMENT OF MEETING. At any time
during the period that this Option may become exercisable by CNC, VCNB shall
give CNC thirty business days' prior written notice of any record date, for
determining the holders of record of VCNB Common Stock entitled to vote on any
matter, to receive any dividend or distribution, or to receive any other benefit
or right, or for any other purpose that a record date is taken or declared with
respect to the VCNB Common Stock. In the event that CNC, in accordance with this
Agreement, elects to exercise the Option granted hereunder by delivery of the
notice required pursuant to Section 4 after the record date set by VCNB for any
shareholders' meeting, then VCNB shall, upon request by CNC, cancel the
scheduled meeting and its related record date and reschedule it for a later
date; provided, however, that the record date for such rescheduled meeting shall
be a date that is not fewer than ten nor more than thirty business days after
the cancellation of the originally scheduled shareholders' meeting.
9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION, ETC.
(a) In the event of any dividend, stock split, split-up, recapitalization,
reclassification, combination, exchange of shares or similar transaction or
event with respect to the VCNB Common Stock, the type and number of shares or
securities subject to the Option, and the Option Price therefor, shall be
adjusted appropriately, and proper provision shall be made in the agreements
governing such transaction so that CNC shall receive, upon exercise of the
Option, the number and class of shares or other securities or property that CNC
would have received in respect of VCNB Common Stock if the Option had been
exercised immediately prior to such event, or the record date therefor, as
applicable. If any shares of VCNB Common Stock are issued after the date of this
Agreement (other than pursuant to an event described in the first sentence of
this Section 9(a)), the number of shares of VCNB Common Stock subject to the
Option shall be adjusted so that, after such issuance, it, together with any
shares of VCNB Common Stock previously issued to CNC pursuant hereto, equals
19.9% of the number of shares of VCNB Common Stock then issued and outstanding,
without giving effect to any shares subject to or issued pursuant to this
Option.
(b) In the event that VCNB shall, prior to the Expiration Date, enter in an
agreement: (i) to consolidate with or merge into any person, other than CNC or
one of its Subsidiaries, and shall not be the continuing or surviving
corporation of such consolidation or merger, (ii) to permit any person, other
than CNC or one of its Subsidiaries, to merge into VCNB and VCNB shall be the
continuing or surviving corporation, but, in connection with such merger, the
then outstanding shares of VCNB Common Stock shall be changed into or exchanged
for stock or other securities of VCNB or any other person or cash or any other
property or the outstanding shares of VCNB Common Stock immediately prior to
such merger shall after such merger represent less than 50% of the outstanding
shares and share equivalents of the
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merged company; or (iii) to sell or otherwise transfer all or substantially all
of its assets to any person, other than CNC or one of its Subsidiaries, then,
and in each such case, the agreement governing such transaction shall make
proper provisions so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be converted
into, or exchanged for, an option (the "SUBSTITUTE OPTION"), at the election of
CNC, of either (x) the Acquiring Corporation (as defined below), (y) any person
that controls the Acquiring Corporation, or (z) in the case of a merger
described in clause (ii), VCNB (in each case, such person being referred to as
the "SUBSTITUTE OPTION ISSUER").
(c) The Substitute Option shall have the same terms as the Option, PROVIDED
that, if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible and in no event
less advantageous to CNC. The Substitute Option Issuer shall also enter into an
agreement with the then-holder or holders of the Substitute Option in
substantially the same form as this Agreement, which shall be applicable to the
Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
the Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of shares of the VCNB
Common Stock for which the Option was theretofore exercisable, divided by the
Average Price (as hereinafter defined). The exercise price of the Substitute
Option per share of the Substitute Common Stock (the "SUBSTITUTE OPTION PRICE")
shall then be equal to the Option Price multiplied by a fraction in which the
numerator is the number of shares of the VCNB Common Stock for which the Option
was theretofore exercisable and the denominator is the number of shares for
which the Substitute Option is exercisable.
(e) The following terms have the meanings indicated:
(i) "ACQUIRING CORPORATION" shall mean (x) the continuing or surviving
corporation of a consolidation or merger with VCNB (if other than VCNB), (y)
VCNB in a merger in which VCNB is the continuing or surviving person, and
(z) the transferee of all or any substantial part of the VCNB's assets (or
the assets of its Subsidiaries).
(ii) "SUBSTITUTE COMMON STOCK" shall mean the common stock issued by
the Substitute Option Issuer upon exercise of the Substitute Option.
(iii) "ASSIGNED VALUE" shall mean the highest of (x) the price per
share of the VCNB Common Stock at which a Tender Offer or Exchange Offer
therefor has been made by any person (other than CNC or its Subsidiaries),
(y) the price per share of the VCNB Common Stock to be paid by any person
(other than CNC or its Subsidiaries) pursuant to an agreement with VCNB, and
(z) the highest closing sales price per share of VCNB Common Stock quoted on
the Nasdaq National Market (or if VCNB Common Stock is not quoted on the
Nasdaq National Market, the highest bid price per share on any day as quoted
on the principal trading market or securities exchange on which such shares
are traded as reported by a recognized source chosen by CNC) within the
six-month period immediately preceding the agreement; PROVIDED, that in the
event of a sale of less than all of VCNB's assets, the Assigned Value shall
be the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of VCNB as determined by a nationally
recognized investment banking firm selected by CNC and reasonably acceptable
to VCNB, divided by the number of shares of the VCNB Common Stock
outstanding at the time of such sale. In the event that an Exchange Offer is
made for the VCNB Common Stock or an agreement is entered into for a merger
or consolidation involving consideration other than cash, the value of the
securities or other property issuable or deliverable in exchange for the
VCNB Common Stock shall be determined by a nationally recognized investment
banking firm mutually selected by CNC and VCNB (or if applicable, Acquiring
Corporation), provided that if a mutual selection cannot be made as to such
investment banking firm, it shall be selected by CNC.
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(iv) "AVERAGE PRICE" shall mean the average closing price of a share of
the Substitute Common Stock for the one year immediately preceding the
consolidation, merger or sale in question, but in no event higher than the
closing price of the shares of the Substitute Common Stock on the day
preceding such consolidation, merger or sale, PROVIDED that if VCNB is the
issuer of the Substitute Option, the Average Price shall be computed with
respect to a share of common stock issued by VCNB, the person merging into
VCNB or by any company which controls or is controlled by such merging
person, as CNC may elect.
(f) In no event pursuant to any of the foregoing paragraphs shall the
Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of the Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the aggregate of the shares of Substitute Common Stock
but for this clause (f), the Substitute Option Issuer shall make a cash payment
to CNC equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (f) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (f). This
difference in value shall be determined by a nationally recognized investment
banking firm selected by CNC.
(g) VCNB shall not enter into any transaction described in subsection (b) of
this Section 9 unless the Acquiring Corporation and any person that controls the
Acquiring Corporation assume in writing all the obligations of VCNB hereunder
and take all other actions that may be necessary so that the provisions of this
Section 9 are given full force and effect (including, without limitation, any
action that may be necessary so that the shares of Substitute Common Stock are
in no way distinguishable from or have lesser economic value than other shares
of common stock issued by the Substitute Option Issuer).
10. REPURCHASE AT THE OPTION OF CNC.
(a) At the written request of CNC at any time commencing upon the first
occurrence of a Repurchase Event (as defined in Section 10(d)), VCNB shall
repurchase from CNC the Option and, to the extent permitted by the California
General Corporation Law, all shares of VCNB Common Stock purchased by CNC
pursuant hereto with respect to which CNC then has Beneficial Ownership. The
date on which CNC exercises its rights under this Section 10 is referred to as
the "REQUEST DATE", and the Request Date must be no later than 12 months after
the first occurrence of a Repurchase Event. Such repurchase shall be at an
aggregate price (the "REPURCHASE CONSIDERATION") equal to the sum of:
(i) the aggregate Option Price paid by CNC for any shares of VCNB Common
Stock acquired pursuant to the Option with respect to which CNC then has
Beneficial Ownership;
(ii) the excess, if any, of (x) the Applicable Price (as defined below)
for each share of VCNB Common Stock over (y) the Option Price (subject to
adjustment pursuant to Section 9), multiplied by the number of shares of
VCNB Common Stock with respect to which the Option has not been exercised;
and
(iii) the excess, if any, of the Applicable Price over the Option Price
(subject to adjustment pursuant to Section 9) paid (or, in the case of
Option Shares with respect to which the Option has been exercised but the
Closing Date has not occurred, payable) by CNC for each share of VCNB Common
Stock with respect to which the Option has been exercised and with respect
to which CNC then has Beneficial Ownership, multiplied by the number of such
shares; provided, that the amount calculated pursuant to clause (ii) and
(iii) of this Section 10(a) shall not exceed $2,000,000.
(b) If CNC exercises its rights under this Section 10, VCNB shall, within
ten business days after the Request Date, pay the Repurchase Consideration to
CNC in immediately available funds, and contemporaneously with such payment CNC
shall surrender to VCNB the Option and the certificates evidencing the shares of
VCNB Common Stock purchased thereunder with respect to which CNC then has
Beneficial Ownership, and CNC shall warrant that it has sole record and
Beneficial Ownership of such shares and that the same are then free and clear of
all liens, claims, charges and encumbrances of any kind whatsoever.
Notwithstanding the foregoing, to the extent that prior notification to or
approval of the
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Federal Reserve Board, the OCC or other regulatory authority is required in
connection with the payment of all or any portion of the Repurchase
Consideration, CNC shall have the ongoing option to revoke its request for
repurchase pursuant to this Section 10, in whole or in part, or to require that
VCNB deliver from time to time that portion of the Repurchase Consideration that
it is not then so prohibited from paying and promptly file the required notice
or application for approval and expeditiously process the same (and each party
shall cooperate with the other in the filing of any such notice or applicable
and the obtaining of any such approval). If the Federal Reserve Board, the OCC
or any other regulatory authority disapproves of any part of VCNB's proposed
repurchase pursuant to this Section 10, VCNB shall promptly give notice of such
fact to CNC. If the Federal Reserve Board, the OCC or other regulatory agency
prohibits the repurchase in part but not in whole, then CNC shall have the right
(i) to revoke the repurchase request or (ii) to the extent permitted by the
Federal Reserve Board, the OCC or other regulatory agency, determine whether the
repurchase should apply to the Option and/or Option Shares and to what extent to
each, and CNC shall thereupon have the right to exercise the Option as to the
number of Option Shares for which the Option was exercisable at the Request Date
less the sum of the number of shares covered by the Option in respect of which
payment has been made pursuant to Section 10(a)(ii) and the number of shares
covered by the portion of the Option (if any) that has previously been
repurchased. CNC shall notify VCNB of its determination under the preceding
sentence within five business days of receipt of notice of disapproval of the
repurchase.
Notwithstanding anything herein to the contrary, all of CNC's rights with
respect to any unexercised Options under this Section 10 shall terminate on the
Expiration Date.
(c) For purposes of this Agreement, the "Applicable Price" means the highest
of (i) the highest price per share of VCNB Common Stock paid for any such share
by the person or groups described in Section 10(d)(i), (ii) the price per share
of VCNB Common Stock received by holders of VCNB Common Stock in connection with
any merger or other business combination transaction described in Section
9(b)(i), 9(b)(ii) or 9(b)(iii), or (iii) the highest closing sales price per
share of VCNB Common Stock quoted on the Nasdaq National Market (or if VCNB
Common Stock is not quoted on the Nasdaq National Market, the highest bid price
per share as quoted on the principal trading market or securities exchange on
which such shares are traded as reported by a recognized source chosen by CNC)
during the 60 business days preceding the Request Date; PROVIDED, HOWEVER, that
in the event of a sale of less than all of VCNB's assets, the Applicable Price
shall be the sum of the price paid in such sale for such assets and the current
market value of the remaining assets of VCNB as determined by an independent
national recognized investment banking firm selected by CNC and reasonably
acceptable to VCNB (which determination shall be conclusive for all purposes of
this Agreement), divided by the number of shares of the VCNB Common Stock
outstanding at the time of such sale. If the consideration to be offered, paid
or received pursuant to either of the foregoing clauses (i) or (ii) shall be
other than in cash, the value of such consideration shall be determined in good
faith by an independent nationally recognized investment banking firm selected
by CNC and reasonably acceptable to VCNB, which determination shall be
conclusive for all purposes of this Agreement.
(d) As used herein, "REPURCHASE EVENT" shall occur if (i) any person (other
than CNC or any subsidiary of CNC) shall have acquired Beneficial Ownership, or
the right to acquire Beneficial Ownership, or any "group" (as such term is
defined under the Exchange Act) shall have been formed which Beneficially Owns
or has the right to acquire Beneficial Ownership, of 50% or more of the then-
outstanding shares of VCNB Common Stock, (ii) any of the transactions described
in Section 9(b)(i), 9(b)(ii) or 9(b)(iii) shall be consummated, or (iii)
following an Exercise Event, CNC receives official notice that an approval of
the Federal Reserve Board or any other regulatory authority required for the
exercise of the Option and purchase of the Option Shares will not be issued or
granted.
11. DEFINITIONAL MATTERS.
(a) Capitalized terms used but not defined herein shall have the meanings
ascribed thereto in the Merger Agreement.
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(b) The following definitions shall have the meanings set forth herein.
"ACQUISITION TRANSACTION" shall mean:
(i) a merger, consolidation or similar transaction involving VCNB or any
of its Subsidiaries (other than internal transactions solely involving VCNB
and any of its wholly-owned Subsidiaries);
(ii) except as expressly permitted by the Merger Agreement, the
disposition, by sale, lease, exchange or otherwise, of assets of VCNB or any
of its Subsidiaries representing 50% or more of the consolidated assets of
VCNB and its Subsidiaries;
(iii) the issuance, sale or other disposition of (including by way of
merger, consolidation, share exchange or any similar transaction) securities
representing 20% or more of the voting power of VCNB or any of its
Subsidiaries; or
(iv) the acquisition by any person or group of persons (other than CNC)
of Beneficial Ownership of, or the right to acquire beneficial ownership of,
20% or more of the then-outstanding shares of VCNB Common Stock;
(v) the public authorization, recommendation or endorsement by VCNB of
any of transactions described in 9i) - (iv) hereof;
(vi) a public announcement by VCNB of an intention to authorize,
recommend or announce any of the described in (i) - (iii) hereof;
(vii) the entering into by VCNB of any agreement with any person or group
of persons to effect any of the transactions set forth in (i) - (iv) hereof;
or
(viii) the termination by VCNB of the merger Agreement pursuant to section
8.16(i) thereof.
"PRELIMINARY ACQUISITION TRANSACTION" shall mean:
(i) the commencement (as such term is defined in Rule 14d-2 promulgated
under the Exchange Act) by any person (other than CNC or any Subsidiary of
CNC) of, or the filing by any person (other than CNC or any Subsidiary of
CNC) of a registration statement under the Securities Act with respect to, a
tender offer or exchange offer to purchase shares of VCNB Common Stock such
that, upon consummation of such offer, such person would own or control 20%
or more of the then-outstanding shares of VCNB Common Stock (such an offer
being referred to herein as a "TENDER OFFER" or an "EXCHANGE OFFER,"
respectively); or
(ii) the shareholders of VCNB shall have voted and failed to approve the
Merger and the Merger Agreement at any meeting of such shareholders which
has been held for that purpose or any adjournment or postponement thereof,
the failure of such a shareholder meeting to occur prior to termination of
the Merger Agreement, or the withdrawal or modification of the
recommendation of VCNB's Board of Directors of the Merger and/or the Merger
Agreement that the shareholders of VCNB approve the Merger and Merger
Agreement, in each case, after there shall have been a public announcement
that any person (other than CNC or any Subsidiary of CNC) shall have (A)
made, or disclosed an intention to make, a proposal to engage in an
Acquisition Transaction, (B) commenced a Tender Offer or filed a
registration statement under the Securities Act with respect to an Exchange
Offer, or (C) filed an application (or given a notice), whether in draft or
final form, under the Bank Holding Company Act of 1956, as amended, the Bank
Merger Act, the Change in Bank Control Act of 1978, or any other federal or
state banking law or regulation, for approval to engage in an Acquisition
Transaction.
"BENEFICIAL OWNERSHIP" or "BENEFICIALLY OWNS" shall be defined by, or have
the meaning set forth in Rule 13d-3 promulgated under the Exchange Act.
"EXERCISE EVENT" means the (i) occurrence of an Acquisition Transaction;
(ii) the public authorization, recommendation or endorsement by VCNB of an
Acquisition Transaction; (iii) a public announcement by
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VCNB to of an intention to authorize, recommend or announce an Acquisition
Transaction described in paragraphs (i) (ii) or (iii) of the definition of
Acquisition Transaction; (iv) the entering into by VCNB of any agreement with
any person or group of persons to effect an Acquisition Transaction; or (v) the
termination by VCNB of the Merger Agreement pursuant to Section 8.1(i) thereof.
"PERSON" shall have the meaning specified in Sections 3(a)(9) and 13(d)(3)
of the Exchange Act.
"SPREAD VALUE" shall mean the difference between (i) the product of (1) the
sum of the total number of Option Shares CNC (x) intends to purchase at a
Closing pursuant to the exercise of the Option and (y) previously purchased
pursuant to the prior exercise of the Option, and (2) the closing price of VCNB
Common Stock as quoted on the Nasdaq National Market on the last trading day
immediately preceding the Closing Date, and (ii) the product of (1) the total
number of Option Shares CNC (x) intends to purchase at the Closing Date pursuant
to the exercise of the Option and (y) previously purchased pursuant to the prior
exercise of the Option and (2) the applicable Option Price of such Option
Shares.
12. CONSENTS. Each of the parties hereto will use its best efforts to
consummate and make effective the transactions contemplated by this Agreement.
13. FURTHER ASSURANCES. VCNB and CNC will execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
14. ENTIRE AGREEMENT; ASSIGNMENT. This Agreement and the Merger Agreement
(a) constitute the entire agreement between the parties with respect to the
subject matter hereof and supersede all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof, (b) shall not be amended, altered or modified in any
manner whatsoever, except by a written instrument executed by the parties hereto
and (c) shall not, without the express written consent of the other party
hereto, be assigned by operation of law or otherwise; PROVIDED, HOWEVER, that
CNC may assign its rights and obligations to any wholly owned Subsidiary of CNC,
but such assignment shall not relieve CNC of its obligations hereunder if such
assignee does not perform such obligations.
15. VALIDITY. The invalidity or unenforceability of any provision of this
Agreement or of any provision of the Merger Agreement shall not affect the
validity or enforceability of any other provisions of this Agreement, each of
which shall remain in full force and effect.
16. NOTICES. Any notices or other communications required or permitted
hereunder shall be in writing and shall be deemed duly given upon (a)
transmitter's confirmation of a receipt of a facsimile transmission, (b)
confirmed delivery by a standard overnight carrier or (c) the expiration of five
business days after the day when mailed by certified or registered mail, postage
prepaid, addressed at the following addresses (or at such other address as the
parties hereto shall specify by like notice):
If to CNC:
City National Corporation
400 North Roxbury Drive
Beverly Hills, California 90210
Telecopy No. (310) 888-6704
Attention: Frank P. Pekny
with copy to:
City National Corporation
400 North Roxbury Drive
Beverly Hills, California 90210
Telecopy No. (310) 888-6232
Attention: Richard H. Sheehan, Jr.
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If to VCNB:
Ventura County National Bancorp
500 Esplanade Drive
Oxnard, California 93031
Telecopy No. (805) 981-2740
Attention: Richard S. Cupp
With a copy to:
Manatt, Phelps & Phillips, LLP
11355 W. Olympic Boulevard
Los Angeles, California 90064
Telecopy No. (310) 312-4224
Attention: William T. Quicksilver
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
18. DESCRIPTIVE HEADINGS. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
19. PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person or any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
20. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
21. EXPENSES. Except as set forth in Section 5 hereof, all costs and
expenses incurred in connection with the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year first written above.
CITY NATIONAL CORPORATION
a Delaware corporation
By: /s/ RUSSELL GOLDSMITH
-----------------------------------------
Russell Goldsmith
VICE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
VENTURA COUNTY NATIONAL BANCORP
a California corporation
By: /s/ RICHARD S. CUPP
-----------------------------------------
Richard S. Cupp
PRESIDENT AND CHIEF EXECUTIVE OFFICER
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APPENDIX E
FAIRNESS OPINION OF SANDLER O'NEILL & PARTNERS, L.P.
September 15, 1996
Board of Directors
Ventura County National Bancorp, Inc.
500 Esplanade Drive
Oxnard, CA 93030
Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding shares of common stock, no par value
(the "Shares"), of Ventura County National Bancorp, Inc. ("Company") of the
consideration to be paid to them for the Shares (the "Consideration") pursuant
to the Agreement and Plan of Merger, dated as September 15, 1996, by and between
City National Corporation ("CNC") and the Company (the "Agreement").
Under the terms of the Agreement, the Company will be merged with and into
CNC (the "Merger") and each Share issued and outstanding immediately prior to
the Merger will be converted into the right to receive, at the election of the
holder thereof, either: (a) cash in the amount of $5.03 per Share (the "Cash
Amount"); or (b) a fraction of a share of CNC common stock, par value $1.00 per
share ("CNC Common Stock"), equal to the quotient (such quotient, the "Exchange
Ratio") of $5.03 divided by the average daily closing price of CNC Common Stock
for the 20 consecutive trading days immediately preceding the third day prior to
the Effective Time of the Merger (the "CNC Final Stock Price"), subject to a
minimum Exchange Ratio of .2634 and a maximum Exchange Ratio of .3214 (the
"Stock Amount"). Holders of Shares will be permitted to elect to receive either
the Cash Amount, the Stock Amount or a combination thereof. Such elections will
be subject to proration as necessary to ensure that 55% of the Shares are
converted into CNC Common Stock. The Company may terminate the Agreement if the
CNC Final Stock Price is less than $13.90 per share. The Merger is intended to
qualify as a tax-free reorganization within the meaning of Section 368 of the
Internal Revenue Code.
Sandler O'Neill & Partners, L.P., as part of its investment backing
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
transactions.
In connection with this opinion, we have reviewed, among other things: (i)
the Agreement; (ii) the Stock Option Agreement dated as of September 15, 1996 by
and between the Company and CNC; (iii) the audited consolidated financial
statements and management's discussion and analysis of the financial condition
and results of operations of each of the Company and CNC for the three years
ended December 31, 1995; (iv) the unaudited consolidated financial statements
and management's discussion and analysis of the financial condition and results
of operations for the interim period ending June 30, 1996 of each of the Company
and CNC; (v) financial analyses and forecasts for each of the Company and CNC
prepared by and/or reviewed with the respective managements of the Company and
CNC; (vi) the views of senior management of each of the Company and CNC of the
past and current business operations, results thereof, financial condition and
future prospects of their respective companies; (vii) the dividend payment
practices and policies of CNC; (viii) the reported price and trading activity
for the Company's common stock and CNC's Common Stock, including a comparison of
certain financial and stock market information for the Company and CNC with
similar information for certain other companies the securities of which are
publicly traded; (ix) the financial terms of recent business combinations in the
banking industry;
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(x) the pro forma impact of the transaction on CNC, (xi) the current market
environment generally and the banking environment in particular, and (xii) such
other information, financial studies, analyses and investigations and financial,
economic and market criteria as we considered relevant, including the potential
tax deferred nature of the Merger and the potential benefits of the cash or
stock election to the holders of the Shares.
In performing our review, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all of the financial
information, analyses and other information reviewed by and discussed with us,
and we did not make any independent evaluation or appraisal of specific assets,
the collateral securing assets or the liabilities of the Company or CNC or any
of their subsidiaries, or the collectibility of any such assets (relying, where
relevant, on the analyses and estimates of the Company and CNC). With respect to
the financial projections reviewed with management, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective managements of the respective future
financial performances of each of the Company and CNC, and that such
performances will be achieved. We have also assumed that there has been no
material change in the Company's or CNC's assets, financial condition, results
of operations, business or prospects since the date of the last financial
statements made available to us. We have further assumed that the Company will
remain as a going concern for all periods relevant to our analysis, and that the
conditions precedent to the Company's obligations under the Agreement are not
waived.
Our opinion ins necessarily based on economic, market and other conditions
as in effect on, and the information made available to us as of, the date
hereof. Events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We have not undertaken to reaffirm
or revise this opinion or otherwise comment upon any events occurring after the
date hereof.
We have acted as the Company's financial advisor in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger. We have also received a fee
for rendering this opinion. We have also provided general financial advisory
services for the Company and have received fees for such services.
In the ordinary course of our business, we may actively trade the equity
securities of both the Company and CNC for our own account and for the accounts
of our customers and, accordingly, may at any time hold a long or short position
in such securities.
It is understood that this opinion is not to be quoted or referred to, in
whole or in part, in a registration statement, prospectus or proxy statement, or
in any other document used in connection with the offering or sale of
securities, no shall this letter be quoted or referred to in any other documents
or for any other purposes, without Sandler O'Neill's prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Consideration to be paid by CNC to the holders of the Shares
pursuant to the Agreement is fair, from a financial point of view, to such
holders.
Very truly yours,
/s/ SANDLER O'NEILL & PARTNER, L.P.
Sandler O'Neill & Partner, L.P.
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APPENDIX F
VENTURA COUNTY NATIONAL BANCORP'S ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1995
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1995 Commission File No. 0-15814
VENTURA COUNTY NATIONAL BANCORP
(Exact Name of Registrant as Specified in its Charter)
California 77-00038387
(State or Other Jurisdiction of (I.R.S. Employer ID. Number)
Incorporation or Reorganization)
500 Esplanade Drive, Oxnard, California 93030
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (805)981-2600
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Title of each class
-------------------
Common Stock, no par value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
-
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
-
There were 9,228,723 shares of Common Stock, no par value, issued and
outstanding as of March 19, 1996. The aggregate market value of such shares
held by nonaffiliates was $28,989,120 as of March 19, 1996.
- -------------------------------
Documents Incorporated by Reference:
Part II. Items 5,6,7,8 and 9, 1995 Annual Report to Shareholders
Part III. Items 10,11,12, and 13, Proxy Statement for 1996 Meeting
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VENTURA COUNTY NATIONAL BANCORP
FORM 10-K
INDEX
PAGES
PART I
ITEM 1. Business 3
ITEM 2. Properties 20
ITEM 3. Legal Proceedings 20
ITEM 4. Submission of Matters to a Vote of Security Holders 21
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters 21
ITEM 6. Selected Financial Data 21
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 21
ITEM 8. Financial Statements and Supplementary Data 21
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 21
PART III
ITEM 10. Directors and Executive Officers of the Registrant 22
ITEM 11. Executive Compensation 22
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management 22
ITEM 13. Certain Relationships and Related Transactions 22
PART IV
ITEM 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 23
Signatures 24
2
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PART I
ITEM 1. BUSINESS
GENERAL
The Company is a registered bank holding company conducting business through its
two subsidiary banks, Ventura County National Bank ("Ventura") and Frontier
Bank, N.A. ("Frontier"). (Ventura and Frontier are sometimes collectively
referred to herein as the "Banks"). At December 31, 1995, the Company had total
consolidated assets of $267.8 million, total consolidated deposits of $236.1
million and total consolidated shareholders' equity of $29.5 million. The
principal executive offices of the Company are located at 500 Esplanade Drive,
Oxnard, California 93030, and its telephone number at that address is (805) 981-
2600.
The Banks are both national banking associations operating in Southern
California. Ventura conducts its banking operations through four branch
offices located in Ventura County, California, approximately 60 miles northwest
of downtown Los Angeles. Ventura's headquarters are located in Oxnard,
California, and its branch offices are located in Oxnard, Ventura, Camarillo and
Westlake Village. Frontier is based in La Palma in northwestern Orange County
and has a branch office in Wilmington in southern Los Angeles County. The Banks
provide commercial banking services to small to medium sized businesses,
professional firms and individuals in their market areas.
COMPETITION
In an environment of heightened regulatory scrutiny with respect to insured
depository institutions such as Ventura and Frontier and expanded bank-like
services provided by limited service financial institutions and by nonbank
financial service providers, banking and bank related services continue to be an
industry of rapid change and intense competition, thereby creating a highly
competitive environment for the Company. Large moneycenter banks, super-regional
banks, regional banks, multinational banks and mutual funds are the Company's
primary competitors. Higher lending limits, wide-reaching advertising campaigns,
and access to international money markets allows these organizations greater
flexibility in meeting the needs of their customers. The Company competes for
deposits and loans with these organizations as well as with local banks, savings
and loans, savings banks, credit unions, thrift associations, and mortgage and
finance companies. The Company believes its marketing niche to be small and
medium-sized businesses with revenues less than $25 million. In order to compete
with the other financial institutions in its service areas, the Company
principally relies upon local promotional activities, personal relationships
established by officers, directors and employees with its customers, and
specialized services tailored to meet its customers' needs. In those instances
where the Company is unable to accommodate all of a customer's needs because of
regulatory restrictions, the Company will arrange for those services to be
provided by its correspondent banks or other companies with whom it has a
relationship.
Bank of America, N.T. & S.A. and First Interstate Bank of California are the
dominant competitors in both Ventura and Frontier's market areas. First
Interstate Bank of California and Wells Fargo & Company have received regulatory
approval for a merger and the resulting institution will likely be a dominant
competitor in the market areas of both Banks. As of most recent data available,
Ventura had approximately 5% of total bank deposits in Ventura County, while
Frontier's share of total bank deposits in Orange County was 0.17% and Los
Angeles County was 0.8%.
EFFECT OF GOVERNMENTAL POLICIES AND RECENT LEGISLATION
Banking is a business that depends on rate differentials. In general,
the difference between the interest rate paid by the Banks on their deposits and
their other borrowings and the interest rate received by the Banks on loans
extended to their customers and securities held in the Banks' portfolios
comprise the major portion of the Company's earnings. These rates are highly
sensitive to many factors that are beyond the control of the Banks. Accordingly,
the earnings and growth of the Company are subject to the influence of domestic
and foreign economic conditions, including inflation, recession and
unemployment.
The commercial banking business is not only affected by general
economic conditions but is also influenced by the monetary and fiscal policies
of the federal government and the policies of regulatory agencies, particularly
the Board of Governors of the Federal Reserve System (the Federal Reserve
Board"). The Federal Reserve Board implements national monetary policies (with
objectives such as curbing inflation and combating
3
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recession) by its open-market operations in United States Government securities,
by adjusting the required level of reserves for financial institutions subject
to its reserve requirements and by varying the discount rates applicable to
borrowings by depository institutions. The actions of the Federal Reserve Board
in these areas influence the growth of bank loans, investments and deposits and
also affect interest rates charged on loans and paid on deposits. The nature and
impact of any future changes in monetary policies cannot be predicted.
From time to time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations governing
the operations and taxation of banks, bank holding companies and other financial
institutions are frequently made in Congress, in the California legislature and
before various bank regulatory and other professional agencies. The Financial
Services Modernization Act recently proposed in the House of Representatives
would generally permit banks to expand activities further into the areas of
securities and insurance, and would reduce the regulatory and paperwork burden
that currently affects banks. Additionally, the proposed legislation would force
the conversion of savings and loan holding companies into bank holding
companies, although unitary savings and loan holding companies authorized to
engage in activities as of January 1, 1995 would be exempted. Similar
legislation has also been proposed in the Senate. In addition, legislation was
recently introduced in Congress that would merge the deposit insurance funds
applicable to commercial banks and savings associations and impose a one-time
assessment on savings associations to recapitalize the deposit insurance fund
applicable to savings associations. The likelihood of any major legislative
changes and the impact such changes might have on the Company are impossible to
predict. See "Item 1. Business - Supervision and Regulation."
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both
federal and state law. Set forth below is a summary description of certain laws
which relate to the regulation of the Company and the Banks. The description
does not purport to be complete and is qualified in its entirety by reference to
the applicable laws and regulations.
THE COMPANY
The Company, as a registered bank holding company, is subject to
regulation under the Bank Holding Company Act of 1956, as amended (the "BHC
Act"). The Company is required to file with the Federal Reserve Board quarterly
and annual reports and such additional information as the Federal Reserve Board
may require pursuant to the BHC Act. The Federal Reserve Board may conduct
examinations of the Company and its subsidiaries.
The Federal Reserve Board may require that the Company terminate an
activity or terminate control of or liquidate or divest certain subsidiaries or
affiliates when the Federal Reserve Board believes the activity or the control
of the subsidiary or affiliate constitutes a significant risk to the financial
safety, soundness or stability of any of its banking subsidiaries. The Federal
Reserve Board also has the authority to regulate provisions of certain bank
holding company debt, including authority to impose interest ceilings and
reserve requirements on such debt. Under certain circumstances, the Company must
file written notice and obtain approval from the Federal Reserve Board prior to
purchasing or redeeming its equity securities.
Under the BHC Act and regulations adopted by the Federal Reserve
Board, a bank holding company and its nonbanking subsidiaries are prohibited
from requiring certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services. Further, the
Company is required by the Federal Reserve Board to maintain certain levels of
capital. See "Item 1. Business - Supervision and Regulation - Capital
Standards."
The Company is required to obtain the prior approval of the Federal
Reserve Board for the acquisition of more than 5% of the outstanding shares of
any class of voting securities or substantially all of the assets of any bank or
bank holding company. Prior approval of the Federal Reserve Board is also
required for the merger or consolidation of the Company and another bank holding
company.
The Company is prohibited by the BHC Act, except in certain
statutorily prescribed instances, from acquiring direct or indirect ownership or
control of more than 5% of the outstanding voting shares of any company
4
<PAGE>
that is not a bank or bank holding company and from engaging directly or
indirectly in activities other than those of banking, managing or controlling
banks or furnishing services to its subsidiaries. However, the Company, subject
to the prior approval of the Federal Reserve Board, may engage in any, or
acquire shares of companies engaged in, activities that are deemed by the
Federal Reserve Board to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. In making any such
determination, the Federal Reserve Board is required to consider whether the
performance of such activities by the Company or an affiliate can reasonably be
expected to produce benefits to the public, such as greater convenience,
increased competition or gains in efficiency, that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices. The Federal
Reserve Board is also empowered to differentiate between activities commenced DE
NOVO and activities commenced by acquisition, in whole or in part, of a going
concern.
Under Federal Reserve Board regulations, a bank holding company is
required to serve as a source of financial and managerial strength to its
subsidiary banks and may not conduct its operations in an unsafe or unsound
manner. In addition, it is the Federal Reserve Board's policy that in serving as
a source of strength to its subsidiary banks, a bank holding company should
stand ready to use available resources to provide adequate capital funds to its
subsidiary banks during periods of financial stress or adversity and should
maintain the financial flexibility and capital-raising capacity to obtain
additional resources for assisting its subsidiary banks. A bank holding
company's failure to meet its obligations to serve as a source of strength to
its subsidiary banks will generally be considered by the Federal Reserve Board
to be an unsafe and unsound banking practice or a violation of the Federal
Reserve Board's regulations or both. This doctrine has become known as the
"source of strength" doctrine. Although the United States Court of Appeals for
the Fifth Circuit found the Federal Reserve Board's source of strength doctrine
invalid in 1990, stating that the Federal Reserve Board had no authority to
assert the doctrine under the BHC Act, the decision, which is not binding on
federal courts outside the Fifth Circuit, was recently reversed by the United
States Supreme Court on procedural grounds. The validity of the source of
strength doctrine is likely to continue to be the subject of litigation until
definitively resolved by the courts or by Congress.
The Company is also a bank holding company within the meaning of
Section 3700 of the California Financial Code. As such, the Company and its
subsidiaries are subject to examination by, and may be required to file reports
with, the California State Banking Department. Regulations have not been adopted
to implement the powers of the California Superintendent of Banks under this
statute.
Finally, the Company is subject to the periodic reporting requirements
of the Securities Exchange Act of 1934, as amended, including but not limited
to, filing annual, quarterly and other current reports with the Securities and
Exchange Commission.
THE BANKS
The Banks, as national banking associations, are subject to primary
supervision, examination and regulation by the Office of the Comptroller of the
Currency (the "OCC"). If, as a result of an examination of either Bank, the OCC
should determine that the financial condition, capital resources, asset quality,
earnings prospects, management, liquidity or other aspects of the Bank's
operations are unsatisfactory or that the Bank or its management is violating or
has violated any law or regulation, various remedies are available to the OCC.
Such remedies include the power to enjoin "unsafe or unsound practices," to
require affirmative action to correct any conditions resulting from any
violation or practice, to issue an administrative order that can be judicially
enforced, to direct an increase in capital, to restrict the growth of the Bank,
to assess civil monetary penalties, and to remove officers and directors. The
FDIC has similar enforcement authority, in addition to its authority to
terminate a Bank's deposit insurance in the absence of action by the OCC and
upon a finding that a Bank is in an unsafe or unsound condition, is engaging in
unsafe or unsound activities, or that its conduct poses a risk to the deposit
insurance fund or may prejudice the interest of its depositors.
The deposits of the Banks are insured by the FDIC in the manner and to
the extent provided by law. For this protection, each Bank pays a semi-annual
statutory assessment and is subject to certain of the rules and regulations of
the FDIC. See "Item 1. Business - Supervision and Regulation -- Premiums for
Deposit Insurance." The Banks are also subject to certain regulations of the
Federal Reserve Board and applicable provisions of California law, insofar as
they do not conflict with or are not preempted by federal banking law.
5
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Various other requirements and restrictions under the laws of the
United States and the State of California affect the operations of the Banks.
Federal and California statutes and regulations relate to many aspects of the
Banks' operations, including reserves against deposits, interest rates payable
on deposits, loans, investments, mergers and acquisitions, borrowings,
dividends, locations of branch offices, capital requirements and disclosure
obligations to depositors and borrowers. Further, the Banks are required to
maintain certain levels of capital. See "Item 1. Business - Supervision and
Regulation - Capital Standards."
The OCC's statement of policy on risk-based capital requires that
banks maintain a ratio of qualifying total capital to risk-weighted assets of
not less than 8.00% (at least 4.00% of which must be in the form of Tier 1
capital). The regulations set forth minimum requirements, and OCC has reserved
the power to require that banks maintain higher capital ratios. Among other
powers, the OCC's regulations provide that capital requirements may be enforced
by the issuance of a directive. The OCC's capital adequacy regulations also
require that banks maintain a minimum leverage ratio of 3.00% Tier 1 capital to
total assets for the most highly rated banks. This ratio is only a minimum.
Institutions experiencing or anticipating significant growth or those with other
than minimum risk profiles are expected to maintain a leverage ratio of at least
100 to 200 basis points above the minimum level. In addition, higher leverage
ratios are required to be considered well-capitalized or adequately capitalized
under the prompt corrective action provisions of the FDIC Improvement Act. For a
more complete description of the OCC's risk-based capital regulations, see
"Supervision and Regulation -- Capital Standards" and "Supervision and
Regulation -- Prompt Corrective Action and Other Enforcement Mechanisms."
RESTRICTIONS ON TRANSFERS OF FUNDS TO THE COMPANY BY THE BANKS
Federal Reserve Board policy prohibits a bank holding company from
declaring or paying a cash dividend which would impose undue pressure on the
capital of subsidiary banks or would be funded only through borrowings or other
arrangements that might adversely affect the holding company's financial
position. The policy further declares that a bank holding company should not
continue its existing rate of cash dividends on its common stock unless its net
income is sufficient to fully fund each dividend and its prospective rate of
earnings retention appears consistent with its capital needs, asset quality and
overall financial condition. Other Federal Reserve Board policies forbid the
payment by bank subsidiaries to their parent companies of management fees which
are unreasonable in amount or exceed the fair market value of the services
rendered (or, if no market exists, actual cost plus a reasonable profit).
The Company is a legal entity separate and distinct from the Banks.
The Company's ability to pay cash dividends is limited by state law. At present,
substantially all of the Company's revenues, including funds available for the
payment of dividends and other operating expenses, are earnings on investment of
cash at the parent Company. In the future, the Company's ability to pay cash
dividends will depend primarily on dividends paid by the Banks.
There are statutory and regulatory limitations on the amount of
dividends which may be paid to the Company by the Banks. The prior approval of
the Comptroller is required if the total of all dividends declared by a national
bank in any calendar year exceeds the bank's net profits (as defined) for that
year combined with its retained net profits (as defined) for the preceding two
years, less any transfers to surplus. Under the prompt corrective action rules
of the Federal Deposit Insurance Corporation Improvement Act, no depository
institution, such as the Banks, may issue a dividend or pay a management fee if
it would cause the institution to become undercapitalized. Additionally, a bank
holding company controlling a significantly undercapitalized institution may not
make any capital distributions without the prior approval of the Federal Reserve
Board. Other supervisory actions may be taken against institutions that are
significantly undercapitalized, as well as undercapitalized institutions that
fail to submit an acceptable capital restoration plan as required by law or that
fail in any material respect to implement an accepted plan. See "Supervision and
Regulation -- Prompt Corrective Action and Other Enforcement Mechanisms."
The OCC has authority to prohibit the Banks from engaging in
activities that, in the OCC's opinion, constitute unsafe or unsound practices in
conducting its business. It is possible, depending upon the financial condition
of the Bank in question and other factors, that the OCC could assert that the
payment of dividends or other payments might, under some circumstances, be such
an unsafe or unsound practice. Further, the OCC and the Federal Reserve Board
have established guidelines with respect to the maintenance of appropriate
levels of capital by banks or bank holding companies under their jurisdiction.
Compliance with the standards set forth in such guidelines and the restrictions
that are or may be imposed under the prompt corrective action provisions of
federal
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law could limit the amount of dividends which the Banks or the Company
may pay. See "Item 1. Business - Supervision and Regulation - Prompt Corrective
Regulatory Action and Other Enforcement Mechanisms" and - "Capital Standards"
for a discussion of these additional restrictions on capital distributions.
Frontier is currently prohibited by the terms of its Consent Order
with the OCC from paying any dividends without the prior consent of the OCC. See
"Supervision and Regulation -- Potential and Existing Enforcement Actions." At
December 31, 1995, Ventura had $ 4.8 million in retained net profits available
for the payment of cash dividends.
The Banks are subject to certain restrictions imposed by federal law
on any extensions of credit to, or the issuance of a guarantee or letter of
credit on behalf of, the Company or other affiliates, the purchase of or
investments in stock or other securities thereof, the taking of such securities
as collateral for loans and the purchase of assets of the Company or other
affiliates. Such restrictions prevent the Company and such other affiliates from
borrowing from the Banks unless the loans are secured by marketable obligations
of designated amounts. Further, such secured loans and investments by the Banks
to or in the Company or to or in any other affiliate is limited to 10% of each
Banks' capital and surplus (as defined by federal regulations) and such secured
loans and investments are limited, in the aggregate, to 20% of each Banks'
capital and surplus (as defined by federal regulations). Additional restrictions
on transactions with affiliates may be imposed on the Banks under the prompt
corrective action provisions of federal law. See "Item 1. Business -Supervision
and Regulation - Prompt Corrective Action and Other Enforcement Mechanisms."
CAPITAL STANDARDS
The Federal Reserve Board and the OCC have adopted risk-based minimum
capital guidelines intended to provide a measure of capital that reflects the
degree of risk associated with a banking organization's operations for both
transactions reported on the balance sheet as assets and transactions, such as
letters of credit and recourse arrangements, which are recorded as off balance
sheet items. Under these guidelines, nominal dollar amounts of assets and credit
equivalent amounts of off balance sheet items are multiplied by one of several
risk adjustment percentages, which range from 0% for assets with low credit
risk, such as certain U.S. Treasury securities, to 100% for assets with
relatively high credit risk, such as business loans.
A banking organization's risk-based capital ratios are obtained by
dividing its qualifying capital by its total risk adjusted assets. The
regulators measure risk-adjusted assets, which includes off balance sheet items,
against both total qualifying capital (the sum of Tier 1 capital and limited
amounts of Tier 2 capital) and Tier 1 capital. Tier 1 capital consists primarily
of common stock, retained earnings, noncumulative perpetual preferred stock
(cumulative perpetual preferred stock for bank holding companies) and minority
interests in certain subsidiaries, less most intangible assets. Tier 2 capital
may consist of a limited amount of the allowance for possible loan and lease
losses, cumulative preferred stock, long term preferred stock, eligible term
subordinated debt and certain other instruments with some characteristics of
equity. The inclusion of elements of Tier 2 capital is subject to certain other
requirements and limitations of the federal banking agencies. The federal
banking agencies require a minimum ratio of qualifying total capital to risk-
adjusted assets of 8% and a minimum ratio of Tier 1 capital to risk-adjusted
assets of 4%.
In addition to the risk-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
total assets, referred to as the leverage ratio. For a banking organization
rated in the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio of Tier 1 capital to total assets is
3%. For all banking organizations not rated in the highest category, the minimum
leverage ratio must be at least 100 to 200 basis points above the 3% minimum, or
4% to 5%. In addition to these uniform risk-based capital guidelines and
leverage ratios that apply across the industry, the regulators have the
discretion to set individual minimum capital requirements for specific
institutions at rates significantly above the minimum guidelines and ratios.
In August 1995, the federal banking agencies adopted final regulations
specifying that the agencies will include, in their evaluations of a bank's
capital adequacy, an assessment of the exposure to declines in the economic
value of the bank's capital due to changes in interest rates. The final
regulations, however, do not include a measurement framework for assessing the
level of a bank's exposure to interest rate risk, which is the subject of a
proposed policy statement issued by the federal banking agencies concurrently
with the final regulations. The proposal would measure interest rate risk in
relation to the effect of a 200 basis point change in market interest rates
7
<PAGE>
on the economic value of a bank. Banks with high levels of measured exposure or
weak management systems generally will be required to hold additional capital
for interest rate risk. The specific amount of capital that may be needed would
be determined on a case-by-case basis by the examiner and the appropriate
federal banking agency. Because this proposal has only recently been issued, the
Company currently is unable to predict the impact of the proposal on the Banks
if the policy statement is adopted as proposed.
In January 1995, the federal banking agencies issued a final rule
relating to capital standards and the risks arising from the concentration of
credit and nontraditional activities. Institutions which have significant
amounts of their assets concentrated in high risk loans or nontraditional
banking activities and who fail to adequately manage these risks, will be
required to set aside capital in excess of the regulatory minimums. The federal
banking agencies have not imposed any quantitative assessment for determining
when these risks are significant, but have identified these issues as important
factors they will review in assessing an individual bank's capital adequacy.
In December 1993, the federal banking agencies issued an interagency
policy statement on the allowance for loan and lease losses which, among other
things, establishes certain benchmark ratios of loan loss reserves to classified
assets. The benchmark set forth by such policy statement is the sum of (a)
assets classified loss; (b) 50 percent of assets classified doubtful; (c) 15
percent of assets classified substandard; and (d) estimated credit losses on
other assets over the upcoming 12 months.
Federally supervised banks and savings associations are currently
required to report deferred tax assets in accordance with SFAS No. 109. The
federal banking agencies recently issued final rules, effective April 1, 1995,
which limit the amount of deferred tax assets that are allowable in computing an
institution's regulatory capital. The standard has been in effect on an interim
basis since March 1993. Deferred tax assets that can be realized for taxes paid
in prior carryback years and from future reversals of existing taxable temporary
differences are generally not limited. Deferred tax assets that can only be
realized through future taxable earnings are limited for regulatory capital
purposes to the lesser of (i) the amount that can be realized within one year of
the quarter-end report date, or (ii) 10% of Tier 1 Capital. The amount of any
deferred tax in excess of this limit would be excluded from Tier 1 Capital and
total assets for regulatory capital calculations.
Future changes in regulations or practices could further reduce the
amount of capital recognized for purposes of capital adequacy. Such a change
could affect the ability of the Banks to grow and could restrict the amount of
profits, if any, available for the payment of dividends.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
as of December 31, 1995 Ventura Frontier
- ------------------------------------------------------------------------------------------------------
MINIMUM
AMOUNT RATIO AMOUNT RATIO REQUIREMENT
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
Leverage capital ratio $ 17,709 10.03% $ 8,289 9,80% 4.00%
Tier 1 risk-based capital ratio $ 17,709 15.97% $ 8,289 13.78% 4.00%
Total risk-based capital ratio $ 19,126 17.25% $ 9,051 15.04% 8.00%
- ------------------------------------------------------------------------------------------------------
</TABLE>
PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS
Federal law requires each federal banking agency to take prompt
corrective action to resolve the problems of insured depository institutions,
including but not limited to those that fall below one or more prescribed
minimum capital ratios. The law required each federal banking agency to
promulgate regulations defining the following five categories in which an
insured depository institution will be placed, based on the level of its capital
ratios: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized and critically undercapitalized.
In September 1992, the federal banking agencies issued uniform final
regulations implementing the prompt corrective action provisions of federal law.
An insured depository institution generally will be classified in the following
categories based on capital measures indicated below:
8
<PAGE>
"Well capitalized" "Adequately capitalized"
---------------- ----------------------
Total risk-based capital of 10%; Total risk-based capital of 8%;
Tier 1 risk-based capital of 6%; and Tier 1 risk-based capital of 4%; and
Leverage ratio of 5%. Leverage ratio of 4% (3% if the
institution receives the highest
rating from its primary regulator)
"Undercapitalized" "Significantly undercapitalized"
---------------- ------------------------------
Total risk-based capital less than 8%; Total risk-based capital less than
6%;
Tier 1 risk-based capital less than 4%; Tier 1 risk-based capital less than
or or Leverage ratio less than 4% (3% 3%; or
if the institution receives the highest Leverage ratio less than 3%.
rating from its primary regulator)
"Critically undercapitalized"
---------------------------
Tangible equity to total assets less than 2%.
An institution that, based upon its capital levels, is classified as
"well capitalized," "adequately capitalized" or "undercapitalized" may be
treated as though it were in the next lower capital category if the appropriate
federal banking agency, after notice and opportunity for hearing, determines
that an unsafe or unsound condition or an unsafe or unsound practice warrants
such treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.
The law prohibits insured depository institutions from paying
management fees to any controlling persons or, with certain limited exceptions,
making capital distributions if after such transaction the institution would be
undercapitalized. If an insured depository institution is undercapitalized, it
will be closely monitored by the appropriate federal banking agency, subject to
asset growth restrictions and required to obtain prior regulatory approval for
acquisitions, branching and engaging in new lines of business. Any
undercapitalized depository institution must submit an acceptable capital
restoration plan to the appropriate federal banking agency 45 days after
becoming undercapitalized. The appropriate federal banking agency cannot accept
a capital plan unless, among other things, it determines that the plan (i)
specifies the steps the institution will take to become adequately capitalized,
(ii) is based on realistic assumptions and (iii) is likely to succeed in
restoring the depository institution's capital. In addition, each company
controlling an undercapitalized depository institution must guarantee that the
institution will comply with the capital plan until the depository institution
has been adequately capitalized on an average basis during each of four
consecutive calendar quarters and must otherwise provide adequate assurances of
performance. The aggregate liability of such guarantee is limited to the lesser
of (a) an amount equal to 5% of the depository institution's total assets at the
time the institution became undercapitalized or (b) the amount which is
necessary to bring the institution into compliance with all capital standards
applicable to such institution as of the time the institution fails to comply
with its capital restoration plan. Finally, the appropriate federal banking
agency may impose any of the additional restrictions or sanctions that it may
impose on significantly undercapitalized institutions if it determines that such
action will further the purpose of the prompt corrective action provisions.
An insured depository institution that is significantly
undercapitalized, or is undercapitalized and fails to submit, or in a material
respect to implement, an acceptable capital restoration plan, is subject to
additional restrictions and sanctions. These include, among other things: (i) a
forced sale of voting shares to raise capital or, if grounds exist for
appointment of a receiver or conservator, a forced merger; (ii) restrictions on
transactions with affiliates; (iii) further limitations on interest rates paid
on deposits; (iv) further restrictions on growth or required shrinkage; (v)
modification or termination of specified activities; (vi) replacement of
directors or senior executive officers; (vii) prohibitions on the receipt of
deposits from correspondent institutions; (viii) restrictions on capital
distributions by the holding companies of such institutions; (ix) required
divestiture of subsidiaries by the institution; or (x) other restrictions as
determined by the appropriate federal banking agency. Although the appropriate
federal banking agency has discretion to determine which of the foregoing
restrictions or sanctions it will seek to impose, it is required to force a sale
of voting shares or merger, impose restrictions on affiliate transactions and
impose restrictions on rates paid on deposits unless it determines that such
actions would not further the purpose of the prompt corrective action
provisions. In addition, without the prior written approval of the appropriate
federal banking agency, a significantly undercapitalized institution may not pay
any bonus to its senior
9
<PAGE>
executive officers or provide compensation to any of them at a rate that exceeds
such officer's average rate of base compensation during the 12 calendar months
preceding the month in which the institution became undercapitalized.
Further restrictions and sanctions are required to be imposed on
insured depository institutions that are critically undercapitalized. For
example, a critically undercapitalized institution generally would be prohibited
from engaging in any material transaction other than in the ordinary course of
business without prior regulatory approval and could not, with certain
exceptions, make any payment of principal or interest on its subordinated debt
beginning 60 days after becoming critically undercapitalized. Most importantly,
however, except under limited circumstances, the appropriate federal banking
agency, not later than 90 days after an insured depository institution becomes
critically undercapitalized, is required to appoint a conservator or receiver
for the institution. The board of directors of an insured depository institution
would not be liable to the institution's shareholders or creditors for
consenting in good faith to the appointment of a receiver or conservator or to
an acquisition or merger as required by the regulator.
In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation or
any condition imposed in writing by the agency or any written agreement with the
agency. Enforcement actions may include the imposition of a conservator or
receiver, the issuance of a cease and desist order that can be judicially
enforced, the termination of insurance of deposits (in the case of a depository
institution), the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the issuance of removal and prohibition orders against institution-affiliated
parties and the enforcement of such actions through injunctions or restraining
orders based upon a judicial determination that the agency would be harmed if
such equitable relief was not granted.
SAFETY AND SOUNDNESS STANDARDS
In July 1995, the federal banking agencies adopted final guidelines
establishing standards for safety and soundness, as required by FDICIA. The
guidelines set forth operational and managerial standards relating to internal
controls, information systems and internal audit systems, loan documentation,
credit underwriting, interest rate exposure, asset growth and compensation, fees
and benefits. Guidelines for asset quality and earnings standards will be
adopted in the future. The guidelines establish the safety and soundness
standards that the agencies will use to identify and address problems at insured
depository institutions before capital becomes impaired. If an institution fails
to comply with a safety and soundness standard, the appropriate federal banking
agency may require the institution to submit a compliance plan. Failure to
submit a compliance plan or to implement an accepted plan may result in
enforcement action.
In December 1992, the federal banking agencies issued final
regulations prescribing uniform guidelines for real estate lending. The
regulations, which became effective on March 19, 1993, require insured
depository institutions to adopt written policies establishing standards,
consistent with such guidelines, for extensions of credit secured by real
estate. The policies must address loan portfolio management, underwriting
standards and loan to value limits that do not exceed the supervisory limits
prescribed by the regulations.
Appraisals for "real estate related financial transactions" must be
conducted by either state certified or state licensed appraisers for
transactions in excess of certain amounts. State certified appraisers are
required for all transactions with a transaction value of $1,000,000 or more;
for all nonresidential transactions valued at $250,000 or more; and for
"complex" 1-4 family residential properties of $250,000 or more. A state
licensed appraiser is required for all other appraisals. However, appraisals
performed in connection with "federally related transactions" must now comply
with the agencies' appraisal standards. Federally related transactions include
the sale, lease, purchase, investment in, or exchange of, real property or
interests in real property, the financing or refinancing of real property, and
the use of real property or interests in real property as security for a loan or
investment, including mortgage-backed securities.
PREMIUMS FOR DEPOSIT INSURANCE
Federal law has established several mechanisms to increase funds to
protect deposits insured by the Bank Insurance Fund ("BIF") administered by the
FDIC. The FDIC is authorized to borrow up to $30 billion from the United States
Treasury; up to 90% of the fair market value of assets of institutions acquired
by the FDIC as receiver
10
<PAGE>
from the Federal Financing Bank; and from depository institutions that are
members of the BIF. Any borrowings not repaid by asset sales are to be repaid
through insurance premiums assessed to member institutions. Such premiums must
be sufficient to repay any borrowed funds within 15 years and provide insurance
fund reserves of $1.25 for each $100 of insured deposits. The result of these
provisions is that the assessment rate on deposits of BIF members could increase
in the future. The FDIC also has authority to impose special assessments against
insured deposits.
The FDIC implemented a final risk-based assessment system, as required
by FDICIA, effective January 1, 1994, under which an institution's premium
assessment is based on the probability that the deposit insurance fund will
incur a loss with respect to the institution, the likely amount of any such
loss, and the revenue needs of the deposit insurance fund. As long as BIF's
reserve ratio is less than a specified "designated reserve ratio," 1.25%, the
total amount raised from BIF members by the risk-based assessment system may not
be less than the amount that would be raised if the assessment rate for all BIF
members were .023% of deposits. On August 8, 1995, the FDIC announced that the
designated reserve ratio had been achieved and, accordingly, issued final
regulations adopting an assessment rate schedule for BIF members of 4 to 31
basis points effective on June 1, 1995. On November 14, 1995, the FDIC further
reduced deposit insurance premiums to a range of 0 to 27 basis points effective
for the semi-annual period beginning January 1, 1996.
Under the risk-based assessment system, a BIF member institution such
as the Banks is categorized into one of three capital categories (well
capitalized, adequately capitalized, and undercapitalized) and one of three
categories based on supervisory evaluations by its primary federal regulator (in
the Bank's case, the FDIC). The three supervisory categories are: financially
sound with only a few minor weaknesses (Group A), demonstrates weaknesses that
could result in significant deterioration (Group B), and poses a substantial
probability of loss (Group C). The capital ratios used by the FDIC to define
well-capitalized, adequately capitalized and undercapitalized are the same in
the FDIC's prompt corrective action regulations. The BIF assessment rates are
summarized below; assessment figures are expressed in terms of cents per $100 in
deposits.
Assessment Rates Effective Through the First Half of 1995
Group A Group B Group C
-------------------------------------------
Well Capitalized................ 23 26 29
Adequately Capitalized.......... 26 29 30
Undercapitalized................ 29 30 31
Assessment Rates Effective through the Second Half of 1995
Group A Group B Group C
-------------------------------------------
Well Capitalized............... 4 7 21
Adequately Capitalized......... 7 14 28
Undercapitalized............... 14 28 31
Assessment Rates Effective January 1, 1996
Group A Group B Group C
-------------------------------------------
Well Capitalized.............. 0* 3 17
Adequately Capitalized........ 3 10 24
Undercapitalized.............. 10 24 27
*Subject to a statutory minimum assessment of $1,000 per semi-annual period
(which also applies to all other assessment risk classifications).
A number of proposals have recently been introduced in Congress to address
the disparity in bank and thrift deposit insurance premiums. On September 19,
1995, legislation was introduced and referred to the House Banking Committee
that would, among other things: (i) impose a requirement on all SAIF member
institutions to
11
<PAGE>
fully recapitalize the SAIF by paying a one-time special assessment of
approximately 85 basis points on all assessable deposits as of March 31, 1995,
which assessment would be due as of January 1, 1996; (ii) spread the
responsibility for FICO interest payments across all FDIC-insured institutions
on a pro-rata basis, subject to certain exceptions; (iii) require that deposit
insurance premium assessment rates applicable to SAIF member institutions be no
less than deposit insurance premium assessment rates applicable to BIF member
institutions; (iv) provide for a merger of the BIF and the SAIF as of January 1,
1998; (v) require savings associations to convert to state or national bank
charters by January 1, 1998; (vi) require savings associations to divest any
activities not permissible for commercial banks within five years; (vii)
eliminate the bad-debt reserve deduction for savings associations, although
savings associations would not be required to recapture into income their
accumulated bad-debt reserves; (viii) provide for the conversion of savings and
loan holding companies into bank holding companies as of January 1, 1998,
although unitary savings and loan holding companies authorized to engage in
activities as of September 13, 1995 would have such authority grandfathered
(subject to certain limitations); and (ix) abolish the OTS and transfer the OTS'
regulatory authority to the other federal banking agencies. The legislation
would also provide that any savings association that would become
undercapitalized under the prompt corrective action regulations as a result of
the special deposit premium assessment could be exempted from payment of the
assessment, provided that the institution would continue to be subject to the
payment of semiannual assessments under the current rate schedule following the
recapitalization of the SAIF. The legislation was considered and passed by the
House Banking Committee's Subcommittee on Financial Institutions on September
27, 1995, and has not yet been acted on by the full House Banking Committee.
On September 20, 1995, similar legislation was introduced in the
Senate, although the Senate bill does not include a comprehensive approach for
merging the savings association and commercial bank charters. The Senate bill
remains pending before the Senate Banking Committee.
The future of both these bills is linked with that of pending budget
reconciliation legislation since some of the major features of the bills are
included in the Seven-Year Balanced Budget Reconciliation Act. The budget bill,
which was passed by both the House and Senate on November 17, 1995 and vetoed by
the President on December 6, 1995, would: (i) recapitalize the SAIF through a
special assessment of between 70 and 80 basis points on deposits held by
institutions as of March 31, 1995; (ii) provide an exemption to this rule for
weak institutions, and a 20% reduction in the SAIF-assessable deposits of so-
called "Oakar banks;" (iii) expand the assessment base for FICO payments to
include all FDIC-insured institutions; (iv) merge the BIF and SAIF on January 1,
1998, only if no insured depository institution is a savings association on that
date; (v) establish a special reserve for the SAIF on January 1, 1998; and (vi)
prohibit the FDIC from setting semiannual assessments in excess of the amount
needed to maintain the reserve ratio of any fund at the designated reserve
ratio. The bill does not include a provision to merge the charters of savings
associations and commercial banks.
In light of ongoing debate over the content and fate of the budget
bill, the different proposals currently under consideration and the uncertainty
of the Congressional budget and legislative processes in general, management
cannot predict whether any or all of the proposed legislation will be passed, or
in what form. Accordingly, the effect of any such legislation on the Banks
cannot be determined.
INTERSTATE BANKING AND BRANCHING
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Interstate Act") became law. Under the Interstate
Act, beginning one year after the date of enactment, a bank holding company that
is adequately capitalized and managed may obtain approval under the BHC Act to
acquire an existing bank located in another state without regard to state law. A
bank holding company would not be permitted to make such an acquisition if, upon
consummation, it would control (a) more than 10% of the total amount of deposits
of insured depository institutions in the United States or (b) 30% or more of
the deposits in the state in which the bank is located. A state may limit the
percentage of total deposits that may be held in that state by any one bank or
bank holding company if application of such limitation does not discriminate
against out-of-state banks. An out-of-state bank holding company may not acquire
a state bank in existence for less than a minimum length of time that may be
prescribed by state law except that a state may not impose more than a five year
existence requirement.
The Interstate Act also permits, beginning June 1, 1997, mergers of
insured banks located in different states and conversion of the branches of the
acquired bank into branches of the resulting bank. Each state may permit such
combinations earlier than June 1, 1997, and may adopt legislation to prohibit
interstate mergers after that date
12
<PAGE>
in that state or in other states by that state's banks. The same concentration
limits discussed in the preceding paragraph apply. The Interstate Act also
permits a national or state bank to establish branches in a state other than its
home state if permitted by the laws of that state, subject to the same
requirements and conditions as for a merger transaction.
In October 1995, California adopted "opt in" legislation under the
Interstate Act that permits out-of-state banks to acquire California banks that
satisfy a five-year minimum age requirement (subject to exceptions for
supervisory transactions) by means of merger or purchases of assets, although
entry through acquisition of individual branches of California institutions and
de novo branching into California are not permitted. The Interstate Act and the
California branching statute will likely increase competition from out-of-state
banks in the markets in which the Company operates, although it is difficult to
assess the impact that such increased competition may have on the Company's
operations .
COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS
The Banks are subject to certain fair lending requirements and
reporting obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of a financial institution in meeting
the credit needs of their local communities, including low and moderate income
neighborhoods. In addition to substantial penalties and corrective measures that
may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities. The OCC has rated Ventura
"satisfactory" and Frontier "needs to improve" in complying with their
respective CRA obligations.
In May 1995, the federal banking agencies issued final regulations
which change the manner in which they measure a bank's compliance with its CRA
obligations. The final regulations adopt a performance-based evaluation system
which bases CRA ratings on an institution's actual lending service and
investment performance rather than the extent to which the institution conducts
needs assessments, documents community outreach or complies with other
procedural requirements. In March 1994, the Federal Interagency Task Force on
Fair Lending issued a policy statement on discrimination in lending. The policy
statement describes the three methods that federal agencies will use to prove
discrimination: overt evidence of discrimination, evidence of disparate
treatment and evidence of disparate impact.
POTENTIAL AND EXISTING ENFORCEMENT ACTIONS
Commercial banking organizations, such as the Banks, and their
institution-affiliated parties, which include the Company, are subject to
potential enforcement actions by the Federal Reserve Board, the FDIC and the OCC
for any unsafe or unsound practices in conducting their businesses or for
violations of any law, rule, regulation or any condition imposed in writing by
the agency or any written agreement with the agency. Enforcement actions may
include the imposition of a conservator or receiver, the issuance of a cease-
and-desist order that can be judicially enforced, the termination of insurance
of deposits (in the case of the Banks), the imposition of civil money penalties,
the issuance of directives to increase capital, the issuance of formal and
informal agreements, the issuance of removal and prohibition orders against
institution-affiliated parties and the imposition of restrictions and sanctions
under the prompt corrective action provisions of the FDIC Improvement Act.
Additionally, a holding company's inability to serve as a source of strength to
its subsidiary banking organizations could serve as an additional basis for a
regulatory action against the holding company.
Following supervisory examinations of Ventura conducted as of June 30,
1992 and Frontier as of July 30, 1992, Ventura entered into a Formal Agreement
with the OCC on March 19, 1993 and Frontier entered into a Consent Order with
the OCC on March 29, 1993. The Consent Order replaced the 1992 MOU previously
entered into between the OCC and Frontier. Based upon an examination of Ventura
completed during the fourth quarter of 1995, the OCC terminated Ventura's Formal
Agreement as of November 30, 1995.
The significant requirements of Frontier's Consent Order include
conducting a program to evaluate and improve board supervision and management,
developing a program designed to improve the lending staff and loan
administration, obtaining current credit information on any loans lacking such
information, reviewing and revising loan policies, establishing an independent
loan review program including periodic reports to the Board, developing and
implementing a program to collect or strengthen criticized assets, reviewing and
maintaining an adequate loan loss reserve, developing a new long range strategic
plan and annual budget, developing a three-year capital plan,
13
<PAGE>
developing and revising liquidity and funds management policy, correcting
violations of law cited by the OCC and obtaining approval from the OCC to
declare or pay a dividend. In addition, the Consent Order requires that Frontier
maintain as of May 31, 1993 and beyond a Tier 1 risk based capital ratio of
9.50% and a leverage capital ratio of 7.00%. At December 31, 1995, Frontier's
Tier 1 risk based capital ratio was 13.78% and its leverage capital ratio was
9.80%. The Consent Order also requires Frontier to retain a new president and to
continue to develop a program of asset diversification.
The Company entered into the MOU with the Federal Reserve Bank of San
Francisco (the "Reserve Bank") acting under delegated authority from the Federal
Reserve Board on March 19, 1994. The significant requirements of the MOU include
submitting a program to improve the financial condition of the Banks, evaluate
and improve board supervision and management, exit the commercial paper market,
comply with Federal Reserve Board policy regarding management or service fees
assessed by the Company and paid by the Banks and implement steps to improve the
effectiveness of the audit and credit review functions. The MOU further
restricts the Company from declaring or paying a dividend, incurring any debt,
adding or replacing a director or senior executive or repurchasing Company stock
without notice to and nondisapproval of the Reserve Bank. The MOU also requires
the Company's Board of Directors to establish a committee to monitor compliance
with the MOU and ensure that quarterly written progress reports detailing the
form and manner of all actions taken to attain compliance with the MOU are
submitted.
Management believes Frontier and the Company are in full compliance
with all of the items required under the Consent Order and MOU, respectively.
14
<PAGE>
STATISTICAL FINANCIAL DATA
INVESTMENT PORTFOLIO
The following table sets forth cost and market value of investment securities at
the dates indicated.
SECURITIES AVAILABLE-FOR-SALE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
As of December 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands) Cost Market Cost Market Cost Market
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government securities $13,491 $13,575 $22,935 $22,706 $38,597 $38,475
Mortgage-backed securities 21,882 21,648 8,067 7,551 -- --
Federal Reserve Bank and FHLB Stock 1,365 1,365 1,602 1,602 2,300 2,300
- -----------------------------------------------------------------------------------------------------------------
Total securities, available-for-sale $36,738 $36,588 $32,604 $31,859 $40,897 $40,775
==================================================================================================================
SECURITIES HELD-TO-MATURITY
- ----------------------------------------------------------------------------------------------------------------
As of December 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
(dollars in thousands) Cost Market Cost Market Cost Market
---- ------ ---- ------ ---- ------
U.S. Government securities $ -- $ -- $ 1,250 $ 1,222 $ -- $ --
Mortgage-backed securities -- -- 17,525 16,741 -- --
- ----------------------------------------------------------------------------------------------------------------
Total securities, held-to-maturity $ -- $ -- $18,775 $17,963 $ -- $ --
=================================================================================================================
</TABLE>
The following table sets forth the maturity distribution of the investment
portfolio at December 31, 1995:
<TABLE>
<CAPTION>
Weighted
Amortized Market Average
Cost Value Yield
- -------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
U.S. Government securities:
Within one year $ 7,493 $ 7,504 5.61%
After one but within five years 5,998 6,071 6.79
After five but within ten years -- -- --
After ten years -- -- --
- -------------------------------------------------------------------------------------------------------------
Total U.S. Government securities $13,491 $13,575 6.14%
=============================================================================================================
Mortgage-backed securities:
Within one year $ -- -- %
After one but within five years 11,574 11,448 5.45
After five but within ten years 10,308 10,200 6.68
After ten years -- -- --
- -------------------------------------------------------------------------------------------------------------
Total Mortgage-backed securities $21,882 $21,648 6.03%
=============================================================================================================
Federal Reserve Bank and FHLB Stock
Within one year $ -- $ -- %
After one but within five years -- -- --
After five but within ten years -- -- --
After ten years 1,365 1,365 7.04
- -------------------------------------------------------------------------------------------------------------
Total FRB and FHLB Stock $ 1,365 1,365 7.04%
=============================================================================================================
Total Investment Securities $36,738 $36,588 6.11%
=============================================================================================================
</TABLE>
15
<PAGE>
LOAN PORTFOLIO
The following table sets forth the amounts of loans at December 31, according to
the type of loan:
<TABLE>
<CAPTION>
as of December 31, 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, Financial and Agriculture $142,427(1) $138,193 $197,384 $221,553 $190,076
Real Estate -Construction 1,537 7,734 23,559 31,264 40,860
Real Estate - Mortgage 6,710 11,993 31,202 36,775 37,045
Installment 7,043 9,897 14,961 21,242 30,068
Lease Financing, net of unearned income 48 117 408 867 1,218
- ----------------------------------------------------------------------------------------------
Total Loans $157,765 $167,934 $267,514 $311,701 $299,267
==============================================================================================
</TABLE>
(1) Includes $2.24 million of SBA loans held for sale at December 31, 1995.
MATURITY OF LOANS AND SENSITIVITY OF LOANS TO CHANGES IN INTEREST RATES
The following table sets forth by category of loan (including fixed and variable
rate loans) the amounts of loans outstanding as of December 31, 1995 which are,
based on remaining scheduled repayment of principal, due in less than one year,
due in one to five years, or due in more than five years. Loan maturities are
based on contractual maturities.
<TABLE>
<CAPTION>
Loans Maturing In
-------------------------------------------
Between Greater
Less Than One-Five Than Five
One Year Years Years Total
--------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
Commercial, Financial and Agricultural $39,939 $60,010 $42,478 $ 142,427(1)
Real Estate Construction 961 576 -- 1,537
Real Estate Mortgage. 316 1,568 4,826 6,710
Installment 3,717 3,183 143 7,043
Lease Financing 9 39 -- 48
--------------------------------------------------------
Total Maturities of Loans $44,942 $65,376 $47,447 $ 157,765
========================================================
Loans with fixed interest rates $14,027 $19,255 $ 6,341 $ 39,623
Loans with variable interest rates 30,915 46,121 41,106 118,142
--------------------------------------------------------
Total Repricing of Loans $44,942 $65,376 $47,447 $157,765
========================================================
</TABLE>
(1) Includes $2.24 million of SBA loans held for sale at December 31, 1995.
NONPERFORMING ASSETS: Nonperforming loans are those on which the borrower fails
to perform under the original terms of the obligation. The Company's
nonperforming loans fall within three categories: loans past due 90 days and
still accruing, loans on nonaccrual status and restructured loans. The coverage
ratio, or the ratio of loan loss reserves to nonperforming loans, was 121.62%
and 103.98%, at December 31, 1995, and 1994, respectively. Loans past due 90
days or more and still accruing totaled $101 thousand and $331 thousand at
December 31, 1995, and 1994, respectively. Total nonperforming loans as a
percent of total loans outstanding were 2.81% and 4.73% at December 31, 1995 and
1994, respectively. The decrease in nonaccrual loans was primarily attributable
to the collection of the same and the overall improvement in the credit quality
of the loan portfolio.
Loans are automatically placed on nonaccrual status when principal or interest
payments are past due greater than 90 days. If a loan is an SBA guaranteed loan
and a deferral period has been negotiated or if the loan is in the process of
imminent collection in the normal course of business, the Company may remove the
loan from nonaccrual status and continue to accrue interest. Loans are placed
on nonaccrual status earlier, if there is doubt as to the collectibility of any
amounts due according to the contractual terms of the loan agreement. At
December 31, 1995, loans totaling $4.3 million were on nonaccrual status,
compared to $7.6 million at December 31, 1994.
As of December 31, 1995, the Company had $3.643 million in restructured loans,
of which $3.326 million were performing in accordance with their restructured
terms for a specified period of time, typically at least six months. The
remaining balance is included within loans on nonaccrual status. As of December
31, 1994, the Company had
16
<PAGE>
$1.968 million in restructured loans, of which $1.966 million were performing in
accordance with their restructured terms.
ALLOCATION FOR ALLOWANCE FOR LOAN LOSSES: Over the five year period ended
December 31, 1995, the allocation of the allowance for loan losses for
commercial, financial and agricultural loans increased steadily to correspond
with increases in the total volume of loans and the level of loan losses in this
category. The Company's current practice is to make specific allocations to
large loans and unspecified allocations to each loan category based on
management's risk assessment. While management has allocated reserves to various
portfolio categories, the reserve is general in nature and is available for the
loan portfolio The following table sets forth the allocation of the allowance
for loan losses by loan category as of the dates indicated.
<TABLE>
<CAPTION>
as of December 31, 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
% of % of % of % of % of
Total Total Total Total Total
Balance Loans Balance Loans Balance Loans Balance Loans Balance Loans
- ---------------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, Financial
and Agriculture 4,926 3.12% $6,704 3.99% $11,361 4.25% $3,132 1.00% $1,925 0.64%
Real Estate-- Construction 17 0.01 265 0.16 1,916 0.72 242 0.08 254 0.08
Real Estate-- Mortgage 88 0.06 964 0.57 420 0.16 70 0.02 238 0.08
Installment 369 0.23 325 0.19 555 0.21 362 0.12 399 0.13
Lease Financing 1 0.00 3 0.00 61 0.02 48 0.02 29 0.01
------------------------------------------------------------------------------
Total Allocated $5,401 3.42% $8,261 4.92% $14,313 5.35% $3,854 1.24% $2,845 0.95%
==============================================================================
</TABLE>
POTENTIAL PROBLEM LOANS: The level of nonperforming assets will depend to a
great extent on the future economic environment. Currently, management of the
Company has identified $9.3 million in potential problem loans at December 31,
1995, in addition to its nonperforming assets, performing restructured loans and
accruing loans 90 days or more past due, as to which it has serious doubts as to
the ability of the borrowers to comply with the present repayment terms and
which may become nonperforming assets, based on known information about possible
credit problems of the borrower.
FOREGONE INTEREST INCOME: If nonaccrual, past due and restructured loans had
been current and performing according to original terms, gross interest income
for the years ended December 31, 1995, 1994, 1993, 1992 and 1991 would have
increased by $1.3 million, $1.6 million, $2.2 million, $728 thousand and $429
thousand, respectively. The following summarizes foregone interest income for
1995:
Interest income at original terms $ 1,669,000
Less: Interest income included in 1995 income (415,000)
---------
Foregone interest income $ 1,254,000
=========
DEPOSITS
The Company competes for deposits principally by providing quality customer
service at the Banks' branch offices. In order to stabilize its funding sources,
the Company has taken action to reduce title and escrow demand deposits and
institutional certificates of deposits as a percentage of total deposits. The
Banks are prohibited from purchasing brokered deposits by virtue of their
regulatory agreements with the OCC. See "Supervision and Regulation".
The following table sets forth information regarding the average monthly
deposits and the average rate paid for certain deposit categories for each of
the periods indicated. Average balances are average daily balances.
17
<PAGE>
<TABLE>
<CAPTION>
for the years ended December 31, 1995 1994 1993
- -----------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
- -----------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand Deposits:
Interest-bearing $ 52,895 2.63% $58,114 2.65% $66,167 2.73%
Noninterest-bearing 62,980 -- 75,568 -- 87,383 --
Savings deposits 27,707 2.36% 34,575 2.37% 37,892 2.78%
Time deposits 84,337 5.12% 104,671 3.72% 142,020 3.88%
-----------------------------------------------------------
Total deposits $ 227,919 2.79% $272,928 2.29% $333,462 2.51%
===========================================================
</TABLE>
With respect to the Company's time certificates of deposit of $100 thousand or
more, at December 31, 1995, such deposits had the following schedule of
maturity:
as of December 31, 1995 (dollars in thousands)
-------------------------------------------------
Three months or less $10,139
Three to six months 8,184
Six to twelve months 8,814
Over twelve months 614
-------
Total $27,751
=======
OTHER BORROWINGS
The following table sets forth certain information with respect to the Company's
commercial paper activities. As of December 31, 1993, the Company had ceased
all commercial paper activity.
<TABLE>
<CAPTION>
as of and for the years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Maximum month end balance outstanding during the year $ -- $ -- $ 8,616
Average amount outstanding during the year $ -- $ -- $ 6,987
Weighted average interest rate -- -- 2.66%
The Company utilized credit lines with FHLB during 1994 and 1993.
<CAPTION>
as of and for the years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C>
Maximum month end balance outstanding during the year $ -- $ 5,000 $ 8,000
Average amount outstanding during the year $ -- $ 129 $ 7,447
Weighted average interest rate -- 3.55% 3.83%
</TABLE>
EMPLOYEES
At December 31, 1995, the Company had 127 full-time employees. None of the
employees are covered by a collective bargaining agreement. In addition to cash
compensation, the Company compensates its employees with health and accident
insurance, vacation and sick leave, and other normal fringe benefits.
EFFECTS OF ENVIRONMENTAL PROTECTION LAWS
The Company, to the best of its knowledge, is not aware of any facts relating to
its present loan portfolio that reasonably indicates that compliance by the
Banks with federal, state or local provisions relating to the protection of the
environment will have a material adverse effect on the financial resources,
earnings or competitive position of the Company.
18
<PAGE>
RETURN ON EQUITY AND ASSETS
The following table shows consolidated operating and capital ratios of the
Company:
<TABLE>
<CAPTION>
for the years ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on Assets (1) 1.49% (0.09%) (3.17%)
Return on Equity (2) 15.64% (1.29%) (45.12%)
Dividend Payout Ratio -- -- --
Capital to Assets Ratio (3) 9.48% 6.81% 7.03%
</TABLE>
- ---------------------------
(1) Return on assets: Net income to average total assets.
(2) Return on equity: Net income to average total shareholders' equity.
(3) Capital to assets ratio: Average shareholders' equity to average total
assets.
19
<PAGE>
ITEM 2: PROPERTIES
Since October 1987, Company headquarters have been located at 500 Esplanade
Drive in Oxnard, California. The Company and Ventura's main offices share 31,097
square feet of leased space. The lease which expires in 2002, requires the
Company to pay for any allocated property tax or utility cost increases and to
adjust the monthly rent annually, based on consumer price index changes. The
Company does not have an option to renew this lease. The Company subleased 9,335
square feet of office space in December 1994, from which the Company anticipates
annual cost savings of approximately $134,000.
Ventura leases a 3,100 square foot building at 4730 Telephone Road in Ventura
for its Ventura branch office under a lease expiring November 1996. Ventura does
not have an option to renew this lease. The Company anticipates that it will
attempt to negotiate a renewal of this lease or look for another suitable
location in the third quarter of 1996.
Ventura also leases 6,640 square feet at 502 Las Posas Road, Camarillo and 4,000
square feet at 2655 Townsgate Road in Westlake Village for its Camarillo and
Westlake Village branch offices, respectively. The Camarillo lease expires in
June of 1997, with one ten year and two five year options to renew. The Westlake
Village lease expires in 2005, with one five year option to renew. Ventura pays
its pro rata share of utilities, taxes, common area maintenance and insurance on
all branch locations. In addition to annual adjustments tied to the consumer
price index, Ventura pays $12,000 annually on the Westlake Village property in
lieu of an option to construct an additional 7,000 square foot building.
Ventura's Central Operations is housed in 8,105 square feet at 2125 Knoll Drive
in Ventura. The lease expires on March 31, 2000. The lease provides for annual
adjustments of the rent. The Company has the option of terminating the lease
without penalty during the final year.
Frontier's main office occupies 17,588 square feet at One Centerpointe Drive in
La Palma, California and Frontier has subsequently subleased an additional 8,559
square feet. Frontier leased an additional 1,668 square feet at One Centerpointe
Drive in La Palma under an amendment to the original lease. The lease for the
main office expires in December 2006 and the lease for the additional space
expires in July 1998. Frontier does not have an option to renew these leases.
Frontier purchased a 9,007 square foot building located at 131 West Anaheim
Street in Wilmington for its South Bay branch office during June of 1995.
Frontier purchased the building and lot from the FDIC as a receiver for Maritime
Bank for $265,000 cash. Frontier terminated the month to month lease on its
previous Wilmington branch location and began operating at the current branch
location in September 1995.
The Company believes its present facilities are adequate for its present needs
and anticipated future growth. The Company believes that, if necessary, it could
secure suitable alternative facilities on similar terms without adversely
affecting operations.
ITEM 3: LEGAL PROCEEDINGS
There are no material legal proceedings pending other than ordinary routine
litigation incidental to the business of the Company to which the Company or its
subsidiaries is a party or of which any of their property is a subject, except
as described below.
SHARON TILLIS, KAREN TILLIS, ET AL V. BANKAMERICA CORPORATION, ET AL.
On January 26 1993, plaintiffs filed a class action lawsuit in Los Angeles
County Superior Court, Case No. BC 073448, against Wilshire Computer College
("WCC"), its proprietor Peter Chung, Bank of America, N.T. & S.A. ("Bank of
America") and the California Student Aid Commission ("CSAC"). The Complaint was
subsequently amended to add Ventura, Marine Midland Bank, N.A. ("Marine
Midland") and Educational Funding Services, Inc. ("EFSI"). (Bank of America,
Marine Midland, EFSI and Ventura are collectively referred to as the "Bank
Defendants"). This action arises out of loans made to students of WCC, which
plaintiffs contend were made to induce them to enroll at WCC. VCNB appears to
have made $4.2 million in loans to students at WCC who are sought to be included
in the class. CSAC and the Bank Defendants filed a joint demurrer and motion to
strike portions of the First Amended Complaint, which was sustained on November
17, 1993, eliminating several theories of liability against the Bank Defendants.
20
<PAGE>
Plaintiffs filed a Second Amended Complaint, alleging the following seven causes
of action against the Bank Defendants: (1) violations of Business and
Professions Code (S)17500 regarding allegations of untrue or misleading
statements to prospective students to induce them to enroll at WCC; (2)
violations of the Unruh Act, Civil Code (S)1801 regarding allegations that the
student loan agreements constituted retail installment sales contracts; (3)
violations of Business and Professions Code (S)17200 regarding allegations that
defendants engaged in unfair business practices, including unfair advertising,
acting without permits and making false representations to students and
agencies; (4) fraud, misrepresentation and negligent misrepresentation regarding
allegations that employees and representatives of WCC made misrepresentations to
students to induce them to enroll at the WCC; (5) breach of contract, breach of
the implied covenant of good faith based on the contracts entered into between
plaintiffs and Bank Defendants; (6) rescission and restitution based on the
contracts entered into between plaintiffs and Bank Defendants; and (7) secondary
theories of liability based on causes (1), (3) and (4) regarding allegations of
agency, joint venture, aiding and abetting and close connection.
CSAC and the Bank Defendants filed a joint demurrer to all causes of action in
the Second Amended Complaint which was sustained without leave to amend as to
the Bank Defendants and with leave to amend as to CSAC. Plaintiffs did not amend
their Second Amended Complaint, however, and the court issued an Order and
Judgment of Dismissal of all defendants on October 12, 1994. Notice of Entry of
Judgment in this matter was served on October 25, 1994.
On December 7, 1994, plaintiffs filed a Notice of Appeal with the Court of
Appeal of the State of California and briefs on appeal have been filed. Oral
arguments are scheduled for December 1996. Bank of America reached a settlement
with plaintiffs and plaintiffs and the other Bank Defendants have engaged in
settlement negotiations but, to date, no settlement has been reached. Based upon
the advice of counsel, should the appellate court find reason to reverse the
demurrer, management is currently unable to estimate the likelihood of an
unfavorable outcome or the amount or range of potential loss.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted for vote to the shareholders during the fourth
quarter of 1995.
PART II
ITEM 5: MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
See "Market for Common Stock and Related Shareholder Matters" section of 1995
Annual Report to shareholders which is incorporated by reference herein.
ITEM 6: SELECTED FINANCIAL DATA
See "Summary Selected Consolidated Financial And Other Data" section of the 1995
Annual Report to shareholders, which is incorporated by reference herein.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" section of the 1995 Annual Report to shareholders which is
incorporated by reference herein.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See "Financial Statements" section of the 1995 Annual Report to shareholders
which is incorporated by reference herein.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
Not applicable.
21
<PAGE>
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS
Contained in the Proxy Statement for the 1996 Annual Meeting which is to be
filed within 120 days after December 31, 1995, which is incorporated by
reference.
ITEM 11: EXECUTIVE COMPENSATION
Contained in the Proxy Statement for the 1996 Annual Meeting which is to be
filed within 120 days after December 31, 1995, which is incorporated by
reference.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Contained in the Proxy Statement for the 1996 Annual Meeting which is to be
filed within 120 days after December 31, 1995, which is incorporated by
reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Contained in the Proxy Statement for the 1996 Annual Meeting which is to be
filed within 120 days after December 31, 1995, which is incorporated by
reference.
22
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
INDEX
(a.) 1. The following consolidated financial statements of the Company and its
Subsidiaries are included in Item 8 and incorporated by reference to
the 1995 Annual Report to shareholders:
. Consolidated Balance Sheets at December 31, 1995, and December
31, 1994.
. Consolidated Statements of Operations for the years ended
December 31, 1995, 1994, and 1993.
. Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1995, 1994, and 1993.
. Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994, and 1993.
. Notes to the Consolidated Financial Statements.
. Independent Auditors' Report.
2. Financial Statement Schedules: All schedules to the Consolidated
Financial Statements of the Company required by Article 9 of
Regulations S-X are included in the Notes to the Financial Statements
or are not required under the related instructions, or are
inapplicable.
3. Exhibits:
3.1 -Articles of Incorporation, as amended (1)
3.2 -Bylaws, as amended (1)
10.1 -1991 Incentive Stock Option Plan (2) +
10.2 -Incentive Stock Option Plan (3) +
10.3 -Incentive Stock Option Plan of Conejo (former subsidiary of
Ventura) (4) +
10.4 -Non-Qualified Stock Option Plan of Conejo (former
subsidiary of Ventura) (5) +
10.5 -401(k)/Employee Stock Ownership Plan (6) +
10.6 -Salary Continuation Agreement for Cupp (1) +
10.7 -Employment Agreement for Kellogg (7) +
10.8 -Employment Agreement for Raggio (7) +
10.9 -Employment Agreement for Lagomarsino(7) +
10.10 -Management Incentive Compensation Program +
11 -Computation of per share income (loss)
13 -Annual Report to Shareholders (information not incorporated
by reference herein is excluded)
22 -The following companies are wholly owned subsidiaries of
Ventura County National Bancorp:
Ventura County National Bank, a National Association
Ventura Management Services Company Inc.
Frontier Bank, N.A., a National Association
23.1 -Consent of Deloitte & Touche LLP
27 -Financial Data Schedule
- --------------------------------------------
(+) Management contract or compensatory plan or arrangement.
(1) This exhibit is filed as an exhibit to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993 and incorporated
herein by reference.
(2) This exhibit is filed as an Exhibit to the Registrant's S-8
Registration Statement File No. 33-9207 and incorporated herein by
reference.
(3) This exhibit is filed as Exhibit 10.6 to Registrant's Statement File
No. 33-9207 and incorporated herein by reference.
(4) This exhibit is filed as Exhibit 10.1 to Registrant's Registration
Statement File No. 33-28780 and incorporated herein by reference.
(5) This exhibit is filed as Exhibit 10.2 to Registrant's Registration
Statement File No. 33-28780 and incorporated herein by reference.
(6) This exhibit is filed as Exhibit 10.5 to Registrant's Registration
Statement File No. 33-28780 and incorporated herein by reference.
(7) This exhibit is filed as an Exhibit to the Registrant's S-2
Registration Statement File No. 33-88388 and incorporated herein by
reference.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of 1995.
(c) EXHIBITS
See Index to Exhibits included in this Annual Report on Form 10-K.
23
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: March 7, 1996 VENTURA COUNTY NATIONAL BANCORP
-------------------------------
(Registrant)
By: /s/ RICHARD S. CUPP
-------------------------------------
RICHARD S. CUPP
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the date
indicated above.
SIGNATURE TITLE SIGNATURE TITLE
- --------- ----- --------- -----
/s/ JAMES B. HUSSEY /s/ MICHAEL ANTIN
- --------------------------------------- --------------------------------
James B. Hussey, Chairman of the Board Michael Antin, Director
/s/ RALPH R. BENNETT /s/ RICHARD S. CUPP
- --------------------------------------- --------------------------------
Ralph R. Bennett, Director Richard S. Cupp, Director
Chief Executive Officer
(Principal Executive Officer)
/s/ JAMES M. DAVIS /s/ BART M. HACKLEY
- --------------------------------------- --------------------------------
James M. Davis, Director Bart M. Hackley, Director
/s/ W. E. HARTMAN /s/ RICHARD A. LAGOMARSINO
- --------------------------------------- --------------------------------
W. E. Hartman, Director Richard A. Lagomarsino, Director
/s/ ZELLA A. RUSHING /s/ RAYMOND E. SWIFT
- --------------------------------------- --------------------------------
Zella A. Rushing Director Raymond E. Swift, Director
/s/ SIMONE LAGOMARSINO
- ---------------------------------------
Simone Lagomarsino
Senior Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
24
<PAGE>
APPENDIX G
VENTURA COUNTY NATIONAL BANCORP'S QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT to SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the nine months ending September 30, 1996. Commission File Number 0-15814
VENTURA COUNTY NATIONAL BANCORP
(Exact name of registrant as specified in its charter)
California 77-0038387
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
500 Esplanade Drive, Oxnard, California 93030
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (805) 981-2600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES. [X] NO. [ ]
There were 9,228,723 shares of common stock for the registrant issued and
outstanding as of November 5, 1996.
Total number of pages: 24
Exhibit index on page: 2
VENTURA COUNTY NATIONAL BANCORP
FORM 10-Q
INDEX
PAGES
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
<PAGE>
A. Consolidated Balance Sheets 3
B. Consolidated Statements of Operations 4
C. Consolidated Statements of Cash Flows 5
D. Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION 23
ITEM 1. Legal Proceedings 23
ITEM 2. Changes in Securities 23
ITEM 3. Defaults Upon Senior Securities 23
ITEM 4. Submission of Matters to a Vote of Security Holders 23
ITEM 5. Other Information 23
ITEM 6. Exhibits and Reports on Form 8-K 23
SELECTED FINANCIAL DATA 24
Part I.
Item 1. Financial Statements
VENTURA COUNTY NATIONAL BANCORP
Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
- --------------------------------------------------------------------------------
(Dollars in thousands) (Unaudited)
(Audited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 10,588 $ 19,920
Federal funds sold 27,950 47,450
Interest-bearing deposits - 100
Securities held-to-maturity, at amortized cost:
fair value 1996 - $9,297; 1995 - nil 9,411 -
Securities available-for-sale, at fair value 47,268 36,588
Loans, net of unearned income 170,397 157,765
Allowance for loan losses (4,950) (5,401)
- --------------------------------------------------------------------------------
Loans, net 165,447 152,364
- --------------------------------------------------------------------------------
Premises and equipment, net 2,110 2,371
Other assets 8,946 8,963
- --------------------------------------------------------------------------------
TOTAL ASSETS $271,720 $267,756
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES
Deposits:
Noninterest-bearing $ 73,256 $ 68,074
Interest-bearing demand and savings 77,984 77,085
Time certificates of deposit 86,690 90,913
- --------------------------------------------------------------------------------
Total deposits 237,930 236,072
- --------------------------------------------------------------------------------
Accrued interest payable and other liabilities 4,445 2,225
- --------------------------------------------------------------------------------
Total Liabilities 242,375 238,297
- --------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, no par value: 20,000,000
shares authorized; 9,228,723 and 9,226,723 shares
issued and outstanding in 1996 and 1995, respectively 37,029 37,025
Retained deficit (6,929) (6,951)
Unrealized loss on available-for-sale securities, net
of taxes (755) (615)
- --------------------------------------------------------------------------------
Total Shareholders' Equity 29,345 29,459
- --------------------------------------------------------------------------------
TOTAL LIABILITIES and SHAREHOLDERS' EQUITY $271,720 $267,756
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
<TABLE>
<CAPTION>
VENTURA COUNTY NATIONAL BANCORP
Consolidated Statements of Operations
(Unaudited)
Three Months Ending September 30, Nine Months Ending September 30,
--------------------------------- --------------------------------
1996 1995 1996 1995
------ ------ ------- -------
(Dollars in thousands)
INTEREST INCOME
<S> <C> <C> <C> <C>
Loans and leases $4,196 $4,147 $12,374 $12,349
Deposits with financial institutions - 4 1 20
Investment securities 932 636 2,431 2,034
Federal funds sold 254 467 1,162 1,190
------ ------ ------- -------
Total interest income 5,382 5,254 15,968 15,593
------ ------ ------- -------
INTEREST EXPENSE
Deposits and other borrowings 1,563 1,617 4,827 4,733
------ ------ ------- -------
Total interest expense 1,563 1,617 4,827 4,733
------ ------ ------- -------
NET INTEREST INCOME 3,819 3,637 11,141 10,860
Provision for loan losses - (100) - 410
------ ------ ------- -------
Net interest income after provision for loan lo sses 3,819 3,737 11,141 10,450
Noninterest income:
Service charges on deposit accounts 292 233 855 713
Loan servicing fees 18 14 65 78
Other fees and charges 76 66 252 219
Gain (Loss) on sales of investment securities - 41 (86) 47
Gain on sales of SBA loans 261 110 532 428
Other income (Loss) (4) 106 157 125
------ ------ ------- -------
Total noninterest income 643 570 1,775 1,610
------ ------ ------- -------
Noninterest expense:
Salaries and employee benefits 1,940 1,721 4,999 4,966
Occupancy, net 358 432 1,094 1,294
Equipment 161 151 485 506
Professional fees 283 180 922 613
Data processing 151 157 458 470
Other real estate owned 111 33 241 (67)
Courier services 56 63 176 203
Office supplies and office expense 155 131 416 378
FDIC/OCC assessments 20 169 224 554
Advertising and promotion 192 144 502 375
Other 218 446 3,523 1,291
------ ------ ------- -------
Total noninterest expense 3,645 3,627 13,040 10,583
------ ------ ------- -------
Income/(loss) before provision (benefit) for income taxes 817 680 (124) 1,477
Income tax provision (benefit) 242 30 (146) 30
------ ------ ------- -------
NET INCOME $ 575 $ 650 $ 22 $ 1,477
------ ------ ------- -------
------ ------ ------- -------
Primary weighted average number of shares outstanding
(in thousands) 9,288 9,285 9,291 7,363
------ ------ ------- -------
------ ------ ------- -------
Earnings per share, primary $ 0.06 $ 0.07 $ 0.00 $ 0.20
------ ------ ------- -------
------ ------ ------- -------
Earnings per share, fully-diluted $ 0.06 $ 0.07 $ 0.00 $ 0.20
------ ------ ------- -------
------ ------ ------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
<TABLE>
<CAPTION>
VENTURA COUNTY NATIONAL BANCORP
Consolidated Statements of Cash Flows
Nine months ending September 30, 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) $ 22 $ 1,447
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for loan losses - 410
(Gain) loss on sale of fixed assets 9 (2)
(Gain) loss on sale of SBA loans (532) (428)
(Gain) loss on sale of available-for-sale investment securities 86 (47)
Net amortization of premiums (accretion of discount) on investment securities 295 (181)
Net change in deferred loan fees (108) (43)
Depreciation and amortization 429 430
Provision for deferred income taxes 55 600
(Increase)/decrease in accrued interest receivable and other assets 355 (817)
Increase (Decrease) in accrued interest payable and other liabilities 2,094 (214)
-------- -------
Net cash provided by operating activities 2,705 1,155
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of available-for-sale investment securities 13,241 7,227
Proceeds from maturities of available-for-sale investment securities 10,072 11,794
Proceeds from maturities of held-to-maturity investment securities 3,976 1,971
Purchase of investment securities, available-for-sale (36,937) (4,916)
Purchase of investment securities, held-to-maturity (11,452) (3,996)
Change in Federal funds sold 19,500 (6,400)
Change in deposits with financial institutions 100 594
Proceeds from sale of SBA loans 6,473 4,018
Loans funded, net of payments received (20,018) (591)
Proceeds from sale of fixed assets and other assets 55 2
Purchase of fixed assets (233) (828)
Proceeds from sale of other real estate owned 1,324 3,794
-------- -------
Net cash provided by (used in) investing activities (13,899) 12,669
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase/(decrease) in demand deposits, NOW accounts and savings
accounts 6,081 (2,220)
(Decrease) in time certificates of deposit (4,223) (7,878)
(Decrease) in notes payable - (125)
Issuance of common stock 4 5,529
-------- -------
Net cash provided by (used in) financing activities 1,862 (4,694)
-------- -------
Increase/(decrease) in cash and cash equivalents (9,332) 9,130
Cash and cash equivalents, beginning of period 19,920 11,442
-------- -------
Cash and cash equivalents, end of period $ 10,588 $20,572
-------- -------
-------- -------
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Interest payments $ 4,833 $ 4,698
Income tax payments 5 364
OREO foreclosures 1,077 4,123
</TABLE>
See Notes To Consolidated Financial Statements.
5
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
Notes to Consolidated Financial Statements
(Unaudited, except for information as of and for the year ended
December 31, 1995)
NOTE 1 - BASIS OF PRESENTATION
The Company's accounting and reporting policies conform to generally accepted
accounting principles prescribed for bank holding companies and banks, and
predominant banking industry practice. The interim period financial statements
are unaudited. It is the opinion of Company management that all adjustments
consisting of normal, recurring accruals necessary for a fair presentation of
the results of operations have been reflected therein. Results for the period
ending September 30, 1996, are not necessarily indicative of results that may be
expected for any other interim periods or for the year as a whole. For further
information, refer to the Consolidated Financial Statements and footnotes
included in the Company's Annual Report for the year ended December 31, 1995.
The Consolidated Financial Statements include the accounts of the Company and
the following subsidiaries: Ventura County National Bank, ("Ventura") and
Frontier Bank, N.A., ("Frontier"), (jointly, "the Banks"), and Ventura County
Management Services Company, Inc., the last company is currently inactive. All
significant intercompany balances and transactions have been eliminated in
consolidation.
Cash and cash equivalents:
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and amounts due from banks.
Securities:
The Company's securities portfolio includes U.S. Treasury and U.S. federal
agency securities. The Company has classified its investment securities as
held-to-maturity or as available-for-sale; the Company has no trading account
assets.
Securities are classified as available-for-sale when the Company intends to hold
the securities for an indefinite period of time but not necessarily to maturity.
Any decision to sell a security classified as available-for-sale would be based
on various factors, including significant movements in interest rates, changes
in the maturity mix of the Company's assets and liabilities, liquidity demands,
regulatory capital considerations and other similar factors. Securities
classified as available-for-sale are reported at their fair values. Unrealized
holding gains and losses on securities available-for-sale are reported, net of
tax, as a separate component of shareholders' equity. Realized gains and losses
from the sales of available-for-sale securities are reported separately in the
statements of operations. The cost basis of available-for-sale securities is
recorded using the specific identification method.
Securities are classified as held-to-maturity when the Company has both the
intent and ability to hold the securities to maturity on a long-term basis.
Securities held-to-maturity are reported at cost, adjusted for amortization of
premiums and accretion of discounts to maturity or, in the case of mortgage-
backed securities, over the estimated life of the securities.
SBA Loans and Servicing Income:
The portion of loans guaranteed by the SBA, which are originated and are
intended for sale in the secondary market, is carried at the lower of cost or
estimated market value. Funding for SBA programs depends on annual
appropriations by the U.S. Congress, and accordingly, the sale of loans under
this program is dependent on the continuation of such programs.
Gains on sale of the guaranteed portion of SBA loans are recognized to the
extent sales proceeds less amounts necessary to provide required yield
enhancement to the Company for retaining the unguaranteed portion of the loan
exceed the carrying value of the guaranteed portion sold. Gains or losses are
determined using the specific identification method for loans sold and are
recorded as noninterest income as of the date of sale.
The Company sells SBA loans and retains servicing. At the time of sale, an
evaluation is made of the contractual servicing fee, which is represented by the
differential between the contractual interest rate of the loan and the interest
rate payable to the investor. The present value of the amount by which the
contractual servicing fee exceeds a normal servicing fee, or the Company's cost
of servicing such loans plus a normal profit, whichever is greater, is
determined. The amount necessary to enhance the yield of the unguaranteed
portion of the SBA loan sold is also determined. The amount of the present
value of the contractual servicing fee income less the amount necessary for the
yield enhancement, is recognized as a servicing fee over the life of the related
loans. If the present value of the servicing fee is less than the amount
necessary for the yield enhancement of the unguaranteed portion, then a
liability is created and the difference is amortized over the life of the
related loans. If the present value of the servicing fee is greater than the
amount necessary for fee enhancement, an asset is not created, instead servicing
fee income is recognized over the life of the loan. Loan servicing costs are
charged to expense as incurred.
6
<PAGE>
NOTE 1 - BASIS OF PRESENTATION - CON'T
Accounting for Stock Based Compensation:
The Financial Accounting Standards Board has issued SFAS No. 123, "Accounting
for Stock-Based Compensation", which encourages companies to account for stock
compensation awards based on their fair value at the date the awards are
granted. This statement does not require the application of the fair value
method and allows the continuance of the current accounting method, which
requires accounting for stock compensation awards based on their intrinsic value
as of the grant date. However, SFAS No. 123 requires proforma disclosure of net
income and, if presented, earnings per share, as if the fair value based method
of accounting defined in this Statement had been applied. The accounting and
disclosure requirements are effective for financial statements for fiscal years
beginning after December 15, 1995. The Company has elected not to adopt the
fair value provisions of this Statement.
NOTE 2 - INVESTMENT SECURITIES
As a result of a temporary decline in the market value of securities-available-
for-sale, the Company recorded unrealized losses totaling $755 thousand and $615
thousand, which are included in shareholders' equity on the consolidated
balances sheets, at September 30, 1996 and December 31, 1995, respectively. The
decline in the market value of the portfolio reflects the current interest rate
environment; such decline is deemed temporary in nature.
The amortized cost and estimated fair values of investment securities as of
September 30 1996, and December 31, 1995, are as follows:
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
September 30, 1996 Cost Gains (Losses) Value
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US government agencies $23,226 $ 52 $ (12) $23,266
Mortgage-backed securities 23,112 - (534) 22,578
Federal Reserve Bank and FHLB Stock 1,424 - - 1,424
- -------------------------------------------------------------------------------------------------------------------------
Total $47,762 $ 52 $(546) $47,268
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
December 31, 1995
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
US Treasury securities and obligations
of US government agencies $13,491 $ 85 $ (1) $13,575
Mortgage-backed securities 21,882 230 (464) 21,648
Federal Reserve Bank and FHLB Stock 1,365 - - 1,365
- -------------------------------------------------------------------------------------------------------------------------
Total $36,738 $315 $(465) $36,588
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
SECURITIES HELD TO MATURITY
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
September 30, 1996 Cost Gains (Losses) Value
- --------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
US Treasury securities and obligations
of US government agencies $ - $ - $ - $ -
Mortgage-backed securities 9,411 - (114) 9,297
Federal Reserve Bank and FHLB Stock - - - -
- -------------------------------------------------------------------------------------------------------------------------
Total $ 9,411 $ - $(114) $ 9,297
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Federal Home Loan Bank and Federal Reserve Bank stocks are not deemed marketable
equity securities, as they are not traded on a registered security exchange, and
are carried at cost. Securities with a fair value of $9.1 million on September
30, 1996, were pledged as required by law.
7
<PAGE>
NOTE 3 - LOANS AND LOAN LOSS RESERVES
A certain degree of risk is inherent in the extension of credit. Credit losses
arise primarily from the loan portfolio, but may also be derived from other
credit-related sources, including commitments to extend credit, guarantees and
standby letters of credit. Actual credit losses and other charges, net of
recoveries, are deducted from the allowance for possible loan losses. Other
charges to the allowance primarily include amounts related to loan foreclosures
at the time of transfer to other real estate owned. A provision for possible
loan losses, which is a charge against earnings, is added to the allowance based
on management's assessment of certain factors including, but not necessarily
limited to, estimated losses from loans and other credit arrangements; general
economic conditions; deterioration in pledged collateral; historical loss
experience; and trends in portfolio volume, maturity, composition,
delinquencies, and nonaccruals. While management has attributed reserves to
various portfolio segments, the allowance is general in nature and is available
for the credit portfolio in its entirety.
Loans are classified as impaired loans when based on current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement. The majority of
the Company's impaired loans represent loans placed on nonaccrual status.
Nonaccrual loans are those which are past due 90 days as to either principal or
interest, or earlier when payment in full of principal or interest is not
expected. When a loan is placed on nonaccrual status, interest accrued but not
received is reversed against interest income. Thereafter, interest income is no
longer recognized and the full amount of all payments received, whether
principal or interest, are applied to the principal balance of the loan. A
nonaccrual loan may be restored to an accrual basis when principal and interest
payments are current, and full payment of principal and interest is expected.
Loans are generally carried at the principal amount outstanding, net of unearned
discounts and deferred fees. Purchased loans are generally carried at the
principal amount outstanding, net of any unamortized discounts or premiums.
Interest on loans, other than certain mortgage loans, is calculated using the
simple interest method. Interest income on discounted loans is generally
recognized over the estimated life of the loans based on methods that
approximate the interest method. Net deferred loan origination fees are
amortized to interest income over the contractual lives of the related loans
using methods that approximate the interest method.
8
<PAGE>
NOTE 3 - LOANS AND LOAN LOSS RESERVES - CON'T
The following table summarizes the balances and changes in the allowance for
loan losses:
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, September 30,
1996 1995
----------------- -----------------
<S> <C> <C>
Average outstanding loans net of unearned income $164,701 $161,036
-------- --------
-------- --------
Loans net of unearned income at end of period $170,397 $157,937
-------- --------
-------- --------
Allowance at beginning of period $ 5,401 $ 8,261
Charge-offs:
Commercial 470 2,817
Real estate 52 150
Installment 110 247
Losses on loans sold 108
-------- --------
Total charge-offs 740 3,214
Recoveries:
Commercial 254 254
Real estate 15 -
Installment 20 42
Losses on loans sold - -
-------- --------
Total recoveries 289 296
Net charge-offs 451 2,918
Provision charged to expense - 410
-------- --------
Allowance at end of period $ 4,950 $ 5,753
-------- --------
-------- --------
Ratio of allowance for loan losses to loans
outstanding at end of period 2.90% 3.64%
Ratio of allowance for loan losses to
nonperforming loans at end of period 159.22% 126.72%
Ratio of allowance for loan losses to
nonperforming assets at end of period 77.05% 69.51%
Ratio of annualized net charge-offs to
average loans 0.37% 2.43%
</TABLE>
At September 30, 1996, the Company had loans representing $400 thousand
classified as impaired with a specific reserve of $217 thousand and $2.8 million
of its loans impaired with no specific loss reserve determined in accordance
with SFAS No:114. However, the company has a general reserve in its allowance
for loan loss that management currently believes is sufficient to cover any
potential losses due to impaired loans that do not have specific reserves. The
average recorded investment in impaired loans during the nine months ended
September 30, 1996, was $3.7 million. Loans classified as impaired at September
30, 1996 included $1.5 million of commercial real estate loans, $1.1 million of
commercial loans, $491 thousand of residential loans and $26 thousand of
personal loans. Once a loan has been identified as impaired, the Company
discontinues recognition of interest income and applies the full amount of all
payments received, whether principal or interest, to the principal balance of
the loan until all principal is paid off. Then payments are posted to interest
until all contractual payments have been made. Interest income that would have
been collected during the first nine months of 1996 and 1995 on nonaccrual loans
had they performed in accordance with their original terms was approximately
$139 thousand and $183 thousand, respectively.
9
<PAGE>
NOTE 4 - COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are various outstanding commitments to
extend credit which are not reflected in the accompanying consolidated financial
statements. The Company does not anticipate losses as a result of these
transactions. Commercial and standby letters of credit totaled approximately
$2.3 million and $2.5 million at September 30, 1996 and December 31, 1995,
respectively. In addition, the Banks had unfunded credit commitments of $51.4
million and $36.3 million at September 30, 1996 and December 31, 1995,
respectively.
The Company uses the same credit policies in making commitments and conditional
obligations as it does in extending loan facilities to customers. The Company
evaluates each customer's creditworthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Company upon extension of
credit, is based on management's credit evaluation of the customer. Collateral
held varies, but may include accounts receivable, inventory, property, plant and
equipment, and income-producing commercial properties.
NOTE 5 - COMMON STOCK AND STOCK OPTIONS
During 1991, the Company's Board of Directors and shareholders adopted the
Ventura County National Bancorp 1991 Stock Option Plan (1991 Plan). The 1991
Plan provides that incentive stock options may be granted to full-time salaried
officers and management level employees of the Company or its subsidiaries for a
term of 10 years exercisable at 20% annually at the fair market value at the
date of the grant. The 1991 Plan also provides that nonqualified stock options
may be granted to directors, key full-time salaried officers and management
level employees of the Company or its subsidiaries for a term of 10 years,
exercisable at 20% annually at the fair market value at the date of grant.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995; no dividend yield for either
year; expected volatility of 43 percent; risk-free interest rates of 6.6
percent; and expected lives of 10 years. The Company applies APB Opinion 25 and
related Interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its fixed stock option plans. Had
compensation cost for the Company's stock option plans been determined based on
the fair value at the grant dates for awards under those plans consistent with
the method of FASB Statement 123, the Company's net income or loss and earnings
or loss per share would have been adjusted to the pro forma amounts indicated
below:
Nine months ending
September 30,
1996 1995
-------------------------
Net Income(loss) As reported $ 22,000 $1,447,000
Pro forma $(38,000) $1,402,000
Primary Earnings(loss) Per Share As reported $ 0.00 $ 0.20
Pro forma $ (0.00) $ 0.19
Fully Diluted Earnings(loss) Per Share As reported $ 0.00 $ 0.20
Pro forma $ (0.00) $ 0.19
10
<PAGE>
PART I.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion represents information about the results of operations,
financial condition, liquidity and capital resources of Ventura County National
Bancorp and its subsidiaries, Ventura County National Bank and Frontier Bank,
N.A. (together, the "Company"). This information should be read in conjunction
with the 1995 audited consolidated financial statements of the Company and the
notes thereto and the accompanying quarterly unaudited consolidated financial
statements and notes thereto.
OVERVIEW
The Company reported net income of $22 thousand for the first nine months of
1996 compared to earnings of $1.4 million for the first nine months of 1995.
Net income for three months ended September 30, 1996 and September 30, 1995 was
$575 thousand and $650 thousand, respectively. The year to date 1996 results
were negatively impacted by the $2.5 million reserve that the company recorded
during the second quarter pursuant to a jury verdict resulting from a
countersuit to a suit that the company filed against a former officer of the
company and the company's former legal counsel. Also, the company received a
pre-trial settlement of $950 thousand from the former legal counsel. During the
third quarter the company reached a settlement with the former officer who had
previously won the $2.5 million judgment. The company also settled a lawsuit
which was filed during the third quarter by another former officer. The third
quarter impact to net income was minimal because the reserve recorded in the
second quarter was sufficient to cover both settlements and the costs associated
therewith.
On September 15, 1996 the Company entered into a definitive agreement to be
purchased by and merge into City National Corporation headquartered in Beverly
Hills, California. Pursuant the terms of the agreement, Ventura County National
Bancorp shareholders will receive at their election, cash, stock or a
combination thereof valued at $5.03 per share. The aggregate amount of City
National Corporation Stock available to holders who elect to receive City
National stock shall equal approximately 55% of the total consideration paid for
Ventura County National Bancorp. The purchase price of $5.03 represents a
multiple of 1.6 times Ventura County National Bancorp's June 30, 1996 book
value. Subject to shareholder and regulatory approval, the transaction is
anticipated to close in the first quarter of 1997.
Financial results of the Company for the first nine months ending September 30,
1996 show continued improvement. Net interest income increased to $11.1
million from $10.9 million in the nine months of 1996, as compared to the first
nine months of 1995. The net interest margin decreased to 6.12% for the nine
months ended September 30, 1996, compared to 6.21% for the prior year. The
decrease in the net interest margin can be attributed to higher interest rates
paid on time deposits and due to the slightly lower prime rate and fed funds
rate.
Noninterest income was $1.8 million and $1.6 million for the nine months ended
September 30, 1996 and 1995, respectively. The Company benefited from an
additional $142 thousand in service charge fee income in addition to other small
increases in other non interest income . These increases were offset by a loss
of $86 thousand on the sale of investment securities for the period.
Operating expenses increased from $10.6 million for the nine months ended
September 30, 1995 to $13.0 million for the nine months ended September 30,
1996. The increase in operating expense is largely the result of the accrual
for the above mentioned legal action, as well as merger related expense of
approximately $300 thousand. Absent this accrual, noninterest expense was very
little changed from the prior period. Decreases were observed in Occupancy and
FDIC insurance. These decreases were offset by an increase in Professional
Fees, OREO expense and Advertising.
For the three months ending September 30, 1996, net interest income increased to
$3.8 million from $3.6 million. The net interest margin was unchanged at 6.18%
for the three months ended September 30, 1996, compared to three months ended
September 30, 1995. The increase in net interest income is the result of a $12
million increase in average interest-earning assets for comparative periods
ending September 30, 1996 and September 30, 1995.
Noninterest income increased to $643 thousand from $570 thousand for the three
months ended September 30 1996 and 1995, respectively. Operating expenses
were unchanged at $3.6 million for the three months ended September 30, 1996 and
September 30, 1995 respectively.
Total assets increased slightly to $271.7 million at September 30, 1996, as
compared to $267.8 million at year-end 1995. Gross loans increased to $170.4
million at September 30, 1996, from $157.8 million at December 31, 1995.
The OCC recently completed its regular examination of Frontier and terminated
the consent order which Frontier entered into with the OCC on March 29, 1993.
The Company remains subject to a Memorandum of Understanding with the Federal
Reserve Bank.
11
<PAGE>
The following table summarizes key performance indicators pertaining to the
Company's operating results. Average balances are computed using daily
averages.
- -----------------------------------------------------------------
Nine Months ended September 30, 1996 1995
- -----------------------------------------------------------------
(In thousands, except per share amounts)
Return on average assets (1) 0.01% 0.77%
Return on average shareholders' equity (1) 0.10% 8.82%
Net income $ 22 $ 1,447
Earnings per share $ 0.00 $ 0.20
Total average assets $266,143 $251,352
- -----------------------------------------------------------------
(1) Annualized
12
<PAGE>
RESULTS OF OPERATIONS
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income is the difference between interest earned on assets and
interest paid on liabilities. The net interest margin is net interest income
expressed as a percentage of average interest-earning assets. Interest income
and expense are affected by changes in the volume and mix of average interest
earning-assets and interest-bearing deposits and other liabilities, as well as
fluctuations in interest rates. The following table sets forth certain
information concerning average interest-earning assets and average interest-
bearing liabilities and the yields and rates thereon. The table also sets forth
a summary of the changes in interest income and interest expense resulting from
changes in average interest rates (rate) and changes in average asset and
liability balances (volume) for the periods indicated. Average balances are
average daily balances. Nonaccrual loans are included in total average loans
outstanding.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
- -----------------------------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------------------------------------------------------------------
Yield/ Yield/
Avg. bal. Interest Rate(1) Avg. bal. Interest Rate(1) Rate Volume
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial, agricultural and SBA (2) $148,728 $11,221 10.08% $138,896 $10,691 10.29% $(334) $ 864
Real estate, mortgage 6,035 381 8.43% 8,449 527 8.34% 9 (155)
Real estate, construction 2,493 238 12.75% 4,798 469 13.07% (11) (220)
Installment 7,410 531 9.57% 8,811 654 9.92% (22) (101)
Lease financing 35 3 11.45% 82 8 13.04% (1) (4)
- ----------------------------------------------------------------------------------------------------------------------------------
Loans, net of deferred fees (3) $164,701 $12,374 10.04% $161,036 $12,349 10.25% $(359) $ 384
Investment securities 49,399 2,431 6.57% 45,206 2,034 6.02% $ 239 $ 158
Federal funds sold and other 29,177 1,163 5.32% 27,449 1,210 5.89% (150) 103
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest earning assets/interest income $243,277 $15,968 8.77% $233,691 $15,593 8.92% (270) 645
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and due from banks 17,219 15,950
Allowance for loan losses (5,181) (7,603)
Premises and equipment 2,268 1,998
OREO 2,481 3,007
Other assets 6,079 4,309
- ----------------------------------------------------------------------------------------------------------------------------------
Total Noninterest earning assets 22,866 17,661
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $266,143 $251,352
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
NOW/MMDA 50,823 912 2.40% 52,902 1,069 2.70% (116) (41)
Savings 25,638 380 1.98% 28,146 503 2.39% (81) (42)
TCDs 90,109 3,535 5.24% 84,351 3,156 5.00% 156 223
- ----------------------------------------------------------------------------------------------------------------------------------
Deposits $166,570 $ 4,827 3.87% $165,399 $ 4,728 3.82% (41) 140
- ----------------------------------------------------------------------------------------------------------------------------------
Other interest-bearing liabilities - - 91 5 7.35% (3) (2)
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities/interest expense $166,570 $ 4,827 3.87% $165,490 $ 4,733 3.82% (44) 138
- ----------------------------------------------------------------------------------------------------------------------------------
Demand deposits 66,990 62,131
Other liabilities 3,402 1,798
- ------------------------------------------------------------- --------
Total liabilities 236,962 229,419
- ------------------------------------------------------------- --------
Shareholders' equity 29,181 21,933
- ------------------------------------------------------------- --------
Total liabilities and equity $266,143 $251,352
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME/(LOSS)/NET INTEREST MARGIN $11,141 6.12% $10,860 6.21% $(226) $ 507
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Annualized.
(2) Includes loans held available for sale $2.0 million and $1.4 million at
September 30, 1996 and 1995, respectively.
(3) Includes loans on nonaccrual status of approximately $2.7 million and $4.5
million at September 30, 1996 and 1995, respectively. The amounts of
interest income forgone year to date on loans that were on nonaccrual
status at September 30, 1996 and 1995 were approximately $139 thousand and
$183 thousand, respectively. Interest income on loans includes amortization
of net loan (costs) or fees of approximately $108 thousand and $43 thousand
for the nine months ended September 30, 1996 and 1995, respectively.
13
<PAGE>
NET INTEREST INCOME AND NET INTEREST MARGIN (CON'T)
Net interest income increased slightly to $11.1 million for the nine months
ended September 30, 1996, from $10.9 million in the first nine months ending
September 30, 1995, despite a slight decrease in the net interest margin from
6.21% at September 30, 1995 to 6.12% at September 30, 1996. Average yields on
interest-earning assets for the first nine months of 1996 decreased by 15 basis
points to 8.77% from 8.92% for the first nine months of 1995. Average funding
costs for the nine months of 1996 increased by 5 basis points to 3.87% from
3.82% for the first nine months of 1995. Interest income increased slightly to
$16.0 million during the first nine months of 1996, compared to $15.6 million
for the same period in 1995. This increase was primarily due to an $9.8 million
increase in interest-earning assets, the majority of which was the commercial,
financial, agricultural and SBA loan portfolio, securities and fed funds sold.
Total loans increased to $164.7 million on average compared to $161.0 million on
average in 1995. However, the composition of the loan portfolio changed.
Commercial, financial, agricultural and SBA loans increased while decreases were
noted in all of the other loan categories, with the most significant decrease in
the real estate construction portfolio.
The earnings generated from the increased volume in earning assets were
partially offset by the reduction in rates of 15 basis points. The rate
reduction is evidenced in the commercial, financial, agricultural and SBA loan
portfolio which experienced a reduction of 21 basis points. A large portion of
these loans are tied to the prime rate. During the nine month period ending
September 30, 1995, the prime rate was at 9% as compared to a rate of 8.25% for
a majority of the nine month period ending September 30, 1996. Additionally, the
rate on fed funds sold dropped from 5.89% in the first nine months of 1995, to
5.32% during the first nine months of 1996 which also had a negative impact on
interest income. Average yields on total loans decreased 21 basis points from
10.25% in 1995 to 10.04% for nine months ending September 30, 1996. Average
yields on investments increased by 55 basis points as a result of the shift in
the portfolio from U.S. Treasury securities to higher yielding mortgage backed
securities. Average yields on fed funds sold decreased 57 basis points from the
prior year, primarily as a result of the Federal Reserve Bank lowering short
term interest rates.
Interest expense increased from $4.7 million during the first nine months of
1995 compared to $4.8 million during the first nine months of 1996. This
increase was primarily due to the change in the composition of the deposits.
Certificates of deposit, the highest costing deposits increased $5.8 million
from the prior year, while the rate paid increased 24 basis points. During
December, 1995, Ventura had a marketing promotion which raised $8.0 million in
new certificates of deposit at a rate of 6.0%. The strategy was to develop
relationships with these customers. A majority of the 6.0% certificates of
deposit matured in June, 1996 and most of funds remained with the bank at
current market rates. Rates have decreased during the first nine months of 1996
for the NOW accounts, money market accounts and savings accounts. The NOW and
money market rates have decreased 30 basis points from 2.70% to 2.40%, while the
savings rates have decreased 41 basis points from 2.39% to 1.98%. Total NOW and
money market deposits averaged $2.1 million less during the first nine months of
1996 compared to 1995, while average savings accounts decreased by $2.5
million. Total interest bearing deposits increased slightly, averaging $166.6
during the first nine months of 1996 compared to $165.4 in 1995; however, non-
interest bearing demand deposits increased $4.8 million on average in the same
period.
PROVISION FOR LOAN LOSSES
During the first nine months of 1996, due to the Company's improved asset
quality, the Company recorded no provision for loan losses compared to $410
thousand for the nine months ended September 30, 1995. Gross loan charge-offs
totaled $197 thousand for the quarter and $740 thousand for the nine months
ended September 30, 1996, compared to $854 thousand for the quarter and $3.2
million for the nine months ended September 30, 1995. Recoveries totaled $91
thousand for the quarter and $289 thousand for the nine months ended September
30, 1996, compared to $90 thousand for the quarter and $296 thousand for the
nine months ended September 30, 1995. Nonaccrual loans decreased from $4.3
million at year-end 1995 to $2.7 million at September 30, 1996. Management
believes that current reserve levels are adequate. (Please refer to NOTE 3 -
LOANS.)
NONINTEREST INCOME
Noninterest income increased $165 thousand to $1.8 million for the nine months
ending September 30, 1996, from $1.6 million for the nine months ending
September 30, 1995. Most of the increase is the result of increased service
charges and other income which was partially offset by a loss on the sale of
investment securities of $86 thousand. Service charges on deposit accounts
increased $142 thousand for the nine months ended September 30, 1996, as the
Company increased its core deposit base.
Noninterest income increased $73 thousand to $643 thousand from $570 thousand
for three months ending September 30, 1996 and 1995. Service charges on deposit
accounts increased $ 59 thousand to $292 thousand for three months ending
September 30, 1996 from $233 thousand for the three months ending September 30,
1995. In addition, gain on sale of SBA loans increased $151 thousand from $110
thousand for three months ending September 30, 1995 to $261 thousand for the
three months ending September 30, 1996. These increases were offset by
decreases in other income and the absence of securities gains for the three
months ending September 30, 1996. Other noninterest income for the three
months ending September 30, 1996 was $(4) thousand as a result of an adjustment
on a previously completed fixed asset conversion.
14
<PAGE>
NONINTEREST EXPENSE
The following table sets forth information by category on the Company's
noninterest expense for the periods indicated:
- ---------------------------------------------------------------
Nine month periods ended September 30, 1996 1995
- ---------------------------------------------------------------
(Dollars in thousands)
Salaries and employee benefits $ 4,999 $ 4,966
Occupancy, net 1,094 1,294
Equipment 485 506
Professional fees 922 613
Data processing 458 470
Other real estate owned 241 (67)
Courier services 176 203
Office supplies and office expense 416 378
FDIC/OCC assessments 224 554
Advertising and promotion 502 375
Other 3,523 1,291
- ---------------------------------------------------------------
Total noninterest expense $13,040 $10,583
- ---------------------------------------------------------------
- ---------------------------------------------------------------
Annualized noninterest expense as a %
of average earning assets 7.16% 6.05%
Efficiency ratio 100.96% 84.87%
The Company reported noninterest expense of $13.0 million for the first nine
months of 1996 as compared to $10.6 million for the first nine months of 1995.
The net increase reflects the accrual for the legal judgment, increased
professional fees, expenses related to other real estate owned and advertising
expenses, which are partially offset by decreases in occupancy, equipment, and
FDIC assessments.
Noninterest expense as a percentage of average interest-earning assets has
increased significantly due to the accrual for legal proceedings posted in the
nine months ended September 30, 1996. The Company's efficiency ratio, which is
noninterest expense divided by the sum of net interest income plus noninterest
income, increased during the period ended September 30, 1996, mainly as a result
of the legal accrual.
The slight increase in salaries for the nine months ended September 30, 1996,
compared to the previous year was offset by staff reductions, as the number of
full-time equivalent staff decreased from 128 at September 30, 1995, to 125 at
September 30, 1996.
Occupancy expense decreased $200 thousand, or 15.4%, for the first nine months
of 1996 to $1.1 million from $1.3 million for the first nine months of 1995.
Most of the decrease resulted from decreased amortization on leasehold
improvements, lower rent expenses and an increase in sublease income. The
Company sublet or terminated leases for office space formerly housing its
administration and Wilmington branch location; the Company also negotiated a
favorable renewal of the lease for its Central Operations office.
Equipment expense decreased $21 thousand primarily due to a significant decrease
in depreciation and in computer maintenance expense associated with the
outsourcing of data processing operations.
Professional fees incurred a significant increase of $309 thousand, or 54%, due
to higher legal and consulting expenses, increased outside audit fees and
increased property management fees.
15
<PAGE>
NONINTEREST EXPENSE (CON'T)
FDIC assessments decreased $330 thousand as a result of lower premium rates.
Non interest expense for the three months ending September 30, 1996 and
September 30, 1995 were unchanged at $3.6 million. Salary expense increased $219
thousand to $1.9 million for the three months ending September 30,1996 as
compared to $1.7 million for the same period in 1995. Professional expenses
increased to $283 for three months ending September 30,1996 as compared to $180
thousand for the same period in 1995. ORE Expense was $111 thousand and $33
thousand for three months ending September 30, 1996 and 1995, respectively.
These increases were equally offset by decreases in categories such as
occupancy, FDIC insurance and other expenses.
FINANCIAL CONDITION
The following table provides a summary comparison of the assets and liabilities
in the Company's consolidated balance sheets as of the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31, Amount Percent
1996 1995 change change
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 10,588 $ 19,920 $ (9,332) -46.85%
Federal funds sold 27,950 47,450 (19,500) -41.10%
Interest-bearing deposits - 100 (100) -
Investment securities 56,679 36,588 20,091 54.91%
Loans, net 165,447 152,364 13,083 8.59%
Premises and equipment, net 2,110 2,371 (261) -11.01%
Other assets 8,946 8,963 (17) -0.19%
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $271,720 $267,756 $ 3,964 1.48%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Noninterest-bearing deposits $ 73,256 $ 68,074 $ 5,182 7.61%
Interest-bearing demand & savings deposits 77,984 77,085 899 1.17%
Time certificates of deposit 86,690 90,913 (4,223) -4.65%
- ------------------------------------------------------------------------------------------------------------------------------
Total deposits 237,930 236,072 1,858 0.79%
- ------------------------------------------------------------------------------------------------------------------------------
Accrued interest payable and other liabilities 4,445 2,225 2,220 99.78%
Total Shareholders' Equity 29,345 29,459 (114) -0.39%
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $271,720 $267,756 $ 3,964 1.48%
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and deposits at correspondent
banks. The Company maintains balances at correspondent banks adequate to cover
daily inclearings and other charges. In accordance with Federal regulations,
reserve balances of $2.6 million were maintained in the form of deposits with
the Federal Reserve Bank at September 30, 1996.
Cash and cash equivalents decreased $9.3 million from $19.9 million at year end
1995 to $10.6 million at September 30, 1996.
FEDERAL FUNDS SOLD
The Company invests or sells its excess cash balances in overnight federal
funds. Federal funds sold decreased $19.5 million, as the Company increased its
investment securities portfolio.
INVESTMENT SECURITIES
Investment securities increased $20.1 million to $56.7 million from $36.6
million at September 30, 1996 and December 31, 1995 respectively. The source of
the funds was primarily the reduction of fed funds sold. The Company invests
primarily in U.S Treasury, US government agency and mortgage-backed securities.
Mortgage-backed securities consisted of Federal Home Mortgage Loan Corporation
(FHLMC), Federal National Mortgage Association (FNMA) and Government National
Mortgage Association (GNMA)
LOANS
The Company makes loans to small to medium-sized businesses in its service
areas. The Company also originates and sells Small Business Administration
("SBA") loans. The interest rates charged for the loans made by the Company
vary with the degree of risk, the size and maturity of the loans, whether the
loan has a fixed or variable rate, the borrowers' depository relationship with
the Company, and prevailing market interest rates. The Company is primarily a
commercial lender, and most of its loans are floating rate loans tied to prime.
The Company may sell these SBA loans for a variety of reasons, including but not
limited to, liquidity needs or market value fluctuations. As of September 30,
1996, the Company had $2.0 million of these SBA loans available for sale which,
if sold at an 8% premium, would result in a gain of $164 thousand pretax and
$96 thousand after-tax income. Therefore, if the Company had sold these loans,
other income would have been higher by approximately $164 thousand.
During the first nine months of 1996, the Company generated $39.7 million in new
loan fundings and purchased a $10.0 million commercial real estate loan
portfolio. The Company experienced significant paydowns/payoffs, particularly
on mini-perm commercial real estate loans, which resulted in a net increase in
loans of $12.6 million, or 8%, during the first nine months of 1996. The
Company sold $5.9 million of SBA loans that were originated during the first
nine months of 1996, as well as $5 million of SBA loans purchased by the Company
in 1995. The Company continues to focus its marketing efforts to small and mid-
sized businesses. The new originations were principally commercial lines of
credit and commercial real estate loans.
17
<PAGE>
LOANS - CON'T
The following tables set forth the maturity distribution of the Company's loan
portfolio (excluding nonaccrual loans) at September 30, 1996, based on remaining
scheduled principal repayments; and the sensitivity of the amounts due to
changes in interest rates for the Company's loan portfolio (excluding nonaccrual
loans):
<TABLE>
<CAPTION>
Maturing in
--------------------------------------
Over one
(Gross loans, in thousands) One year year through Over
or less five years five years Total
-------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Real estate $ 158 $ 1,324 $ 3,913 $ 5,395
Commercial $43,060 $49,833 $56,639 $149,532
Construction $ 3,070 $ 2,662 $ - $ 5,732
Installment $ 2,135 $ 2,153 $ 2,763 $ 7,051
------- ------- ------- --------
Total $48,423 $55,972 $63,315 $167,710
------- ------- ------- --------
------- ------- ------- --------
Repricing in
--------------------------------------
Over one
(Gross loans, in thousands) One year year through Over
or less five years five years Total
-------- ------------ ---------- --------
Real estate $ 158 $ 1,324 $ 3,913 $ 5,395
Fixed interest rates $15,962 $23,979 $17,389 $ 57,330
Variable interest rates $32,461 $31,993 $45,926 $110,380
------- ------- ------- --------
Total $48,423 $55,972 $63,315 $167,710
------- ------- ------- --------
------- ------- ------- --------
</TABLE>
The amounts reported in the categories in the tables do not reflect loan
prepayments or other factors which may cause the loans to react in different
degrees and at different times to changes in market interest rates.
18
<PAGE>
ASSET QUALITY
NONACCRUAL, PAST DUE AND MODIFIED LOANS
A certain degree of risk is inherent in the extension of credit. Management has
adopted a policy to maintain the allowance for possible loan and lease losses at
a level considered by management to be adequate to absorb estimated known and
inherent risks in the existing portfolio. The charge to expense is based on
management's evaluation of the quality of the loan and lease portfolio, the
level of classified loans and leases, total outstanding loans and leases, losses
previously charged against the reserve, and current and anticipated economic
conditions. Although management believes the level of the loan loss reserve as
of September 30, 1996, is adequate to absorb losses inherent in the loan
portfolio, declines in the local economy may result in increased losses than
cannot be reasonably predicted at this time.
At September 30, 1996, the loan loss reserve was $5.0 million, as compared to
$5.4 million at December 31, 1995. The ratio of the loan loss reserve to total
outstanding loans and leases was 2.90% at September 30, 1996 and 3.42% at
December 31, 1995. The coverage ratio, or the ratio of loan loss reserves to
nonperforming loans was 159.22% at September 30, 1996 and 121.62% at December
31, 1995, respectively. Nonperforming assets consist of nonperforming loans plus
other real estate owned "OREO" and other foreclosed personal property. The
Company's nonperforming loans fall within two categories: loans past due greater
than 90 days and still accruing interest, and loans on nonaccrual status. The
level of the loan loss reserve reflects management's assessment of the inherent
risk associated with the Company's classified assets and ongoing economic
weakness within the Banks' service areas.
In determining income from loans, the Company generally adheres to a policy of
not accruing interest on loans on which a default of principal or interest has
existed for a period of 90 days or more. The Company's policy is to assign
nonaccrual status to a loan if either (i) principal or interest payments are
past due in excess of 90 days, unless the loan is both well secured and in the
process of collection; or (ii) the full collection of interest or principal
becomes uncertain, regardless of the length of past due status, or (iii) unless
the loan is a SBA guaranteed loan and a deferral period has been negotiated.
When a loan reaches nonaccrual status, any interest accrued on such a loan is
reversed and charged against current income. Loans past due more than 90 days
and still accruing interest increased to $422 thousand at September 30, 1996,
from $101 thousand at December 31, 1995. The balance at September 30, 1996
consists of one commercial loan. At September 30, 1996 and December 31, 1995,
the Company had nonaccrual loans of $2.7 million and $4.3 million, respectively.
The Company's OREO balances decreased to $2.4 million at September 30, 1996 from
$2.7 million at December 31, 1995. Other foreclosed assets were unchanged from
year end at $878 thousand. During the first nine months of 1996, the company
sold nine properties and acquired five new properties. At September 30, 1996 ,
the company's OREO consisted of five commercial properties with carrying values
totaling $1.7 million and two parcels of land zoned for residential purposes
valued at $679 thousand. OREO is carried at the lower of cost or current fair
market value less estimated selling costs in the consolidated balance sheets as
a component of other assets. During the nine months ended September 30, 1996
and 1995, the Company incurred property maintenance expense related to OREO
properties of $139 thousand and $173 thousand, rental income related to OREO
properties of $59 thousand and $56 thousand, respectively. For the nine months
ended September 30, 1996 and 1995. the Company had writedowns, net of gains on
sale, of $161 thousand and ($184) thousand, respectively. The net writedown of
($184) thousand was the result of gain on sale of OREO in the amount of $289
thousand and writedowns of $105 thousand for the nine month period ending
September 30, 1995. The net impact of the preceding activity for the nine
months ending September 30, 1996 and September 30, 1995 was a net OREO expense
of $241 thousand and ($67) thousand, respectively.
Troubled debt restructured credits (TDRs) are loans on which the borrower has
failed to perform under the original terms of the obligation. As of September
30, 1996, and December 31, 1995, the Company had $4.0 million and $3.3 million,
respectively. All but one TDR for $200 thousand are performing in accordance
with their restructured terms. TDRs are considered performing is payments are
contractually met for some minimum period of time, typically at least six
months.
19
<PAGE>
DEPOSITS
Total deposits at September 30, 1996 increased $1.9 million to $237.9 million
from $236.1 million at December 31, 1995. Average deposits increased slightly
for nine months ended September 30, 1996 over the average deposits for the nine
months ended September 30, 1995. The increase is due to the Ventura's time
certificates of deposit (TCDs) promotion at year end and an increase in demand
deposits. This increase was offset by a slight declines in average NOW/MMDA
and savings balances.
<TABLE>
<CAPTION>
Year to Date Year to Date
September 30, 1996 September 30, 1995
--------------------------------- ----------------------------------
Avg. bal. Rate (1) % of total Avg. bal. Rate (1) % of total
- ------------------------------------------------------------------ ----------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand deposits $ 66,990 28.68% $ 62,131 27.31%
NOW/MMDA 50,823 2.40% 21.76% 52,902 2.70% 23.25%
Savings 25,638 1.98% 10.98% 28,146 2.39% 12.37%
TCDs 90,109 5.24% 38.58% 84,351 5.00% 37.07%
- ------------------------------------------------------------------ ----------------------------------
Deposits $233,560 3.87% 100.00% $227,530 3.82% 100.00%
- ------------------------------------------------------------------ ----------------------------------
- ------------------------------------------------------------------ ----------------------------------
(1) Annualized.
The following table sets forth the maturities of the Company's time certificates
of deposit outstanding at the dates indicated:
September 30, 1996
Maturing in
- ---------------------------------------------------------------------------------------------------------------
Over three Over six
Three months months through months through Over
or less six months twelve months twelve months Total
- ---------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Under $100,000 $18,421 $14,249 $18,715 $4,255 $55,640
$100,000 and over $ 9,285 $ 7,199 $13,905 $ 661 $31,050
- ---------------------------------------------------------------------------------------------------------------
Total $27,706 $21,448 $32,620 $4,916 $86,690
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT
Liquidity management for banks requires that funds be available to pay all
deposit withdrawals and maturing financial obligations and meet credit funding
requirements promptly and fully in accordance with their terms. Over a very
short time frame, for most banks, including the Banks, maturing assets provide
only a limited portion of the funds required to pay maturing liabilities. The
balance of the funds required is provided by liquid assets and the acquisition
of additional liabilities, making liability management important to liquidity
management.
The Banks maintain a level of liquidity that they consider adequate to meet
their current needs. The Banks' principal sources of liquidity include incoming
deposits, repayment of loans and conversion of investment securities. When
liquidity requirements increase faster than generated, either through increased
loan demand or withdrawal of deposited funds, the Banks may arrange for the sale
of loans and investments, or access their Federal funds lines of credit with
correspondent banks or lines of credit with federal agencies.
Management of the Company has set a minimum liquidity level of 20% as a target.
The Company's average liquid assets (average cash and cash equivalents, federal
funds sold, interest-bearing deposits with other financial institutions and
investment securities, less pledged securities, and outgoing cash letters) as a
percentage of average assets of the Company at the quarter ended September 30,
1996, was 26.6%, as compared to 27.5% for the corresponding period in 1995.
The average loan to deposit ratios for the Company for the month of September
30, 1996, and December 31, 1995, were 72.98% and 64.5%, respectively.
20
<PAGE>
The following table sets forth information concerning the Company's rate
sensitive assets and rate sensitive liabilities as of September 30, 1996. Such
assets and liabilities are classified by the earlier of maturity or repricing
date in accordance with their contractual terms.
LIQUIDITY AND ASSET/LIABILITY MANAGEMENT - CON'T
Certain shortcomings are inherent in the method of analysis presented in the
following table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
and at different times to changes in market interest rates. Also, loan
prepayments and early withdrawals of certificates of deposit could cause the
interest sensitivities to vary from those which appear in the table.
<TABLE>
<CAPTION>
Three months One year
Three months through through Over
(In thousands) or less twelve months five years five years Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Federal funds sold $ 27,950 $ - $ - $ - $ 27,950
Investment securities (1) - 7,056 16,227 33,889 57,172
Loans (2) 115,095 11,247 23,979 17,389 167,710
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $ 143,045 $ 18,303 $40,206 $51,278 $252,832
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Interest-bearing demand and
savings deposits $ 77,984 $ - $ - $ - $ 77,984
Time certificates of deposit 27,706 54,068 4,916 - 86,690
Other borrowings and interest-
bearing liabilities - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $105,690 $ 54,068 $ 4,916 $ - $164,674
- -----------------------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap $ 37,355 $(35,765) $35,290 $51,278
Cumulative interest rate sensitivity gap 37,355 1,590 36,880 88,158
Cumulative interest rate sensitivity gap
as a percentage of total interest-
earning assets 14.77% 0.63% 14.59% 34.87%
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Excludes the unrealized loss of $ 493
(2) Loans exclude nonaccrual loans of $ 2,687
</TABLE>
At September 30, 1996, the Company's rate sensitive balance sheet was shown to
be in a positive gap position. The gap between assets and liabilities that
reprice within 3 months was $37.4 million or 14.77% of assets. The cumulative
positive gap for 12 months which reflects the total assets less the total
liabilities that re-price during the 12 month period decreases to $ 1.6 million
or .63% of total assets. After one year, the cumulative positive gap increases.
A positive gap implies that the Company is asset sensitive, therefore subject to
a decline in net interest income as interest rates decline. In a relatively
stable interest rate environment that follows a rise in interest rates, variable
rate liabilities will continue to reprice upward while variable rate assets,
particularly those indexed to prime rate, remain relatively constant, thereby
narrowing the net interest margin. As interest rates decline, variable rate
assets reprice at lower rates immediately, while the variable rate liabilities
reprice gradually, resulting in a narrowing of the net interest margin. The
Banks have established floors on 31.9% of the variable rate loans to mitigate
the effect on the net interest margin if interest rates decline. The Company's
held-to-maturity investment portfolio consists primarily of fixed-rate mortgage-
backed securities with estimated average lives of between 5 to 6 years.
22
<PAGE>
CAPITAL RESOURCES
The Company and its bank subsidiaries are subject to risk-based capital
regulations adopted by the federal banking regulators in January 1990. These
guidelines are used to evaluate capital adequacy, and are based on an
institution's asset risk profile and off balance sheet exposures, such as unused
loan commitments and standby letters of credit. The regulations require that a
portion of total capital be core, or Tier 1, capital consisting of common
stockholders' equity and perpetual preferred stock, less goodwill and certain
other deductions, with the remaining, or Tier 2, capital consisting of other
elements, primarily subordinated debt, mandatory convertible debts, and
grandfathered senior debt, plus the allowance for loan losses, subject to
certain limitations. As of December 1992, the risk-based capital rules were
further supplemented by a leverage ratio, defined as Tier 1 capital divided by
quarterly average assets after certain adjustments. The minimum leverage ratio
is 3 percent for banking organizations that do not anticipate significant growth
and have well-diversified risk, including no undue interest rate exposure,
excellent asset quality, high liquidity, and good earnings. Other banking
organizations not in this category are expected to have ratios of at least 4 to
5 percent, depending on their particular condition and growth plans. Higher
capital ratios can be mandated by the regulators if warranted by the particular
circumstances or risk profile of a banking organization. In the current
regulatory environment, banking companies must stay "well capitalized", as
defined in the banking regulations, in order to receive favorable regulatory
treatment on acquisitions and favorable risk-based deposits insurance
assessments. Management seeks to maintain capital ratios in excess of the
regulatory minimums. As of September 30, 1996, the capital ratios of the Company
and the Banks exceeded the "well capitalized" thresholds prescribed in the
rules, as reported in the following table:
<TABLE>
<CAPTION>
Company Ventura County National Bank Frontier Bank, N.A
----------------------- ----------------------------- -----------------------
(In thousands) Amount % Amount % Amount %
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Leverage ratio $30,469 11.12% $18,959 10.53% $8,933 10.44%
Regulatory minimum 10,961 4.00% 7,199 4.00% 3,424 4.00%
Excess 19,508 7.12% 11,760 6.53% 5,509 6.44%
Risk-based ratios
Tier 1 capital $30,469 (a) 16.95% (b) $18,959 (a) 16.12% (b) $8,933 (a) 14.45% (b)
Tier 1 minimum 7,190 4.00% (c) 4,705 4.00% (c) 2,473 4.00% (c)
Excess 23,279 12.95% 14,254 12.12% 6,460 10.45%
Total capital $32,749 (d) 18.22% (b) $20,454 (d) 17.39% (b) $9,714 (d) 15.71% (b)
Total capital minimum 14,380 8.00% 9,410 8.00% 4,946 8.00%
Excess 18,369 10.22% 11,044 9.39% 4,768 7.71%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes common shareholders' equity, excluding unrealized losses on
available-for-sale securities.
(b) Risk-weighted assets of $179.7 million for the Company, $117.6 million for
Ventura, and $61.8 million for Frontier were used to compute these
percentages.
(c) Insured institutions, such as the Banks, must maintain Tier 1 capital
ratios of at least 4% to 6%, and Total capital ratios of at least 8% to 10%
in order to be categorized "adequately capitalized" or "well capitalized",
respectively.
(d) Tier 1 capital plus the allowance for loan losses, limited to 1.25% of
total risk-weighted assets.
22
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
On September 15, 1996 the Company entered into a definitive agreement
to be purchased by and merge into City National Corporation
headquartered in Beverly Hills, California. Pursuant the terms of the
agreement, Ventura County National Bancorp shareholders will receive at
their election, cash, stock or a combination thereof valued at $5.03
per share. The aggregate amount of City National Corporation Stock
available to holders who elect to receive City National stock shall
equal approximately 55% of the total consideration paid for Ventura
County National Bancorp. The purchase price of $5.03 represents a
multiple of 1.6 times Ventura County National Bancorp's June 30, 1996
book value. Subject to shareholder and regulatory approval, the
transaction is anticipated to close in the first quarter of 1997.
Item 6. Exhibits and Reports on Form 8-K
The Company filed a Report on Form 8-K dated September 25, 1996
pursuant to Item 5.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: NOVEMBER 5, 1996 VENTURA COUNTY NATIONAL BANCORP
(Registrant)
By: /s/ Simone Lagomarsino
-----------------------------
Simone Lagomarsino
Senior Vice President, C.F.O.
(Principal Financial and Accounting Officer)
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware Code authorizes City National to indemnify
directors and officers in certain circumstances against liabilities, including
expenses, incurred while acting in such capacities; provided, generally, that
any such indemnified director or officer acted in good faith and in a manner he
or she reasonably believed to be in the best interests of the corporation and,
in the case of a criminal proceeding, had no reasonable cause to believe his or
her conduct was unlawful. The City National By-laws provide for the
indemnification of directors and officers to the maximum extent permitted by the
Delaware Code.
In addition, the City National Certificate provides that City National shall
eliminate the personal liability of its directors to the fullest extent
permitted by the Delaware Code, and City National has entered into
indemnification agreements with certain of its directors providing for
additional indemnification. City National has policies of directors' and
officers' liability insurance which insure directors and officers against the
cost of defense, settlement, or payment of a judgment under certain
circumstances.
Certain Federal Deposit Insurance Corporation ("FDIC") regulations prohibit
City National from indemnifying, or agreeing to indemnify any director, officer
or employee against any civil money penalty or judgment resulting from any
administrative or civil action instituted by a federal banking agency, or any
other liability or legal expense with regard to such actions if they result in
certain types of final orders or settlements. The FDIC regulations allow City
National to make reasonable indemnification payments to such persons during the
course of such actions, provided the board of directors makes certain
determinations and such person or persons agree to reimburse City National for
any indemnification payments that become impermissible as a result of the final
outcome of the action, other than those for which City National is reimbursed by
insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS. The following exhibits are filed as part of this Registration
Statement or are incorporated herein by reference.
<TABLE>
<CAPTION>
NUMBER EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
4.1 Certificate of Incorporation
4.2 Bylaws*
5 Opinion of Richard H. Sheehan, Jr., Senior Vice President and General Counsel of Registrant
8 Tax Opinion of Manatt Phelps & Phillips, LLP (included as Appendix C to the Proxy Statement/Prospectus)
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Mr. Sheehan (included within Exhibit 5)
23.3 Consent of Deloitte & Touche LLP
23.4 Consent of Manatt Phelps & Phillips, LLP (included within Exhibit 8)
24 Power of Attorney (see page II-3)
99.1 Form of Letter of Transmittal and Instructions
99.2 Form of Proxy
</TABLE>
- ------------------------
* Incorporated by reference to City National's Annual Report on Form 10-K for
the year ended December 31, 1994.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes
II-1
<PAGE>
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(A) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(B) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a
20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement.
(C) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of any employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA FIDE offering
thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first-class mail or equally
prompt means. This includes information contained in documents filed subsequent
to the effective date of the registration statement through the date responding
to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Beverly Hills, state of
California on November , 1996.
CITY NATIONAL CORPORATION
BY: /S/ RUSSELL GOLDSMITH
------------------------------------------
Russell Goldsmith
VICE CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
Each person whose signature appears below hereby constitutes and appoints
each of Russell Goldsmith, Frank P. Pekny and Richard H. Sheehan, Jr., his or
her true and lawful attorney-in-fact and agent with full powers of substitution
and resubstitution, for the undersigned and in the name of the undersigned, in
any and all capacities, to sign any or all amendments (including post-effective
amendments) to this registration statement on Form S-4, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ RUSSELL GOLDSMITH Vice Chairman of the
- ------------------------------ Board, Chief Executive November , 1996
Russell Goldsmith Officer and Director
/s/ FRANK P. PEKNY Executive Vice President
- ------------------------------ and Treasurer/Chief November , 1996
Frank P. Pekny Financial Officer
/s/ HENG W. CHEN
- ------------------------------ Controller November , 1996
Heng W. Chen
/s/ BRAM GOLDSMITH
- ------------------------------ Chairman of the Board November , 1996
Bram Goldsmith
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ GEORGE H. BENTER, JR.
- ------------------------------ President and Director November ,1996
George H. Benter, Jr.
/s/ MIRION P. BOWERS, M.D.
- ------------------------------ Director November , 1996
Mirion P. Bowers, M.D.
- ------------------------------ Director November , 1996
Richard L. Bloch
/s/ STUART D. BUCHALTER
- ------------------------------ Director November , 1996
Stuart D. Buchalter
/s/ BURTON S. HORWITCH
- ------------------------------ Director November , 1996
Burton S. Horwitch
- ------------------------------ Director November , 1996
Charles E. Rickershauser, Jr.
/s/ EDWARD SANDERS
- ------------------------------ Director November , 1996
Edward Sanders
/s/ ANDREA L. VAN DE KAMP
- ------------------------------ Director November , 1996
Andrea L. Van De Kamp
/s/ KENNETH ZIFFREN
- ------------------------------ Director November , 1996
Kenneth Ziffren
</TABLE>
II-4
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
CITY NATIONAL CORPORATION
------------------------
City National Corporation, a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is City National Corporation. The date of
filing of its original Certificate of Incorporation was October 3, 1968.
2. This Restated Certificate of Incorporation restates and integrates and
further amends the Certificate of Incorporation of this corporation, as
heretofore amended, by amending and restating Article SEVENTH thereof in its
entirety and by adding new Article NINTH thereto and renumbering subsequent
Articles.
3. The text of the Certificate of Incorporation as amended or supplemented
heretofore is further amended hereby to read as herein set forth in full:
FIRST. The name of the Corporation is
City National Corporation
This Restated Certificate of Incorporation has been duly adopted in
accordance with Section 245 of the Delaware General Corporation Law, and
restates and further amends the Certificate of Incorporation filed by the
Corporation with the Secretary of State of the State of Delaware on October 3,
1968, as heretofore amended.
SECOND. The address of its registered office in the State of Delaware is
1209 Orange Street, in the City of Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware. Without limiting in any manner the scope and generality of the
foregoing, the Corporation shall have the following purposes and powers.
(1) To acquire by purchase, subscription, or otherwise, and to receive,
hold, own, guarantee, sell, assign, exchange, transfer, mortgage, pledge, or
otherwise dispose of or deal in and with any and all securities, as such
term is hereinafter defined, issued or created by any corporation, firm,
organization, association or other entity, public or private, whether formed
under the laws of the United States of America or of any state,
commonwealth, territory, dependency or possession thereof, or of any foreign
country or of any political subdivision, territory, dependency, possession
or municipality thereof, or issued or created by the United States of
America or any state or commonwealth thereof or any foreign country, or by
any agency, subdivision, territory, dependency, possession or municipality
of any of the foregoing, and as owner thereof to possess and exercise all
the rights, powers and privileges of ownership, including the right to
execute consents and vote thereon.
The term "securities" as used in this Certificate of Incorporation shall
mean any and all notes, stocks, treasury stocks, bonds, debentures,
evidences of indebtedness, certificates of interest or participation in any
profit-sharing agreement, collateral-trust certificates, preorganization
certificates or subscriptions, transferable shares, investment contracts,
voting trust certificates, certificate of deposit for a security, fractional
undivided interests in oil, gas, or other mineral rights, or, in general,
1
<PAGE>
any interests or instruments commonly known as "securities," or any and all
certificates of interest or participation in, temporary or interim
certificates for, receipts for, guaranties of, or warrants or rights to
subscribe to or purchase, any of the foregoing.
(2) To make, establish and maintain investments in securities, and to
supervise and manage such investments.
(3) To cause to be organized under the laws of the United States of
America or of any state, commonwealth, territory, dependency or possession
thereof, or of any foreign country or of any political subdivision,
territory, dependency, possession or municipality thereof, one or more
corporations, firms, organizations, associations or other entities and to
cause the same to be dissolved, wound up, liquidated, merged or
consolidated.
(4) To acquire by purchase or exchange, or by transfer to or by merger
or consolidation with the Corporation or any corporation, firm,
organization, association or other entity owned or controlled, directly or
indirectly, by the Corporation, or to otherwise acquire, the whole or any
part of the business, good will, rights, or other assets of any corporation,
firm, organization, association or other entity, and to undertake or assume
in connection therewith the whole or any part of the liabilities and
obligations thereof, to effect any such acquisition in whole or in part by
delivery of cash or other property, including securities issued by the
Corporation, or by any other lawful means.
(5) To make loans and give other forms of credit, with or without
security, and to negotiate and make contracts and agreements in connection
therewith.
(6) To aid by loan, subsidy, guaranty or in any other lawful manner any
corporation, firm, organization, association or other entity of which any
securities are in any manner directly or indirectly held by the Corporation
or in which the Corporation or any such corporation, firm, organization,
association or entity may be or become otherwise interested; to guarantee
the payment of dividends on any stock issued by any such corporation, firm,
organization, association or entity; to guarantee or, with or without
recourse against any such corporation, firm, organization, association or
entity, to assume the payment of the principal of, or the interest on, any
obligations issued or incurred by such corporation, firm, organization,
association or entity; to do any and all other acts and things for the
enhancement, protection or preservation of any securities which are in any
manner, directly or indirectly, held, guaranteed or assumed by the
Corporation, and to do any and all acts and things designed to accomplish
any such purpose.
(7) To borrow money for any business, object or purpose of the
Corporation from time to time, without limit as to amount; to incur
indebtedness and to issue any kind of evidence of indebtedness, whether or
not in connection with borrowing money, including evidences of indebtedness
convertible into stock of the Corporation, to secure the payment of any
evidence of indebtedness by the creation of any security interest in any of
the property or rights of the Corporation, whether at that time owned or
thereafter acquired.
(8) To render service, assistance, counsel and advice to, and to act as
representative or agent in any capacity (whether managing, operating,
financial, purchasing, selling, advertising or otherwise) of, any
corporation, firm, organization, association, or other entity.
(9) To engage in any commercial, financial, mercantile, industrial,
manufacturing, marine, exploration, mining, agricultural, research,
licensing, servicing, or agency business not prohibited by law, and any,
some or all of the foregoing.
(10) To become a joint venturer, or a partner, general or limited, in
the exercise of any power, or for any corporate purpose.
The purposes and powers specified in the foregoing paragraphs shall, except
where otherwise expressed, be in nowise limited or restricted by reference to,
or inference from, the terms of any other
2
<PAGE>
paragraph in this Certificate of Incorporation, but the purposes and powers
specified in each of the foregoing paragraphs of this Article shall be regarded
as independent purposes and powers.
The Corporation shall possess and may exercise all powers and privileges
necessary or convenient to effect any or all of the foregoing purposes, or to
further any or all of the foregoing powers, and the enumeration herein of any
specific purposes or powers shall not be held to limit or restrict in any manner
the exercise by the Corporation of the general powers now or hereafter conferred
by the laws of the State of Delaware upon corporations formed under the General
Corporation Law of Delaware.
FOURTH. The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue is Eighty Million (80,000,000)
shares, of which Five Million (5,000,000) shares shall be shares of Preferred
Stock of the par value of One Dollar ($1.00) per share (hereinafter called
"Preferred Stock") and Seventy Five Million (75,000,000) shares shall be shares
of Common Stock of the par value of One Dollar ($1.00) per share (hereinafter
called "Common Stock"). Any amendment to the Certificate of Incorporation which
shall increase or decrease the authorized capital stock of the Corporation may
be adopted by the affirmative vote of the holders of a majority of the
outstanding shares of the voting stock of the Corporation.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, of the Preferred Stock
shall be as follows:
(1) The Board of Directors is expressly authorized at any time, and from
time to time, to provide for the issuance of shares of Preferred Stock in
one or more series, with such voting powers, full or limited but not to
exceed one vote per share, or without voting powers and with such
designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, as
shall be stated and expressed in the resolution or resolutions providing for
the issue thereof adopted by the Board of Directors, and as are not stated
and expressed in this Certificate of Incorporation, or any amendment
thereto, including (but without limiting the generality of the foregoing)
the following:
(a) The designation of such series.
(b) The dividend rate of such series, the conditions and dates upon
which such dividends shall be payable, the preferences or relation which
such dividends shall bear to the dividends payable on any other class or
classes or of any other series of capital stock, and whether such
dividends shall be cumulative or non-cumulative.
(c) Whether the shares of such series shall be subject to redemption
by the Corporation, and, if made subject to such redemption, the time,
prices and other terms and conditions of such redemption.
(d) The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series.
(e) Whether or not the shares of such series shall be convertible
into or exchangeable for shares of any other class or classes or of any
other series of any class or classes of capital stock of the Corporation,
and, if provision be made for conversion or exchange, the times, prices,
rates adjustment, and other terms and conditions of such conversion or
exchange.
(f) The extent, if any, to which the holders of the shares of such
series shall be entitled to vote as a class or otherwise; provided,
however, that in no event shall any holder of any series of Preferred
Stock be entitled to more than one vote for each share of such Preferred
Stock held by him or her.
(g) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock.
3
<PAGE>
(h) The rights of the holders of the shares of such series upon the
dissolution of, or upon the distribution of assets of, the Corporation.
(2) Except as otherwise required by law and except for such voting
powers with respect to the election of directors or other matters as may be
stated in the resolutions of the Board of Directors creating any series of
Preferred Stock, the holders of any such series shall have no voting power
whatsoever.
FIFTH. The by-laws may be made, altered, amended or repealed by the Board
of Directors. The books of the Corporation (subject to the provisions of the
laws of the State of Delaware) may be kept outside of the State of Delaware at
such places as from time to time may be designated by the Board of Directors.
SIXTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
SEVENTH. Each person who was or is a party, or is threatened to be made a
party, or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that such
person, or person of whom such person is the legal representative, is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director or officer of another corporation or in any
capacity with respect to an employee benefit plan maintained or sponsored by the
Corporation, shall be indemnified and held harmless by the Corporation to the
fullest extent permissible under the Delaware General Corporation Law and not
prohibited by other law or regulation, as the same exists or may hereafter be
amended, against all expenses, liabilities and losses (including attorneys'
fees, judgments, fines, excise taxes pursuant to the Employee Retirement Income
Security Act of 1974 or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; PROVIDED, HOWEVER, that, except as provided in the
following paragraph, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation. The right to indemnification conferred in
this Section shall be a contract right and shall include the right to be paid by
the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; PROVIDED HOWEVER, THAT, if the Delaware
General Corporation Law or other applicable law or regulation so requires, the
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to any employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all
4
<PAGE>
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise, and
in compliance with any other requirements of the Delaware General Corporation
Law or other applicable law or regulation. The Corporation may, by action of its
Board of Directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification of
directors and officers.
If a claim under the preceding paragraph of this Section is not paid in full
by the Corporation within thirty days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standard of conduct required under the Delaware General Corporation
Law for the Corporation to indemnify the claimant for the amount claimed, but
the burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of this Certificate of
Incorporation, by-law, agreement, vote of stockholders or disinterested
directors or otherwise.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
Delaware General Corporation law or other applicable law or regulation.
EIGHTH. Whenever the vote of stockholders at a meeting thereof is
required or permitted to be taken for or in connection with any corporate action
by any provision of the General Corporation Law of the State of Delaware the
meeting and vote of stockholders may be dispensed with if such action is taken
with the written consent of the holders of not less than a majority of all the
stock entitled to be voted upon such action if a meeting were held; provided
that in no case shall the written consent be by the holders of stock having less
than the minimum percentage of the vote required by statute for such action, and
provided that prompt notice is given to all stockholders of the taking of
corporate action without a meeting and by less than unanimous written consent.
Election of directors need not be by ballot unless the by-laws so provide.
NINTH. The number of directors which shall constitute the whole Board of
Directors shall be not less than five nor more than fourteen, and the specific
number of directors shall be determined by resolution of the Board of Directors.
The Board is divided into three classes, Class I, Class II and Class III. Such
classes shall be as nearly equal in number of directors as possible. Each
director shall serve for a term ending on the third annual meeting following the
annual meeting at which such director was elected; provided, however, that the
directors first elected to Class I shall serve for a term ending at the annual
meeting to be held in 1997, the directors first elected to Class II shall serve
for a term ending at the annual meeting to be held in 1998, and the directors
first elected to Class III shall serve for a term ending at the annual meeting
to be held in 1999. The foregoing notwithstanding, each director shall serve
until his
5
<PAGE>
successor shall have been duly elected and qualified, unless he shall resign,
become disqualified, disabled or shall otherwise be removed.
At each annual election, the directors chosen to succeed those whose terms
then expire shall be of the same class as the director they succeed, unless, by
reason of any intervening changes in the authorized number of directors the
Board shall designate one or more directorships whose term then expires as
directorships of another class in order more nearly to achieve equality of
number of directors among the classes.
Notwithstanding the rule that the three classes shall be as nearly equal in
number of directors as possible, in the event of any change in the authorized
number of directors each director then continuing to serve as such shall
nevertheless continue as a director of the class of which he is a member until
the expiration of his current term, or his prior death, resignation or removal.
Any vacancy on the Board of Directors (whether by reason of an increase in
the number of authorized directors or due to the death, resignation or removal
of a director) may be filled by a majority of the directors then in office,
although less than a quorum, or by the sole remaining director. Any director
chosen to fill a vacancy shall hold office until the next election of the class
of directors for which he shall have been chosen, and until his successor shall
have been duly elected or qualified.
TENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ELEVENTH. Without the prior affirmative vote or written consent of the
holders of 70% of the outstanding shares of the common stock of the corporation,
voting separately as a class, and whether or not a vote of the stockholders is
otherwise required in connection with the transaction, neither the corporation
nor any of its majority-owned subsidiaries shall become party to any "Business
Combination" to which any "Restricted Person," any "Affiliate" of a Restricted
Person or any member of a group which is a Restricted Person is also a party.
The provisions of this Article ELEVENTH shall not, however, apply to any
Business Combination approved by the Board of Directors of the Corporation at
any time which the person involved who theretofore was or thereafter became a
Restricted Person was not such a Restricted Person.
The affirmative vote required by this Article ELEVENTH is in addition to the
vote of the holders of any class or series of stock of the Corporation otherwise
required by law, this Certificate of Incorporation, any resolution which has
been adopted by the Board of Directors providing for the issuance of a class or
series of stock, or any agreement between the Corporation and any national
securities exchange.
No amendment, alteration or repeal of any provision of this Article ELEVENTH
may be effected unless it is approved at a meeting of the Corporation's
stockholders called for that purpose. Notwithstanding any other provision of
this Certificate of Incorporation, there shall be required to amend, alter or
repeal, directly or indirectly, any provision of this Article ELEVENTH the
affirmative vote of the holders of 70% of the issued and outstanding shares of
common stock of the Corporation, excluding all voting securities owned, directly
or indirectly, by any Restricted Person or any Affiliate of a Restricted Person.
As used in this Article ELEVENTH, the following terms have the following
meanings:
(a) A "Restricted Person" means any person, partnership, corporation or
other entity (other than a trustee holding stock for the benefit of
employees of the Corporation or its subsidiaries, or any one or more of
them, pursuant to an employee benefit plan), or any group of persons,
partnerships, corporations or other entities (other than such a trustee) who
act together for the purpose of acquiring, holding or voting securities of
the Corporation, which has (or, in the case of a group, the members of which
in the aggregate have), during any period of 12 consecutive calendar months,
directly or indirectly acquired shares of any class of the voting securities
of the Corporation which
6
<PAGE>
aggregate more than 5% of the outstanding securities of such class. Any
Restricted Person shall cease to be a Restricted Person for the purposes of
this Article ELEVENTH at the end of the 24th calendar month following the
most recent month in which such Restricted Person (or all members of a group
which is a Restricted Person) directly or indirectly acquired any shares of
any class of the voting securities of the Corporation which, together with
all other shares of such class acquired by such person (or any member of
such group) within such month and the immediately preceding 11 calendar
months, aggregate more than 5% of the outstanding voting securities of such
class. Any Restricted Person who so ceases to be a Restricted Person shall
not thereafter again be deemed to be a Restricted Person unless such person,
firm, corporation, other entity or group once again comes within the
definition set forth in this Article ELEVENTH as a result of subsequent
acquisitions of voting securities of the Corporation. In making the
calculations provided for in this definition, shares shall not be counted as
owned or acquired by any person, partnership, corporation, other entity or
group if the transaction in which such shares were acquired was approved in
advance by the affirmative vote of 66 2/3% of the directors of the
Corporation then in office.
(b) An "Affiliate" of a Restricted Person means any person, firm,
corporation or other entity directly or indirectly controlling, controlled
by, or under common control with such Restricted Person (or any member of a
group which constitutes a Restricted Person).
(c) A "Business Combination" means (i) the sale, exchange, lease,
transfer or other disposition by the Corporation or any of its subsidiaries
of all, substantially all, or any substantial part of its or their assets or
businesses; (ii) the purchase, exchange, lease or other acquisition by the
Corporation or any of its subsidiaries of all, substantially all, or any
substantial part of the assets or business of any other person; (iii) a
merger or consolidation to which the Corporation or any subsidiary is a
party; (iv) any reclassification of securities, recapitalization or other
transaction (other than a redemption in accordance with the terms of the
security redeemed) designed to decrease the number of holders of voting
securities of the Corporation, if immediately thereafter any Restricted
Person will be the owner of more than 35% of the outstanding voting
securities of the Corporation of any class the number of holders of which is
so decreased; or (v) the issuance to any Restricted Person, any member of a
group which constitutes a Restricted Person or any Affiliate of a Restricted
Person of voting securities of the Corporation or any subsidiary of the
Corporation, any rights, warrants or options to acquire any of the foregoing
or any combination of the foregoing. No such transaction shall constitute a
Business Combination, however, if it is approved in advance by the Board of
Directors of the Corporation at a meeting called for the purpose by the
affirmative votes of at least the number of directors which is one less than
the entire authorized number of directors of the Corporation.
TWELFTH. To the fullest extent permitted by the General Corporation Law
of the State of Delaware as the same exists or may hereafter be amended, a
director of this Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
4. This Restated Certificate of Incorporation was duly adopted by vote of
the stockholders in accordance with Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, City National Corporation has caused this Restated
Certificate of Incorporation to be signed by Russell Goldsmith, its Chief
Executive Officer, this day of April, 1996.
CITY NATIONAL CORPORATION
By: /s/ RUSSELL GOLDSMITH
-----------------------------------
RUSSELL GOLDSMITH, Chief Executive
Officer
7
<PAGE>
EXHIBIT 5
CITY NATIONAL CORPORATION
400 North Roxbury Drive
Beverly Hills, California 90210
Richard H. Sheehan, Jr.
Senior Vice President
and General Counsel
November 12, 1996
City National Corporation
400 North Roxbury Drive
Beverly Hills, California 90210
To the Board of Directors:
I have acted as counsel to City National Corporation, a
Delaware corporation ("CNC"), in connection with the preparation
of the Registration Statement on Form S-4 (the "Registration
Statement") filed by CNC with the Securities and Exchange
Commission (the "SEC").
The Registration Statement relates to the issuance of
up to 1,743,787 shares (the "Shares") of CNC's common stock, no
par value (the "Common Stock"), as a portion of the consideration
for the merger of Ventura County National Bancorp, a California
corporation ("Ventura"), with and into CNC (the "Merger")
pursuant to that certain Agreement and Plan of Merger, dated as
of September 15, 1996, by and between CNC and Ventura (the
"Merger Agreement").
I have examined and am familiar with originals or
copies of such documents, corporate records, and other
instruments as I have deemed necessary or appropriate in
connection with this opinion, including, without limitation, (1)
the Registration Statement, (2) the Merger Agreement, (3) the
Shareholders' Agreement, dated as of September 15, 1996, by and
among CNC and certain shareholders of Ventura, (4) the Stock
Option Agreement, dated as of September 15, 1996, by and between
CNC and Ventura, (5) the Restated Certificate of Incorporation of
CNC,(6) the Bylaws of CNC, and (7) resolutions adopted to the
date hereof by the Board of Directors of CNC.
In my examination, I have assumed the legal capacity of
all natural persons, the genuineness of all signatures, the
authenticity of all documents submitted to me as originals, the
conformity to original documents of all documents submitted to me
as certified, conformed or photocopied, and the authenticity of
<PAGE>
the originals of such latter documents. As to any facts material
to the opinions expressed herein, other than those assumed, I
have relied, without independent verification, upon the documents
referred to above, the accuracy of factual matters contained
therein, and oral or written statements and representations of
officers and other representatives of CNC and others, including,
without limitation, public officials.
I am a member of the Bar of the State of California.
This opinion is limited to the laws of the State of California,
the General Corporation Law of the State of Delaware, and the
laws of the United States. I do not express any opinion as to
the laws of any other jurisdiction or as to any other laws of the
State of Delaware.
I have assumed the due authorization, execution, and
delivery by or on behalf of each of the parties thereto of the
securities and documents referred to above, other than CNC, and
that (a) the Merger will occur and be conducted in accordance
with the terms, conditions, covenants and other provisions of the
Merger Agreement as described in the Registration Statement,
(b) all applicable provisions of the Securities Act of 1993, as
amended, and such state "blue sky" or other securities laws as
may be applicable have been or shall duly be complied with; and
(c) the Registration Statement, as finally amended, shall become
effective under the Securities Act.
Based upon the foregoing, I am of the opinion that the
Shares, when issued to the shareholders of Ventura in accordance
with the provisions of the Merger Agreement, will be legally
issued, fully paid, and nonassessable shares of the Common Stock
of CNC.
I consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to me under
the caption "Legal Matters" in the prospectus forming a part of
the Registration Statement. In giving such consent, I do not
admit that I come within the category of persons whose consent is
required under Section 7 of the Securities Act or the rules or
regulations of the SEC promulgated thereunder.
Very truly yours,
/s/ RICHARD H. SHEEHAN, JR.
Richard H. Sheehan, Jr.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
City National Corporation
We consent to the incorporation by reference in this Registration
Statement on Form S-4 of City National Corporation of our report, dated
January 17, 1996, on the consolidated financial statements of City National
Corporation and its subsidiaries as of December 31, 1995 and 1994 and for
each of the years in the three-year period ended December 31, 1995, which
report appears in the December 31, 1995 annual report on Form 10-K of City
National Corporation incorporated herein by reference, and to the reference
to our firm under the heading of "Experts" and "Selected Consolidated
Financial Data" in the prospectus.
KPMG Peat Marwick LLP
/s/ KPMG Peat Marwick LLP
Los Angeles, California
November 14, 1996
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of City National Corporation on form S-4 of our report dated February 9, 1996
appearing in the Annual Report on Form 10-K of Ventura County National
Bancorp for the year ended December 31, 1995.
/s/ Deloitte & Touche LLP
November 15, 1996
Los Angeles, California
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL AND FORM OF ELECTION
WITH RESPECT TO SHARES OF COMMON STOCK OF
VENTURA COUNTY NATIONAL BANCORP
IN CONNECTION WITH THE PROPOSED MERGER OF VENTURA COUNTY NATIONAL BANCORP
WITH AND INTO
CITY NATIONAL CORPORATION
This Letter of Transmittal and Form of Election ("Letter of
Transmittal") is being delivered to you in connection with the proposed
merger (the "Merger") of Ventura County National Bancorp ("Ventura") with and
into City National Corporation ("City National"), pursuant to the Agreement
and Plan of Merger, dated as of September 15, 1996, by and between City
National and Ventura (the "Merger Agreement"). This Letter of Transmittal
must be completed by holders of shares of Common Stock, no par value, of
Ventura (the "Shares" or "Ventura Stock"), who wish to make an Election (as
defined below) as to the form of Merger Consideration (as defined below) into
which such holder's Shares are converted in the Merger. For an Election to
be properly made and effective, this Letter of Transmittal, properly
completed, together with the certificates (the "Certificates") representing
Shares as to which (an) Election(s) is/are being made (or guarantee of
delivery as provided herein) or Shares delivered by book-entry transfer to
the Exchange Agent's account at a Book-Entry Transfer Facility (as defined
below) and all other required documents, must be received by the Exchange
Agent prior to _________, 1997, unless extended to a later date by the mutual
agreement of the City National and Ventura (the "Election Deadline"). Such
Election is subject to the terms, conditions, and limitations set forth in
(a) the Proxy Statement/Prospectus, dated December [__], 1996, relating to
the Merger (the "Proxy Statement/Prospectus"), (b) the Merger Agreement,
attached as Appendix A to the Proxy Statement/Prospectus, and (c) the
accompanying instructions. The tax consequences to holders will vary
depending upon, among other things, the form of Merger Consideration into
which such holders' Shares are converted in the Merger. Each Ventura
shareholder should consult his or her own financial advisor and tax advisor
as to the specific consequences of the Merger and Election to such
shareholder. The instructions to this Form of Election should be read
carefully before this Form of Election is completed.
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
SHAREHOLDERS SHOULD DELIVER THIS LETTER OF TRANSMITTAL, PROPERLY COMPLETED,
ACCOMPANIED BY ALL REQUIRED DOCUMENTS, NO LATER THAN 5:00 P.M., [PACIFIC]
STANDARD TIME, ON [____________ __], 199__, IN ORDER TO ASSURE ITS RECEIPT
PRIOR TO THE ELECTION DEADLINE.
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
THE EXCHANGE AGENT IS:
[__________________]
BY MAIL:
[Name]
[Address]
BY OVERNIGHT DELIVERY:
[Name]
[Address]
BY HAND:
[Name]
[Address]
BY FACSIMILE TRANSMISSION:
(for eligible institutions only)
(___) ___-____
CONFIRM BY TELEPHONE:
(___) ___-____
THIS LETTER OF TRANSMITTAL, COMPLETED, SIGNED AND ACCOMPANIED BY ALL
OTHER REQUIRED DOCUMENTS, SHOULD BE RETURNED TO THE EXCHANGE AGENT IN THE
ACCOMPANYING [YELLOW] ENVELOPE. UNLESS YOU INTEND TO EXERCISE DISSENTERS'
RIGHTS, YOU SHOULD COMPLETE AND RETURN THIS LETTER OF TRANSMITTAL AND THE
OTHER REQUIRED DOCUMENTS WHETHER YOU INTEND TO VOTE "FOR" OR "AGAINST" THE
MERGER
<PAGE>
AGREEMENT AND THE MERGER. IF THE MERGER AGREEMENT AND THE MERGER ARE NOT
APPROVED BY SHAREHOLDERS, YOUR CERTIFICATES WILL BE RETURNED TO YOU.
HOWEVER, IF THE MERGER AGREEMENT AND MERGER ARE APPROVED BY SHAREHOLDERS, AND
THE MERGER IS CONSUMMATED, YOU WILL NOT HAVE ANOTHER OPPORTUNITY TO MAKE AN
ELECTION OF THE MERGER CONSIDERATION YOU PREFER TO RECEIVE.
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN
THIS LETTER OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE
FORM W-9 WHICH IS ATTACHED HERETO.
DO NOT ENCLOSE THE PROXY CARD WITH THIS LETTER OF TRANSMITTAL. THE
PROXY CARD SHOULD BE RETURNED IN THE [WHITE] ENVELOPE TO THE PROXY SOLICITOR,
GEORGESON & CO.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES
(Attach separate signed list if necessary)
- ------------------------------------------------------------------------------------------------
Number of Shares Total Number of Shares
Name(s) and Address(es) of Evidenced by with respect to which
Registered Holder(s) Certificate Numbers* Certificate(s)* Elections are made
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
* Need not be completed by shareholders delivering Shares by book-entry transfer.
- ------------------------------------------------------------------------------------------------
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL
CAREFULLY BEFORE MAKING ANY ELECTION.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
TYPE OF ELECTION (See Instructions B1 and B2)
- --------------------------------------------------------------------------------------------------------
Combination Election
Total Number of Shares --------------------------------------
with respect to which an Cash Election Stock Election Cash Stock
election is being made (Number of Shares) (Number of Shares) (Number of Shares) (Number of Shares)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
</TABLE>
PURSUANT TO THE MERGER AGREEMENT, APPROXIMATELY 55% OF THE AGGREGATE
NUMBER OF ISSUED AND OUTSTANDING SHARES OF VENTURA STOCK (THE "STOCK AMOUNT")
WILL BE CONVERTED INTO THE RIGHT TO RECEIVE CITY NATIONAL STOCK (AS DEFINED
BELOW) AND 45% OF THE AGGREGATE NUMBER OF ISSUED AND OUTSTANDING SHARES OF
VENTURA STOCK WILL BE CONVERTED INTO THE RIGHT TO RECEIVE CASH. IF HOLDERS
OF VENTURA STOCK ELECT, IN THE AGGREGATE, TO CONVERT MORE OR LESS THAN THE
STOCK AMOUNT INTO SHARES OF CITY NATIONAL STOCK, THEN CERTAIN HOLDERS OF
VENTURA STOCK WILL RECEIVE A PRORATED NUMBER OF SHARES OF CITY NATIONAL STOCK
AND A PRORATED AMOUNT OF CASH SUCH THAT A NUMBER OR SHARES OF VENTURA STOCK
APPROXIMATELY EQUAL TO THE STOCK AMOUNT IS
-2-
<PAGE>
CONVERTED INTO SHARES OF CITY NATIONAL STOCK. ACCORDINGLY, HOLDERS OF VENTURA
STOCK ARE UNLIKELY TO RECEIVE THE PRECISE PROPORTION OF CITY NATIONAL STOCK
AND/OR CASH INDICATED BY SUCH HOLDER'S ELECTION. NONE OF CITY NATIONAL,
VENTURA, THE CITY NATIONAL BOARD OF DIRECTORS OR THE VENTURA BOARD OF
DIRECTORS MAKES ANY RECOMMENDATION AS TO THE TYPE OF CONSIDERATION THE
SHAREHOLDERS SHOULD ELECT TO RECEIVE. EACH SHAREHOLDER MUST MAKE HIS OR HER
OWN DECISION WITH RESPECT TO SUCH ELECTION. IF A SHAREHOLDER DOES NOT MAKE
AN ELECTION, HIS OR HER SHARES WILL BE TREATED AS UNDESIGNATED SHARES (AS
DEFINED BELOW).
/ / CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE
EXCHANGE AGENT'S ACCOUNT ON ONE OF THE BOOK-ENTRY TRANSFER FACILITIES
(EACH, A "BOOK-ENTRY TRANSFER FACILITY") AND COMPLETE THE FOLLOWING:
Check Box of Applicable Book-Entry Transfer Facility:
/ / The Depository Trust Company
/ / Philadelphia Depository Trust Company
/ / Midwest Securities Trust Company
/ / Other (Please Specify_____________________
Account Number __________________ Transaction Code Number ________________
Shareholders whose Certificates are not immediately available or who
cannot deliver their Certificates and other required documents to the
Exchange Agent prior to the Election Deadline or who cannot complete the
procedure for delivery by book-entry transfer on a timely basis and who wish
to make an Election must complete this Letter of Transmittal and otherwise
comply with the Guarantee of Delivery procedures, including (i) the
completion of the Guarantee of Delivery at the time this Letter of
Transmittal is completed and (ii) delivery of the underlying Shares on a
timely basis. SEE INSTRUCTION A1. Elections with respect to all Shares
subject to a Guarantee of Delivery must be made above at the time the
Guarantee of Delivery is completed. In addition, at the time the
Certificates (or Shares by book-entry transfer) are delivered pursuant to the
Guarantee of Delivery, the guarantor must submit to the Exchange Agent
another Letter of Transmittal with only the section entitled "Notice of
Delivery Under Guarantee" below properly completed (or must otherwise provide
such information to the Exchange Agent) to enable the Exchange Agent to
identify the Certificates or Shares being delivered. No change in a
shareholder's Election may be made pursuant to the Letter of Transmittal
delivering Certificates or Shares previously covered by a Guarantee of
Delivery. If the guarantor fails to deliver the Certificates (or Shares by
book-entry transfer) in accordance with the terms of the Guarantee of
Delivery, without limitation of any other recourse, any purported Election
with respect to Shares subject to such guarantee will be void.
-3-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
GUARANTEE OF DELIVERY
(TO BE USED ONLY IF CERTIFICATES ARE NOT SURRENDERED HEREWITH.
SEE INSTRUCTION A1.)
The undersigned, a member firm of a registered national securities exchange,
a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the
United States, hereby guarantees delivery to the Exchange Agent, at one of
its addresses set forth above, of Certificates for the Shares to which this
Letter of Transmittal relates, duly endorsed in blank or otherwise acceptable
in form for transfer on the books of Ventura, no later than 5:00 P.M.,
Pacific Standard Time, on the third New York Stock Exchange ("NYSE") trading
day after the date of execution of this Guarantee of Delivery. THIS BOX IS
NOT TO BE USED TO GUARANTEE SIGNATURES. SEE INSTRUCTION A3.
Dated: , 199
------------------------- --
Number of Shares:
--------------------- --------------------------------------
(Firm--Please Print)
Check applicable box if Shares will be --------------------------------------
delivered by book-entry transfer: (Authorized Signature)
/ / The Depository Trust Company Address:
/ / Midwest Securities Trust Company ----------------------------------
/ / Philadelphia Depository Trust Company ----------------------------------
/ / Other (Please Specify_________________) ----------------------------------
Account Number: Tel. No.
--------------------------- (including area code):-------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
-4-
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTICE OF DELIVERY UNDER GUARANTEE
(TO BE COMPLETED UPON DELIVERY OF SHARES PURSUANT TO A GUARANTEE OF DELIVERY)
Name(s) of Registered Holder(s):
----------------------------------------------
Window Ticket No. (if any):
---------------------------------------------------
Date of Execution of Guarantee
of Delivery:
----------------------------------------------------------------
Name of Institution which provided
Guarantee of Delivery:
------------------------------------------------------
If Delivered by Book-Entry Transfer (assuming such procedure is available),
Check Box of Applicable Book-Entry Transfer Facility:
/ / The Depository Trust Company
/ / Philadelphia Depository Trust Company
/ / Midwest Securities Trust Company
/ / Other (Please Specify_________________________
Account Number Transaction Code Number
----------------------- -----------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Ladies and Gentlemen:
In connection with the Merger of Ventura with and into City National,
subject to the election and proration procedures set forth in the Merger
Agreement, each holder of Ventura Stock is entitled, with respect to the
Merger Consideration to be received for each share of Ventura Stock held by
such holder, to (i) elect to receive a fraction of a share of City National
Stock equal to the Exchange Ratio (as defined below) (a "Stock Election"),
(ii) elect to receive cash in the amount of $5.03 (a "Cash Election") or
(iii) elect to receive a combination of shares of City National Stock (at the
rate of the Exchange Ratio for a whole share of Ventura Stock) and cash (at
the rate of $5.03 for a whole share of Ventura Stock) (a "Combination
Election). If a holder does not make an effective Election, or if this
Letter of Transmittal is received after 5:00 p.m., [Pacific] Standard Time on
_______, 1997, his or her shares will be deemed "Undesignated Shares." The
"Exchange Ratio" is the quotient of (A) $5.03 divided by (B) the average of
the daily closing prices of a share of City National Stock on the NYSE as
reported in the Wall Street Journal for the twenty consecutive trading days
ending on the third trading day immediately prior to the Effective Time (as
defined in the Merger Agreement) (such average, the "Final City National
Stock Price"), provided, however, that if the Final City National Stock Price
is more than $19.10, the Exchange Ratio will be .2634, and if the Final City
National Stock Price is less than $15.65, the Exchange Ratio will be .3214.
The City National Stock and/or cash into which a Share is converted in the
Merger is referred to herein as the "Merger Consideration."
The undersigned understands that the purpose of the election procedure is
to permit holders of Shares to express their preferences for the type of
consideration they wish to receive in the Merger; provided, however, that a
number of Shares approximately equal to 55% of the outstanding Shares will be
converted into the right to receive City National Stock and a number of
Shares approximately equal to 45% of the outstanding Shares will be converted
into the right to receive cash.
In the event that the aggregate number of Shares of Ventura Stock as to
which Stock Elections and Combination Elections for Ventura Stock have been
effectively made exceeds the Stock Amount, then (i) all Undesignated Shares
and shares with respect to which dissenters' rights have been perfected in
accordance with California law ("Dissenting Shares") will be deemed to have
made Cash Elections and (ii) each holder of Ventura Stock who made an
effective Stock Election or Combination Election for City National Stock will
be entitled to a prorated number of shares of City National Stock and a
prorated amount of cash such that a number of Shares approximately equal to
the Stock Amount is converted into the right to receive shares of City
National Stock.
Correspondingly, in the event that the aggregate number of shares of
Ventura Stock as to which Stock Elections and Combination Elections for
Ventura Stock have effectively made is less than the Stock Amount, then the
Exchange Agent will select by lot such number of holders of Undesignated
Shares to receive City National Stock
-5-
<PAGE>
as will be necessary so that the number of shares for which a Stock Election
and Combination Election for City National Stock has been made or is deemed
to have been made with respect to such Undesignated Shares will be
approximately equal to the Stock Amount. In the event that all Undesignated
Shares plus all shares as to which Stock Elections and Combination Elections
for Ventura Stock have been made are less than the Stock Amount, then each
holder of Ventura Stock who made an effective Cash Election or Combination
Election for cash will be entitled to a prorated amount of cash and a
prorated number of shares of City National Stock such that approximately the
Stock Amount is converted into shares of City National Stock.
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT A HOLDER OF SHARES MAKING AN
ELECTION WILL RECEIVE THE PRECISE PROPORTION OF CITY NATIONAL STOCK AND/OR
CASH INDICATED BY SUCH HOLDER'S ELECTION.
The holder of Shares exchanged pursuant to the Merger who would have
otherwise been entitled to receive a fraction of a share of City National
Stock will receive cash (without interest) in an amount equal to such
fractional part of a share of City National Stock multiplied by the Final
City National Stock Price.
The undersigned hereby surrenders the Certificates evidencing Shares
listed above (or such delivery is guaranteed in accordance with the terms
hereof), or hereby transfers ownership of such Shares on the account books
maintained by a Book-Entry Transfer Facility, and elects, upon consummation
of the Merger, to have such Shares converted into the Merger Consideration,
or, if an Election is not duly made, to have such shares treated as
Undesignated Shares.
Ventura shareholders may choose to make a Cash Election, a Stock Election,
a Combination Election, and/or no election with respect to all or any portion
of the Shares held by such holder. It is understood that an Election is
subject to (1) the terms, conditions, and limitations set forth in the Proxy
Statement/Prospectus, a copy of which is enclosed herewith and receipt of
which is hereby acknowledged by the undersigned, (2) the terms of the Merger
Agreement, attached as Appendix A to the Proxy Statement/Prospectus, and (3)
the accompanying instructions. City National's acceptance of Shares
delivered pursuant to this Letter of Transmittal will constitute a binding
agreement between the undersigned and City National upon the terms and
subject to the conditions listed above in this paragraph.
The undersigned authorizes and instructs you, as Exchange Agent, to
deliver the Shares listed above and to receive on behalf of the undersigned,
in exchange for the Shares represented thereby, any check for the cash and/or
any certificates for the shares of City National Stock issuable in the Merger.
The undersigned understands and acknowledges that all questions as to the
validity, form, and eligibility of any Election and delivery and/or surrender
of Certificates and Shares hereunder shall be reasonably determined by the
Exchange Agent, and such determination shall be final and binding. No
authority herein conferred or agreed to be conferred shall be affected by,
and all such authority shall survive, the death or incapacity of the
undersigned. All obligations of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors, and assigns of the
undersigned.
Unless otherwise indicated in the box entitled "Special Payment
Instructions," please issue any check and register any certificate for shares
of City National Stock in the name of the registered holder(s) of the Shares
appearing above under "Description of Shares." Similarly, unless otherwise
indicated in the box entitled "Special Delivery Instructions," please mail
any check and any certificate for shares of City National Stock to the
registered holder(s) of the Shares at the address(es) of the registered
holder(s) appearing above under "Description of Shares." In the event that
the boxes entitled "Special Payment Instructions" and "Special Delivery
Instructions" are both completed, please issue any check and any certificate
for shares of City National Stock in the name(s) of, and mail such check and
such certificate to, the person(s) so indicated.
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<PAGE>
- -----------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS A3 AND C2.)
To be completed ONLY if the check is to be made payable
to, or the certificates for shares of City National Stock
are to be registered in, the name of someone other than
the undersigned.
Name
----------------------------------------------------
(PLEASE PRINT)
Address
-------------------------------------------------
- ---------------------------------------------------------
ZIP CODE
- ---------------------------------------------------------
TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
(SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE.)
- -----------------------------------------------------------
- -----------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS A3 AND C2.)
To be completed ONLY if the check or the certificates
for shares of City National Stock are to be mailed to
someone other than the undersigned or to the undersigned
at an address other than that shown under "Description of
Shares."
Mail checks and/or certificate to:
Name
------------------------------------------------------
(PLEASE PRINT)
Address
---------------------------------------------------
ZIP CODE
- -----------------------------------------------------------
IMPORTANT!
ALL VENTURA SHAREHOLDERS SUBMITTING
THIS LETTER OF TRANSMITTAL MUST SIGN HERE
The undersigned hereby represents and warrants that the undersigned has
full power and authority to complete and deliver this Letter of Transmittal
and to surrender the Certificate(s) surrendered herewith (or covered by a
Guarantee of Delivery in accordance with the terms hereof) or transfer Shares
delivered by book-entry transfer, free and clear of any ilens, claims,
charges, or encumbrances whatsoever. The undersigned, upon request, shall
execute and deliver all additional documents deemed by the Exchange Agent or
City National to be necessary or desirable to complete the sale, assignment,
transfer, cancellation, and retirement of the Shares delivered herewith.
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<PAGE>
- -----------------------------------------------------
SIGN HERE:
- -------------------------------------
- -------------------------------------
(SIGNATURE(S) OF HOLDER(S))
Name(s):
- -------------------------------------
- -------------------------------------
(PLEASE PRINT)
- -------------------------------------
(AREA CODE AND TELEPHONE NUMBER)
Dated:
------------------------------
Must be signed by registered holder(s)
exactly as name(s) appear(s) on stock
certificate(s) or by person(s) authorized
to become registered holder(s) by certificates
and documents transmitted herewith.
If signature is by attorney, executor,
administrator, trustee or guardian or other
acting in a fiduciary capacity, set forth full
title and see Instruction A2.
- -----------------------------------------------------
- -----------------------------------------------------
SIGNATURE GUARANTEE
(Complete Only If Required--See Instructions A2
and A3.)
Note: A notarization by a notary public is not
acceptable.
FOR USE BY ELIGIBLE INSTITUTIONS ONLY
PLACE MEDALLION GUARANTEE IN SPACE
BELOW
- -----------------------------------------------------
INSTRUCTIONS
A. LETTER OF TRANSMITTAL
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. This Letter of
Transmittal is to be used either if Certificates are to be forwarded herewith
(or such delivery is guaranteed in accordance with the terms hereof), or if
Shares are to be delivered by book-entry transfer pursuant to book-entry
transfer procedures. Certificates evidencing all delivered Shares (or a
guarantee of delivery as provided herein), or confirmation of a book-entry
transfer of such Shares, if such procedure is available, into the Exchange
Agent's account at one of the Book-Entry Transfer Facilities pursuant to
book-entry transfer procedures together with a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof) with
any required signature guarantees (or, in the case of a book-entry transfer,
an Agent's Message (as defined below)) and any other documents required by
this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth on the reverse hereof prior to the Election Deadline. If
Certificates are forwarded to the Exchange Agent in multiple deliveries, a
properly completed and duly executed Letter of Transmittal must accompany
each such delivery. Ventura shareholders whose Certificates are not
immediately available and who cannot deliver their Certificates and all other
required documents to the Exchange Agent prior to the Election Deadline or
who cannot complete the procedure for delivery by book-entry transfer on a
timely basis may deliver their Shares pursuant to the guaranteed delivery
procedure contained herein. Pursuant to such procedure: (i) a properly
completed and duly executed Letter of Transmittal (or manually signed
facsimile thereof) with any required signature guarantees (or, in the case of
a book-entry transfer, an Agent's Message) and with the box entitled
"Guarantee of Delivery" properly completed and duly executed, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent prior to the Election Deadline; and (ii) the Certificates, in
proper form for transfer, or a confirmation of a book-entry transfer of such
Shares, if such procedure is available, into the Exchange Agent's account at
one of the Book-Entry Transfer Facilities, must be received by the Exchange
Agent within three NYSE trading days after the date of execution of the
Guarantee of Delivery. In addition, at the time the Certificates (or Shares
pursuant to book-entry transfer) are delivered pursuant to the Guarantee of
Delivery, the guarantor must submit to the Exchange Agent another Letter of
Transmittal with only the section entitled "Notice of Delivery Under
Guarantee" properly completed (or must
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<PAGE>
otherwise provide such information to the Exchange Agent). No change in a
shareholder's Election may be made pursuant to the Letter of Transmittal
delivering Certificates or Shares previously covered by a Guarantee of
Delivery. If the guarantor fails to deliver the Certificates (or Shares by
book-entry transfer) in accordance with the guaranteed delivery procedures
contained herein, without limitation of any other recourse, any purported
Election with respect to Shares subject to such guarantee will be void. The
term "Agent's Message" means a message, transmitted by a Book-Entry Transfer
Facility to, and received by, the Exchange Agent and forming a part of a
book-entry confirmation, which states that such Book-Entry Transfer Facility
has received an express acknowledgment from the participant in such
Book-Entry Transfer Facility delivering the Shares, that such participant has
received and agrees to be bound by this Letter of Transmittal and that City
National may enforce such agreement against the participant.
Holders of Shares who are nominees only may submit a separate Letter of
Transmittal for each beneficial owner for whom such holder is a nominee;
PROVIDED, HOWEVER, that at the request of the Exchange Agent, such holder
shall certify to the satisfaction of the Exchange Agent that such holder
holds such Shares as nominee for the beneficial owner thereof. Each
beneficial owner for whom a Letter of Transmittal is submitted will be
treated as a separate holder of Shares.
The Shares of Ventura's shareholders whose Letters of Transmittal and
all required documents are not received prior to the Election Deadline will
be treated as Undesignated Shares.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, CERTIFICATES, AND
ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE SENDER, AND THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. THE RISK OF LOSS OF SUCH SHARE(S) SHALL PASS ONLY AFTER THE EXCHANGE
AGENT HAS ACTUALLY RECEIVED THE SHARE(S). IF DELIVERY IS BY MAIL, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
2. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares delivered herewith, the signature(s) must correspond with the name(s)
as written on the face of the Certificates evidencing such Shares without
alteration, enlargement, or any other change whatsoever.
If any Share delivered herewith is owned of record by two or more
persons, all such persons must sign this Letter of Transmittal. If any of
the Shares delivered herewith are registered in the names of different
holders, it will be necessary to complete, sign, and submit as many separate
Letters of Transmittal as there are different registrations of such Shares.
If this Letter of Transmittal is signed by the registered holder(s) of
the Shares delivered herewith, no endorsements of Certificates or separate
stock powers are required, unless checks or certificates evidencing shares of
City National Stock are to be payable to the order of, or registered in the
name of, a person other than the registered holder(s), in which case the
Certificate(s) evidencing the Shares delivered herewith must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appear(s) on such Certificate(s).
Signatures on such Certificate(s) and stock powers must be guaranteed by an
Eligible Institution (as defined below).
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares delivered herewith, the Certificate(s)
evidencing the Shares delivered herewith must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such Certificate(s). Signatures on such
Certificate(s) and stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any Certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation, or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to City National of such person's authority so
to act must be submitted.
3. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm which
is a bank, broker, dealer, credit union, savings association, or other entity
that is a member in good standing of the Securities Transfer Agent's
Medallion Program (each, an "Eligible
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<PAGE>
Institution"). No signature guarantee is required on this Letter of
Transmittal if this Letter of Transmittal is signed by the registered
holder(s) of Shares delivered herewith, unless such holder(s) has completed
either the box entitled "Special Delivery Instructions" or the box entitled
"Special Payment Instructions" on the reverse hereof. If a Certificate is
registered in the name of a person other than the signer of this Letter of
Transmittal, or if checks or certificates are to be payable to the order of
or registered in the name of a person other than the registered holder(s),
then the Certificate must be endorsed or accompanied by appropriate stock
powers, in either case signed exactly as the name(s) of the registered
holder(s) appear(s) on the Certificate, with the signature(s) on such
Certificate or stock powers guaranteed as described above.
4. DETERMINATION OF PROPER ELECTION. The Exchange Agent will have the
reasonable discretion to determine whether Letters of Transmittal have been
properly or timely completed, signed, and submitted, modified or revoked, and
to disregard immaterial defects in Letters of Transmittal. The decision of
the Exchange Agent in such matters and any decision of City National or
Ventura required by the Exchange Agent and made in good faith shall be
conclusive and binding. The Exchange Agent will not be under any obligation
to notify any person of any defect in a Letter of Transmittal submitted to
the Exchange Agent. The Exchange Agent shall also make all computations
contemplated by the Merger Agreement and all such computations shall be
conclusive and binding on the holders of Ventura Stock. No alternative,
conditional, or contingent Elections will be accepted. If the Exchange Agent
shall reasonably determine that any purported Stock Election, Cash Election
or Combination Election was not properly made, such purported Stock Election,
Cash Election or Combination Election shall be deemed to be of no force and
effect and the shareholder making such purported Stock Election, Cash
Election or Combination Election shall, for purposes hereof, be deemed to
have not made an Election.
5. INADEQUATE SPACE. If the space provided herein under "Description
of Shares" is inadequate, the Certificate numbers, the number of Shares
evidenced by such Certificates, and the number of Shares with respect to
which Elections are made should be listed on a separate schedule and attached
hereto.
6. TERMINATION OF MERGER AGREEMENT. All Elections will be revoked
automatically if the Exchange Agent is notified in writing by City National
or Ventura that the Merger Agreement has been terminated, and Certificates
will be promptly returned to the persons who have submitted them. In such
event, Shares held through Book-Entry Transfer Facilities will be returned
via book-transfer. However, Shares represented by Certificates will be
returned to Ventura shareholders by registered mail (with attendant delay).
7. DISSENTER'S' RIGHTS. Holders of Ventura Stock who wish to exercise
dissenters' rights should not complete this Letter of Transmittal. City
National will regard any record holder of Shares who has delivered a written
demand for dissenters' rights and who subsequently delivers a Letter of
Transmittal to the Exchange Agent as having withdrawn such demand for
dissenters' rights. City National will regard any holder who has delivered a
Letter of Transmittal and who simultaneously or subsequently makes a written
demand for dissenters' rights as having revoked his or her Election. For
more information, see the discussion in the Proxy Statement/Prospectus set
forth under "DISSENTER'S RIGHTS - Rights of Dissenting Shareholders."
B. ELECTION AND PRORATION PROCEDURES
1. ELECTIONS. By completing the box entitled "Type of Election" and
this Letter of Transmittal in accordance with the instructions hereto, a
Ventura shareholder will be permitted to make a Stock Election, Cash Election
or Combination Election (each, an "Election") with respect to each of the
Shares held by such holder. In the event that holders of Ventura Stock
elect, in the aggregate, to convert more or less than the Stock Amount into
shares of City National Stock, certain holders of Ventura Stock will receive
a prorated number of shares of City National stock and a prorated amount of
cash such that a number of shares of Ventura Stock approximately equal to the
Stock Amount is converted into shares of City National Stock. See the
discussion in the Proxy Statement/Prospectus set forth under "THE MERGER
- --Consideration Payable Upon Consummation of the Merger." As soon as
practicable after the Election Deadline, the Exchange Agent shall determine
the allocation of the cash and City National Stock portions of the Merger
Consideration and shall notify City National of its determination.
2. TREATMENT OF NON-ELECTING SHARES. Any Ventura Stock (other than
Dissenting Shares) with respect to which the Exchange Agent does not receive
an effective, properly completed Letter of Transmittal prior to the Election
Deadline (as defined below) will be deemed to be Undesignated Shares.
-10-
<PAGE>
3. ELECTION DEADLINE. In order for an Election to be effective, the
Exchange Agent must receive a properly completed Letter of Transmittal,
accompanied by all required documents, NO LATER THAN 5:00 P.M., [PACIFIC]
STANDARD TIME, ON ______________ ___, 1997, unless extended to a later date
by the mutual agreement of the parties (the "Election Deadline"). If all
other conditions set forth in the Merger Agreement have been met or, if
permissible, waived, the consummation date of the Merger (the "Closing Date")
could occur on the same day approval of the Merger by shareholders of Ventura
is obtained. SHAREHOLDERS ARE URGED TO DELIVER A PROPERLY COMPLETED LETTER
OF TRANSMITTAL, ACCOMPANIED BY ALL REQUIRED DOCUMENTS, NO LATER THAN 5:00
P.M., [PACIFIC] STANDARD TIME, ON [____________ __], 1997 IN ORDER TO ENSURE
THAT THEIR LETTER OF TRANSMITTAL WILL BE RECEIVED BY THE ELECTION DEADLINE.
If the Closing Date does not occur on [____________ __], 1997, as soon as the
date on which the Closing Date is anticipated to occur is determined, City
National will publicly announce such date.
Any shares (other than Dissenting Shares) with respect to which the
Exchange Agent does not receive an effective, properly completed Letter of
Transmittal prior to the Election Deadline will be deemed Undesignated
Shares. This Letter of Transmittal will be deemed properly completed only
if: (a) an Election is indicated for each Share covered by this Letter of
Transmittal, (b) accompanied by one or more Certificates with respect to such
shares (or (i) customary affidavits and indemnity agreements regarding the
loss or destruction of such certificates or (ii) properly executed guarantees
of delivery with respect to such Shares), (c) with respect to any
uncertificated securities, the holder of Shares completes the procedure for
delivery by book-entry transfer on a timely basis and (d) accompanied by any
other documents required by the Exchange Agent or City National.
4. CHANGES TO ELECTIONS. Any holder of Shares who has made an
Election may, at any time prior to the Election Deadline, change his or her
Election by submitting to the Exchange Agent a properly completed and signed
revised Letter of Transmittal and all required additional documents, PROVIDED
that the Exchange Agent receives such revised Letter of Transmittal and other
necessary documents prior to the Election Deadline. Any holder of Ventura
Stock may at any time prior to the Election Deadline revoke his or her
Election and withdraw his Certificates deposited with the Exchange Agent by
written notice to the Exchange Agent received prior to the Election Deadline.
If an Election is revoked prior to the Election Deadline, the related Shares
will automatically become Undesignated Shares unless and until a new Election
is properly made with respect to such Shares on or before the Election
Deadline.
5. NO FRACTIONAL SHARES. No certificates representing fractional
shares of City National Common Stock shall be issued upon the surrender for
exchange of certificates representing Shares, and such fractional share
interests will not entitle the owner thereof to any dividends or any other
rights of a stockholder of City National. In lieu of any fractional share of
City National Stock, holders of Shares will receive cash (without interest)
in an amount equal to such fractional part of a share of City National Stock
multiplied by the Final City National Stock Price.
6. UNDESIGNATED SHARES. Holders of Ventura Stock who do not submit a
Letter of Transmittal prior to the Election Deadline must nevertheless
submit a properly completed Letter of Transmittal (other than the section
pertaining to the Election) and the certificate or certificates representing
Ventura Stock to the Exchange Agent in order to receive the Merger
Consideration payable in respect of such shares. No dividend or other
distribution declared or made with respect to City National Stock with a
record date of the Effective Time (as defined in the Merger Agreement) will
be paid to the holder of any unsurrendered certificate of Ventura Stock until
the holder duly surrenders such certificate. Following the surrender of any
such certificate, there will be paid to the holder, without interest (i) the
amount of any cash payable with respect to a fractional share of City
National Stock to which such holder is entitled and the amount of dividends
or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of City National Stock and
(ii) at the appropriate payment date, the amount of dividends or other
distributions with (A) a record date after the Effective Time but prior to
surrender and (B) a payment date subsequent to surrender payable with respect
to such shares of City National Stock.
7. NO LIABILITY. Neither City National, Ventura nor the Exchange
Agent will be liable to any holder of Shares of Ventura Stock for any shares
of City National Stock (or dividends or distributions with respect thereto)
or cash delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
* * *
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A more complete description of the election and proration procedures is
set forth in Section 2.3 of the Merger Agreement. All Elections are subject
to compliance with the election procedures provided for in the Merger
Agreement. In connection with making any Election, a Ventura shareholder
should carefully read, among other items, the description and statement of
the information contained in the Proxy Statement/Prospectus under "THE
MERGER--Certain Federal Income Tax Considerations." Each Ventura shareholder
should consult his or her own tax advisor as to the specific tax consequences
of the Election and the Merger to such shareholder.
C. RECEIPT OF MERGER CONSIDERATION, SPECIAL INSTRUCTIONS, TAXES AND
ADDITIONAL COPIES
1. RECEIPT OF MERGER CONSIDERATION. As soon as practicable after the
Effective Time and after the proration procedures described above are
completed, holders who have surrendered their Certificates to the Exchange
Agent for cancellation, together with this Letter of Transmittal (or other
appropriate letter of transmittal) duly executed and completed in accordance
with the instructions hereto and such other documents as are required
pursuant to such instructions, shall be entitled to receive in exchange
therefor (A) a check in the amount equal to the cash, if any, which such
holder has the right to receive (including any cash in lieu of any fractional
shares and any dividends or other distributions to which such holder is
entitled) and (B) a certificate or certificates representing that number of
whole shares of City National Stock, if any, which such holder has the right
to receive. All cash paid or shares of City National Stock issued upon
conversion of the Shares in accordance with the terms of the Merger Agreement
shall be deemed to have been paid or issued in full satisfaction of all
rights pertaining to such Shares.
2. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If any check or
certificates evidencing shares of City National Stock are to be payable to
the order of, or registered in the name of, a person other than the person(s)
signing this Letter of Transmittal or if such checks or such certificates are
to be sent to someone other than the person(s) signing this Letter of
Transmittal or to the person(s) signing this Letter of Transmittal but at an
address other than that shown in the box entitled "Description of Shares,"
the appropriate boxes on this Letter of Transmittal must be completed.
3. STOCK TRANSFER TAXES. City National will bear the liability for
any state stock transfer taxes applicable to the issuance and delivery of
checks and certificates in connection with the Merger, PROVIDED, HOWEVER,
that if any such check or certificate is to be issued in a name other than
that in which the Certificates surrendered in exchange therefor are
registered, it shall be a condition of such exchange that the person
requesting such exchange shall pay the amount of any stock transfer taxes
(whether imposed on the registered holder or such person), payable on account
of the transfer to such person, to the Exchange Agent or satisfactory
evidence of the payment of such taxes, or exemption therefrom, shall be
submitted to the Exchange Agent before any such check or certificate is
issued. EXCEPT AS PROVIDED IN THIS INSTRUCTION C3, IT WILL NOT BE NECESSARY
FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES EVIDENCING THE
SHARES DELIVERED HEREWITH.
4. WITHHOLDING. Following the Merger, City National or the Exchange
Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to the Merger Agreement to any holder of Shares
such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Internal Revenue Code of 1986, as amended,
or any provision of state, local, or foreign tax law. To the extent that
amounts are so withheld by City National, following the Merger, or the
Exchange Agent, as the case may be, such withheld amounts shall be treated
for all purposes of the Merger Agreement as having been paid to the holder of
the Shares in respect of which such deduction and withholding was made by
City National.
5. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for
assistance may be directed to the Information Agent at its respective address
or telephone number set forth below. Additional copies of the Proxy
Statement/Prospectus, this Letter of Transmittal, and the Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 may be
obtained from the Information Agent.
6. SUBSTITUTE FORM W-9. Under the federal income tax law, a
shareholder who delivers Shares is required by law to provide the Exchange
Agent (as payer) with such shareholder's correct Taxpayer Identification
Number ("TIN") on the Substitute Form W-9 below. If such shareholder is an
individual, the TIN is such shareholder's social security number. If the
Exchange Agent is not provided with the correct TIN, the shareholder may be
subject to a $50 penalty imposed by the Internal Revenue Service (the "IRS").
In addition, any cash payments that are made to such shareholder with
respect to Shares converted in the Merger may be subject to
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backup withholding of 31%. Certain shareholders (including, among others,
all corporations and certain foreign individuals) are not subject to these
backup withholding and reporting requirements. In order for a foreign
individual to qualify as an exempt recipient, such individual must submit a
statement, signed under penalties of perjury, attesting to such individual's
exempt status. Forms of such statements can be obtained from the Exchange
Agent. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions. If
backup withholding applies with respect to a shareholder, the Exchange Agent
is required to withhold 31% of any cash payments made to such shareholder.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the IRS.
To prevent backup withholding on any cash payments that are made to a
shareholder with respect to Shares delivered herewith, the shareholder is
required to notify the Exchange Agent of such shareholder's correct TIN by
completing the Substitute Form W-9 below certifying (a) that the TIN provided
on Substitute Form W-9 is correct (or that such shareholder is awaiting a
TIN) and (b) that (i) such shareholder has not been notified by the IRS that
such shareholder is subject to backup withholding as a result of a failure to
report all interest or dividends or (ii) the IRS has notified such
shareholder that such shareholder is no longer subject to backup withholding.
The shareholder is required to give the Exchange Agent the social
security number or employer identification number of the record holder of the
Shares tendered hereby. If the Shares are in more than one name or are not
in the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidance concerning which number to report. If the shareholder
has not been issued a TIN and has applied for a number or intends to apply
for a number in the near future, such shareholder should write "Applied For"
in the space provided for the TIN in Part I, and sign and date the Substitute
Form W-9. If "Applied For" is written in Part I and the Exchange Agent is
not provided with a TIN within 60 days, the Exchange Agent will withhold 31%
of all cash payments to such shareholder until a TIN is provided to the
Exchange Agent.
Each Ventura shareholder should consult his or her own accountant or tax
advisor for further guidance in completing the Substitute Form W-9.
7. LOST, DESTROYED, OR STOLEN CERTIFICATES. If any Certificate(s)
representing Shares has been lost, destroyed, or stolen, the owner of such
Certificates should promptly notify [_____________________________], as
transfer agent for Ventura (the "Transfer Agent"), at 1-800-___-____. Such
Ventura shareholder will then be instructed as to the steps that must be
taken in order to replace the Certificate(s). Upon the making of an
affidavit of that fact by the person claiming such Certificate(s) to be lost,
stolen, or destroyed and the posting by such person of a bond as indemnity
against any claim that may be made with respect to such Certificate(s), the
Transfer Agent will issue in exchange for such lost, stolen, or destroyed
Certificate(s) a new Certificate representing such Shares. This Letter of
Transmittal cannot be processed until the procedures for replacing lost or
destroyed Certificates have been followed.
IMPORTANT TAX INFORMATION
In order to ensure compliance with federal income tax requirements,
each holder of Shares is requested to provide the Exchange Agent with his or
her correct TIN and to certify whether he or she is subject to backup federal
income tax withholding by completing and signing the Substitute Form W-9
below. (See Instruction C and accompanying Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9.)
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- -------------------------------------------------------------------------------
PAYER: [_____________________________________]
- -------------------------------------------------------------------------------
SUBSTITUTE
FORM W-9
Department of the
Treasury
Internal Revenue Service
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER (TIN)
- -------------------------------------------------------------------------------
PART I--PLEASE PROVIDE YOUR -------------------------------------
TIN IN THE BOX AT RIGHT AND Social security number
CERTIFY BY SIGNING AND OR
DATING BELOW.
-------------------------------------
Employer identification number
(If awaiting TIN, write "Applied For")
- -------------------------------------------------------------------------------
PART II--For Payees Exempt From Backup Withholding, see the enclosed
Guidelines and complete as instructed therein.
CERTIFICATION--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or a Taxpayer Identification Number has not been issued to me
and either (a) I have mailed or delivered an application to receive a
Taxpayer Identification Number to the appropriate Internal Revenue
Service ("IRS") or Social Security Administration office or (b) I
intend to mail or deliver an application in the near future. I
understand that if I do not provide a Taxpayer Identification Number
within sixty (60) days, 31% of all reportable payments made to me
thereafter will be withheld until I provide a number), and
(2) I am not subject to backup withholding either because I have not been
notified by the IRS that I am subject to backup withholding, as a result
of failure to report all interest or dividends, or the IRS has notified
me that I am no longer subject to backup withholding.
- -------------------------------------------------------------------------------
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if
after being notified by the IRS that you were subject to backup withholding
you received another notification from the IRS that you are no longer subject
to backup withholding, do not cross out item (2). (Also, see instructions in
the enclosed Guidelines.)
SIGNATURE DATE , 1996
--------------------------------- ------------------------
- -------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY CASH PAYMENTS MADE TO YOU PURSUANT TO THE MERGER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
Questions and requests for assistance or additional copies of the
Proxy Statement/Prospectus or this Form of Election may be directed to the
Information Agent at the address set forth below.
THE INFORMATION AGENT IS:
GEORGESON & CO.
[Address]
(___) ___-____ (Call Collect)
or
Call Toll-Free (800) ___-____
-14-
<PAGE>
VENTURA COUNTY NATIONAL BANCORP
PROXY FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY , 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder(s) hereby nominate(s), constitute(s) and
appoint(s) , and , and each of them, the
attorneys, agents and proxies of the undersigned, with full powers of
substitution to each, to attend and act as proxy or proxies of the undersigned
at the Special Meeting of Shareholders (the "Meeting") of Ventura County
National Bancorp (the "Company") to be held at the Company's offices at 500
Esplanade Drive, Oxnard, California 93030 on , January , 1997 at
:00 a.m. Pacific Standard Time, and at any and all adjournments thereof, and
to vote as specified herein the number of shares which the undersigned, if
personally present, would be entitled to vote.
1. APPROVAL OF THE AGREEMENT AND PLAN OF MERGER. To approve the Agreement
and Plan of Merger dated as of September 15, 1996 (the "Agreement") by and
between City National Corporation ("City National") and the Company as described
in the Prospectus/Proxy Statement accompanying this proxy card, including,
without limitation, the merger of the Company with and into City National,
whereby, subject to certain allocation restrictions, each outstanding share of
the Company's common stock would be converted into, at the option of the holder
thereof, the right to receive cash, common stock of City National or a
combination of the two.
/ / FOR / / AGAINST / / ABSTAIN
2. OTHER BUSINESS. In their discretion, the proxies are authorized to vote
upon such other business as may properly come before the Meeting and at any and
all adjournments thereof. The Board of Directors at present knows of no other
business to be presented by or on behalf of the Company or the Board of
Directors at the Meeting.
/ / FOR / / AGAINST / / ABSTAIN
PLEASE SIGN AND DATE ON REVERSE SIDE
<PAGE>
PLEASE SIGN AND DATE BELOW
The undersigned hereby ratifies and confirms all that said attorneys, agents
and proxies, or any of them, or their substitutes, shall lawfully do or cause to
be done by virtue hereof, and hereby revokes any and all proxies heretofore
given by the undersigned to vote at the Meeting. The undersigned acknowledges
receipt of the notice of the Meeting and the Prospectus/Proxy Statement
accompanying said notice.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE
AGREEMENT AND PLAN OF MERGER. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN
THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS
MADE, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL TO APPROVE THE AGREEMENT AND
PLAN OF MERGER.
I (WE) WILL / / WILL NOT / / ATTEND THE MEETING IN PERSON.
Dated: ____________________, 19__
Signed: __________________________
Signed: __________________________
Please date this proxy and sign
above as your name(s) appear(s) on
this card. Joint owners should
each sign personally. Corporate
proxies should be signed by an
authorized officer. Executors,
administrators, trustees, etc.
should give their full titles.
